10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2023

Commission File Number 001-39370

Nkarta, Inc.

(Exact name of registrant as specified in its charter)

1150 Veterans BoulevardSouth San Francisco, CA 94080

(Address of principal executive offices) (Zip Code)

(925) 407-1049

(Registrant’s telephone number, including area code)

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

Title of each class TradingSymbol(s) Name of each exchange on which registered

Common Stock, $0.0001 par value per share NKTX Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

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

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

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

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☒

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of the voting and non-voting equity held by non-affiliates of the registrant, based on the closing price of a share of common stock on June 30, 2023 as reported by The Nasdaq Stock Market on such date was approximately $38.4 million. This calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purpose.

As of March 18, 2024, the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 49,416,186.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the U.S. Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K.

Table of Contents

Page

PART I

Item 1. Business 1

Item 1A. Risk Factors 38

Item 1B. Unresolved Staff Comments 99

Item 1C. Cybersecurity 99

Item 2. Properties 100

Item 3. Legal Proceedings 100

Item 4. Mine Safety Disclosures 100

PART II

Item 6. [Reserved] 102

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 112

Item 8. Financial Statements and Supplementary Data 113

Item 9A. Controls and Procedures 138

Item 9B. Other Information 139

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 139

PART III

Item 10. Directors, Executive Officers and Corporate Governance 140

Item 11. Executive Compensation 140

Item 14. Principal Accountant Fees and Services 140

PART IV

Item 15. Exhibits and Financial Statement Schedules 141

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, and the information incorporated herein by reference, particularly in the sections captioned “Business” under Part I, Item 1, “Risk Factors” under Part I, Item 1A, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II, Item 7, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. In addition, these statements are based on our management’s beliefs and assumptions and on information currently available to our management as of the date of this Annual Report on Form 10-K. 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 that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. You should read the sections titled “Risk Factor Summary” below and “Risk Factors” set forth in Part I, Item 1A of this Annual Report on Form 10-K for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements, which such factors may be updated or supplemented from time to time by subsequent reports we file with the Securities and Exchange Commission (the "SEC"). As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report on Form 10-K will prove to be accurate.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. All of our forward-looking statements in this report are made only as of the date of this Annual Report on Form 10-K. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

You should read this Annual Report on Form 10-K, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

RISK FACTOR SUMMARY

Below is a summary of material factors that make an investment in our common stock speculative or risky. Importantly, this summary does not address all the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks and uncertainties that we face, can be found under “Cautionary Note Regarding Forward-Looking Statements” and Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K. The below summary is qualified in its entirety by those more complete discussions of such risks and uncertainties. You should consider carefully the risks and uncertainties described under Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K as part of your evaluation of an investment in our common stock.

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We have a limited operating history and do not have any products approved for sale.

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We have incurred significant losses since our inception and we expect to continue to incur significant losses for the foreseeable future.

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We have never generated revenue from product sales and may never achieve or maintain profitability.

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We will require additional capital, which, if available, may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our product candidates.

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Our business depends upon the success of our CAR NK cell technology platform.

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Utilizing CAR NK cells represents a novel therapeutic approach, and we must overcome significant challenges in order to develop, commercialize and manufacture our product candidates.

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Clinical development involves a lengthy and expensive process with an uncertain outcome, and we may encounter substantial delays due to a variety of reasons outside our control.

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Our business is highly dependent on the clinical success of our product candidates, and on the clinical success of NKX019, in particular, and we may fail to develop NKX019 and/or our other product candidates successfully or be unable to obtain regulatory approval for them.

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Clinical data supporting the effectiveness of CD19-targeted cell therapies against autoimmune disease are limited, and CD19-targeted CAR NK cell therapies, such as NKX019, may not provide the same, or any, therapeutic benefit against lupus nephritis or other autoimmune diseases, or be competitive with respect to other CD19-targeted therapies for the treatment of autoimmune disease.

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Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be delayed, made more difficult or rendered impossible by multiple factors outside our control.

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Our preclinical pipeline programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timely basis or at all.

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The results of preclinical studies and early-stage clinical trials may not be predictive of future results. Interim, “topline” and preliminary data from our clinical trials may differ materially from the final data. Initial success in any clinical trials may not be indicative of results obtained when these trials are completed or in later stage trials.

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If any of our product candidates, or any competing product candidates, demonstrate relevant, serious adverse events, we may be required to halt or delay further clinical development.

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We have entered into a research collaboration with CRISPR Therapeutics regarding certain product candidates, and we may enter into additional collaborations with third parties to develop or commercialize other product candidates. Our prospects with respect to those product candidates will depend in significant part on the success of those collaborations, and we may not realize the benefits of such collaborations.

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If we fail to compete effectively with academic institutions and other biopharmaceutical companies that develop similar or alternatives to cellular immunotherapy product candidates, our business will be materially adversely affected.

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Our manufacturing process is novel and complex, and we may encounter difficulties in production, or difficulties with internal manufacturing, which would delay or prevent our ability to provide a sufficient supply of our product candidates for clinical trials or our products for patients, if approved.

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We rely on third parties to manufacture certain materials for use in the production of our product candidates, or may rely on third parties to manufacture certain of our product candidates in the future, which increases the risk that we will not have sufficient quantities of such materials or product candidates, or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

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We are reliant on a sole supplier for certain steps of our manufacturing process.

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Delays in commissioning and receiving regulatory approvals for our manufacturing facilities could delay our development plans and thereby limit our ability to develop our product candidates and generate revenues.

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If our license agreement with National University of Singapore and St. Jude Children’s Research Hospital, Inc. is terminated, we could lose our rights to key components enabling our NK cell engineering platform.

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If any patent protection we obtain is not sufficiently robust, our competitors could develop and commercialize products and technology similar or identical to ours.

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If any of our product candidates are approved for marketing and commercialization and we have not developed or secured marketing, sales and distribution capabilities, either internally or from third parties, we will be unable to successfully commercialize such products and may not be able to generate product revenue.

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Our product candidates, including NKX019, could be subject to regulatory limitations following approval, if and when such approval is granted.

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The market price for our common stock may be volatile, which could contribute to the loss of all or part of your investment.

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Concentration of ownership of our shares of common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

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Computer system interruptions or security breaches of our information systems could significantly disrupt our product development programs and our ability to operate our business.

WEBSITE REFERENCES

In this Annual Report on Form 10-K, we make references to our website at www.nkartatx.com. References to our website through this Annual Report on Form 10-K are provided for convenience only and the content on our website does not constitute a part of, and shall not be deemed incorporated by reference into, this Annual Report on Form 10-K.

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PART I

Item 1. Business.

Overview

We are a clinical-stage biopharmaceutical company advancing the development of allogeneic, off-the-shelf engineered natural killer ("NK") cell therapies for the treatment of patients with autoimmune diseases or hematologic malignancies. Our company was founded on the belief that engineered NK cell therapies can transform the lives of patients by offering therapies that are clinically meaningful, broadly accessible and unencumbered by the safety concerns often associated with other cell therapy approaches. We are currently developing NKX019, a chimeric antigen receptor-natural killer ("CAR NK") product candidate targeting the CD19 antigen and NKX101, a CAR NK product candidate targeting cells that display NKG2D ligands. Both product candidates enable an on-demand, off-the-shelf approach involving scaled manufacturing to broaden patient access. NKX019 and NKX101 incorporate proprietary technologies that enable us to generate an abundant supply of NK cells, increase NK cell recognition of target antigens, enhance NK cell fitness, and freeze, store and thaw our engineered NK cells for off-the-shelf administration. Our product candidates are allogeneic, which means they are produced using cells from a different person than the patient(s) being treated, and they are produced in quantity, then frozen and therefore available for treating patients without delay, unlike autologous cell therapies, which are derived from a patient’s own cells and must be manufactured as needed for each patient. We believe that engineered NK cells have the potential to be effective and accessible therapies for autoimmune diseases and cancer, be well tolerated, and avoid some of the toxicities observed with other cell therapies. NKX019 is currently being studied in an ongoing Phase 1 clinical trial for certain B-cell malignancies, and preparations for a planned Phase 1 clinical trial of NKX019 for lupus nephritis ("LN") are underway.NKX101 has been studied in a Phase 1 clinical trial for certain hematologic malignancies, although we have closed patient enrollment and deprioritized the program as part of a pipeline realignment to direct primary resources to our lead pipeline program, NKX019, for the treatment of autoimmune disease.

Our modular engineering platform builds on the distinctive biology of NK cells and their role in eradicating aberrant and pathologically transformed cells. Our process starts with differentiated, mature NK cells derived from healthy donors. We build on the intrinsic ability of these immune cells to identify and kill transformed cells with cell engineering to further enhance their activity. This engineering involves a chimeric antigen receptor ("CAR") on the surface of an NK cell to enable the cell to recognize specific proteins or antigens that are present on the surface of tumor cells. Our engineered CAR NK cells generally consist of an NK cell engineered with a targeting receptor, OX40 costimulatory domain, CD3ζ(zeta) signaling moiety, and a membrane-bound form of the cytokine IL(interleukin)-15 ("mbIL-15").

Our Product Candidates

Our NKX019 autoimmune program is based on the potential to eliminate the pathologic B cells that produce autoantibodies believed to underpin multiple autoimmune diseases via CD19 targeting. These autoantibodies, the immunologic hallmark of many autoimmune diseases, inappropriately recognize antigens expressed in healthy cells, causing various clinical syndromes from the resultant damage to normal tissues. Abnormal B cells are also the cause of multiple hematologic malignancies, including B-cell lymphoma. Approved CD19-directed cell therapies can eliminate these cancerous B cells, resulting in the possibility of durable complete responses in patients that are refractory to other therapies. Targeted depletion of cells from the B-cell lineage as a therapeutic mechanism is common to both autoimmune disease and B-cell malignancies. This observation, in addition to recent reported studies of patients with autoimmune diseases who had considerable clinical benefit following treatment with CD19-directed cell therapies, support our belief that NKX019 has the potential to be a disease-modifying therapy for autoimmune disease. In October 2023, we announced the clearance of an investigational new drug (“IND”) application by the United States Food and Drug Administration (“FDA”) to evaluate NKX019 for the treatment of LN. The multi-center dose escalation clinical trial will assess the safety, pharmacology, and preliminary clinical activity of NKX019 in patients with refractory LN.

The therapeutic benefit of targeting CD19-positive B cells in patients with systemic lupus erythematosus ("SLE") has been reported in a recent academic study published in Nature Medicine in September 2022 (Mackensen et al. (2022) Nat. Med. 28:2124-2132). Five patients with severe refractory SLE with LN received an autologous CD19 CAR T-cell therapy following lymphodepleting conditioning ("LD") with fludarabine ("Flu") and

cyclophosphamide ("Cy"). All patients showed significant clinical improvement in symptoms, including drug-free remissions after approximately three months. The CAR T cells expanded in all patients, with peak levels occurring around day 9, followed by a rapid decline. There was no high-grade cytokine release syndrome ("CRS"), no neurotoxicity, and no substantial elevation of serum IL-6 levels. Depletion of circulating B cells was rapid yet transient, with B cell numbers returning to normal within two to four months. This contrasts sharply with the CD19 CAR T-cell experience in B-cell malignancies, where B-cell suppression typically exceeds 18 months. Despite the limited persistence of CAR T cells and short-term B-cell suppression, all patients had seroconversion of anti-double-stranded DNA antibodies and ongoing disease control, even after B-cell recovery. A subsequent publication expanded this dataset to eight patients with SLE, all of whom had seroconversion and disease remission (Müller et al. (2024) N Engl J Med 390: 687-700). Median follow up in the group was 15 months with some patients having up to 29 months of remission.

Our NKX019 oncology program is based on the potential to treat a variety of B-cell malignancies by targeting the CD19 antigen that is reliably expressed on these types of cancerous cells. Further, CD19-targeted engineered NK cells, T cells, and monoclonal antibodies have all demonstrated clinical activity. NKX019 is currently being studied in a Phase 1 clinical trial for the treatment of certain B-cell malignancies. This ongoing, first-in-human study evaluates the safety, pharmacology, and preliminary anti-tumor activity of NKX019, at multiple centers in the United States and Australia. The clinical trial consists of dose-finding followed by dose-expansion and is designed to identify the recommended Phase 2 dose.

Our NKX101 program is designed to enhance the power of innate NK cell biology to detect and kill cancerous cells. Many cancers lack a biologically dispensable antigen like CD19, making development of targeted cellular therapies or immunotherapies challenging. However, the primary activating receptor for NK cells, which is known as NKG2D, detects a group of stress ligands that are expressed on a variety of cancer subtypes. NKX101 has been in a multi-center Phase 1 clinical trial in the United States for the treatment of relapsed or refractory acute myeloid leukemia ("r/r AML") or higher risk myelodysplastic syndromes ("MDS"). This first-in-human study evaluated the safety, pharmacology, and preliminary anti-tumor activity of NKX101. The clinical trial consists of dose-finding followed by dose-expansion and is designed to identify the recommended Phase 2 dose. We have deprioritized the development of NKX101 while we explore options for implementing certain changes in that program.

As we pursue our goal of developing innovative and broadly accessible cell therapies, manufacturing capabilities and technology are a significant focus of our efforts. We are manufacturing clinical supply at one of our good manufacturing practice ("cGMP") facilities located in South San Francisco, California. We also recently completed construction of a new facility in South San Francisco to support pivotal clinical trials and potential commercial supply of our product candidates.

Our Strategy

We are developing novel engineered, allogeneic, off-the-shelf cell therapies to improve the lives of autoimmune and cancer patients. Key elements of our strategy to achieve this include:

Next generation platform enlists natural, healthy human donor NK cells for optimal product candidates.

Our cell engineering platform utilizes healthy donors as our source for NK cells. By enlisting this natural source of NK cells, we start with bona fide NK cells endowed with inherent cytotoxic and tumor-recognizing capabilities. This contrasts with other more complex cell sources where these basic therapeutic features must be painstakingly designed and synthetically added to the cells. Donor-derived NK cells are also available in abundance, providing a large quantity of cells with which to begin each manufacturing run. Finally, healthy donor-derived adult cells consist of a diverse repertoire of NK cells. By utilizing a cell source that contains the full range of naturally occurring NK cells, we believe we can capitalize on the inherent diversity of the innate immune system and potentially select for different NK cell sub-populations with desired characteristics.

Prioritize development of NKX019 for lupus nephritis and evaluate other autoimmune indications.

NKX019 is designed to target CD19, which is expressed through certain stages of B-cell development. When aberrantly activated, B cells can produce autoantibodies that inappropriately recognize cell surface antigens on normal cells. These antibodies and resultant immune complexes can damage normal tissues and lead to autoimmune diseases, such as LN. Due to the broad expression of CD19 on B cells, the targeting and depletion of CD19-positive B cells has been proposed as a mechanism by which long-term drug-free remissions may be achieved in LN and other autoimmune diseases.

Autologous CAR T cell therapies have transformed the treatment landscape for certain blood cancers by targeting cancerous B cells via CD19. This approach also kills normal B cells in large numbers via an on-target, off-tumor effect. In those patients who respond to CD19-directed CAR T cell therapy, normal B cells are also depleted beyond detection in the blood. Recent academic studies have applied this approach of B-cell depletion to the treatment of patients with LN and other autoimmune diseases. In one published report, five patients with highly refractory LN had remarkable improvements in clinical symptoms and normalization of autoantibodies following a course of treatment with CD19 CAR T cells. Because the targeting of CD19 has demonstrated clinical activity with CAR T and CAR NK cell therapies, we believe that NKX019 presents an opportunity to treat a variety of autoimmune diseases while addressing the limitations of CAR T cell therapies.

We have received FDA clearance for a dose-escalation Phase 1 clinical trial to study NKX019 for the treatment of refractory LN. We expect to dose the first patient in the clinical trial in the first half of 2024. We have shown that NKX019 is highly active in vitro against B cells from patients with different autoimmune diseases and are evaluating multiple potential autoimmune indications in addition to LN for potential clinical investigation.

Develop NKX019 for B-cell malignancies.

NKX019 is designed to target the clinically and commercially validated CD19 antigen that is found in different B-cell malignancies. Because the targeting of CD19 has demonstrated clinical activity with both CAR T and CAR NK cell therapies as well as monoclonal antibodies, we believe that NKX019 presents a potential opportunity to treat a variety of B-cell malignancies while addressing the limitations of existing autologous CAR T cell therapies. NKX019 is currently being investigated in a dose-expansion cohort of the ongoing Phase 1 clinical trial in patients with large B-cell lymphoma ("LBCL") following administration of LD. This cohort is proceeding with a compressed dosing schedule and enrolls patients who have failed autologous CD19 CAR T therapy.

Apply our NK cell engineering platform to build a broad pipeline of product candidates incorporating engineered NK cells.

Our proprietary NK cell engineering platform is based on a modular and generalizable approach that we believe enables us to generate new product candidates in a rapid and cost-efficient manner. Our engineered CAR NK cells generally consist of an NK cell engineered with a targeting receptor, OX40 costimulatory domain, CD3ζ(zeta) signaling moiety, and mbIL-15. We believe that the modular nature of our platform and the proprietary technologies we use for the multiplex engineering of NK cells are advantages that can support the rapid generation of new INDs for product candidates with enhanced properties and/or new targeting receptors for additional disease indications. With these attributes, we plan to continue to build out a pipeline with product candidates focused on novel targets as well as clinically and commercially validated targets.

Continue to build proprietary manufacturing capabilities to enable speed, control, flexibility, scalability, and cost efficiency.

We believe that internal cGMP manufacturing capabilities will facilitate clinical product supply, lower the risk of manufacturing disruptions, and enable more cost-effective manufacturing for clinical and commercial supply of our product candidates. We currently manufacture our clinical drug supply at one of our clinical cGMP facilities in South San Francisco, California and recently completed construction on a new manufacturing facility designed for manufacture of our product candidates for pivotal clinical trials and potential commercial supply. In the future, we also intend to manufacture our proprietary, engineered K562 stimulatory cells ("NKSTIM") in house. We believe our current facilities will supply our anticipated non-pivotal and pivotal clinical trial needs, as well as our potential commercial launch needs.

Continue to opportunistically evaluate enabling, adjacent or potential competing technologies, and where advantageous, seek licenses or collaborations regarding those technologies, to advance our platform.

We have been engaged in discovery and preclinical stage activities directed at expanding our pipeline of product candidates. As part of our collaboration with CRISPR Therapeutics AG ("CRISPR"), we are developing an allogeneic, off-the-shelf CAR NK product candidate targeting the CD70 tumor antigen ("NKX070") for the treatment of solid and liquid tumors, and conducting discovery efforts for an allogeneic, off-the-shelf product candidate that comprises both engineered NK cells and engineered T cells ("NK+T") to take advantage of both the innate and adaptive immune systems. This NK+T program is designed to harness multiple aspects of human immunology to treat a variety of cancers. Additionally, our agreement with CRISPR includes licenses for additional gene editing targets and an additional co-development product.

We will continue to evaluate technologies that may enable or enhance our various product candidates, and we will maintain awareness of those that may provide a broader cell therapy engineering or manufacturing platform for us. To facilitate the advancement of our engineering and manufacturing platforms, we routinely engage in partnering and licensing discussions with a range of biotechnology or pharmaceutical companies and academic institutions.

The Immune System, Cancer and Autoimmune Diseases

In recent decades there has been a significant level of innovation and improvement in the treatment of different cancers with the introduction of new therapeutic approaches and the approval of new therapies. Despite these advances, many of the most common cancers remain burdened with substantial unmet medical need. Immuno-oncology therapies seek to stimulate or supplement a person’s own immune system to attack cancer cells selectively without affecting normal cells, or deliver certain immune system components in order to inhibit the spread of cancer. Immuno-oncology therapy has emerged as an important mode of cancer treatment, alongside more established options such as surgery, chemotherapy, targeted therapy and radiation therapy.

The ability of the immune system to recognize and destroy tumors has been known for decades. More recently, a growing understanding of molecular mechanisms underlying recognition of cancer cells by the immune system and their evasion of detection has allowed scientists to develop new classes of immuno-oncology therapies. These therapies either undermine the tumor’s ability to resist immune attack or enhance immune targeting and killing of cancer cells.

The enhancement and engineering of immune effector cells to selectively target and kill pathologic cells has had a profound impact on the treatment of hematologic malignancies. This approach is now being investigated for its potential to “reset” the immune system in the context of autoimmune diseases. Several autoimmune diseases are associated with the production of autoantibodies that act against healthy cells and tissue. The use of immune effector cells to target the source of these autoantibodies is being explored as a potential disease modifying therapy for autoimmune disease.

Cellular Immunotherapies

Cellular immunotherapy involves engineering human cells to recognize and destroy diseased cells in a targeted manner. Most cellular immunotherapies are focused on modulating or enhancing the activity of different lymphocytes, a subtype of white blood cell that are responsible for defending the body against pathogens and other foreign material, as well as killing cancerous cells within the body. There are different classes of lymphocytes which differ in function. T cells are a type of lymphocyte that primarily serves to protect from infections such as bacteria, viruses, fungi, and parasites. Every T cell recognizes a specific antigen, or substances found on pathogens or other foreign material. This type of lymphocyte is activated and divides rapidly when it detects its specific antigen. Accordingly, T cells are the foundation of the adaptive immune system, selectively responding to different threats.

NK cells are the foundation of the innate immune system. While T cells are activated by unique antigens specific to each T cell, the activity of NK cells is tightly regulated by a common set of activating receptors on these cells that serve to improve recognition and killing of cancerous or virally infected cells, as well as a set of inhibitory receptors that help identify healthy cells. This balance of inhibition and activation spares healthy cells from the surveillance and killing effects of the innate immune system. The primary activating receptor for NK cells is known as NKG2D and functions by detecting eight known stress ligands, or signals that cancerous or virally infected cells typically produce in higher numbers. The detection of these stress ligands by NKG2D on the surface of the NK cells is the primary basis for tumor surveillance by NK cells and is the basis of the mechanism of action for our product candidate NKX101.

A frequently used approach for cellular immunotherapy involves engineering CARs on the surface of a lymphocyte that enable the cell to recognize specific proteins or antigens that are present on the surface of diseased cells. The concept of a CAR builds upon and enhances the normal biology of T cells and NK cells, whereby naturally occurring receptors serve to activate these cells when a foreign pathogen or transformed cell is detected. The key components of CARs used today often include the following elements:

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Target binding domain. At one end of the CAR is a binding domain that is specific to a target antigen or protein. This domain extends out from the surface of the engineered lymphocyte, where it can recognize the target antigen or antigens. The target binding domain may be based upon a binder derived from a monoclonal antibody against a target antigen, such as the CD19 binder for NKX019, or a naturally occurring receptor, such as the NKG2D receptor for NKX101.

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Transmembrane domain and hinge. This middle portion of the CAR links the target binding domain to the activating elements inside the cell. This transmembrane domain anchors the CAR in the cell’s membrane. In addition, the transmembrane domain may also interact with other transmembrane proteins that enhance CAR function. The hinge domain, which extends to the exterior of the cell, connects the transmembrane domain to the receptor and provides structural flexibility to facilitate binding to the target antigen on the surface of the cancer cell.

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Activating domains. The other end of the CAR, inside the lymphocyte, includes domains responsible for activating the lymphocyte when the CAR binds to its target antigen. The first, found in almost all CAR constructs, is called CD3ζ(zeta) and is the natural basis for lymphocyte activation. The second, called a costimulatory domain, is found in the most recent generation of CARs under development today and provides an additional activating signal. Together, these signals trigger lymphocyte activation, resulting in proliferation of the CAR cells and killing of the diseased cells. In addition, activated CAR cells stimulate the secretion of cytokines and other molecules that can thereby recruit and activate additional immune cells to increase killing of the diseased cells.

The FDA has approved six CAR-based T-cell therapies for the treatment of certain types of cancer affecting B cells. Each of these therapies is an autologous therapy, or derived from a patient’s own cells, which necessitates a complex, individualized manufacturing process for every patient treated. The approvals of these patient-specific cell therapies were a landmark event for many reasons, including the ability to treat and provide long-term remission for otherwise deadly disease; achieving the run-to-run product consistency required by the FDA despite the complex manufacturing required; and achieving successful reimbursement in the United States and other countries of several hundred thousand dollars per treatment.

Limitations of Current CAR T Therapies

Despite the ability of the approved autologous CAR T therapies to achieve anti-tumor responses and extend the survival of patients with advanced B-cell malignancies, the accessibility of these cell therapies remains limited. Only a minority of eligible patients who might benefit from currently approved cell therapies are able to receive them. These therapies have certain features that are believed to limit their accessibility and broader adoption. These features include:

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Adverse events. According to the product labels for the three CAR T therapies approved for non-Hodgkin lymphoma ("NHL"), CRS was observed in 46% to 94% of patients treated in the respective pivotal clinical trials. In addition, neurotoxicity was seen in 35% to 87% of patients treated in such trials. Because of the frequency and severity of these adverse events, patients treated with the approved

CAR T therapies can require lengthy hospitalization and costly ancillary care. In 2024, the FDA required that a boxed warning be added on all approved CAR T therapies for B-cell malignances to reflect the risk of secondary T-cell malignancies occurring after CAR T treatment.

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Availability restricted to select centers. As a condition of FDA approval, treatment with approved CAR T therapies is currently limited to select centers due to safety, logistical and regulatory reasons under a Risk Evaluation and Mitigation Strategy ("REMS") Program.

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Accessibility further compromised by lengthy manufacturing time. Due to the individualized manufacturing process, patients must wait approximately two to four weeks to be treated with their engineered cells. In the registrational trials for the first four approved CAR T therapies, 7% to 34% of enrolled patients did not receive CAR T cells, for reasons including manufacturing failure as well as patient progression or death while waiting for manufacturing.

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High manufacturing complexity and cost. The manufacture of autologous T cell therapy is individualized and labor-intensive. The collection of T cells through leukapheresis from each individual patient is a time-consuming and costly step in the autologous manufacturing process. In contrast to traditional pharmaceutical manufacturing where a single manufacturing run generates product for hundreds or thousands of patients, a full manufacturing run of autologous T cell therapy generates product for a single patient. In addition, autologous T cell therapy requires specialized infrastructure to maintain a strict chain of custody and identity of patient cells throughout collection, manufacturing and delivery, adding significant cost to the process and limiting the ability to scale.

These limitations are difficult to address as many are inherent to fundamental aspects of T cell biology. CRS, which accounts for many of the adverse events which in part limit availability, is believed to be a consequence of the exponential expansion of T cells upon detection of a target antigen. Manufacturing time, product variability, and cost are due in great part to the autologous nature of approved CAR-T therapies.

Allogeneic NK Cell Therapies

The development of allogeneic, off-the-shelf cell therapies addresses certain limitations of autologous CAR T cells by offering these potential advantages:

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Tolerability. In initial clinical data reported by us and others, patients who received allogeneic NK cell therapies did not experience the more severe adverse events that are commonly associated with approved autologous CAR T cell therapies. This emerging safety profile of allogeneic NK cell therapies may enable their use in outpatient settings and broader access to treatment.

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Availability. Because an allogeneic NK cell therapy is produced in quantity then frozen in advance of patient need, it would be available for on-demand administration to patients in an outpatient setting.

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Consistency. By using true NK cells from a healthy donor as starting material, and producing large numbers of doses per manufacturing run, an allogeneic NK cell therapy provides the opportunity for more rigorous quality control and release of consistent engineered cells.

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Cost of manufacturing. An allogeneic NK cell therapy provides an opportunity to spread manufacturing costs across a large number of doses, thereby significantly lowering the cost per dose produced.

The Opportunity for Engineered NK Cells in Treating Autoimmune Disease

Early studies using CD19-directed CAR T-cell therapies provide important proof of concept for disease modification in autoimmune diseases. In addition, some features of NK cells are potentially advantageous, as compared to T cells.

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Well-defined target. Targeting CD19 cells can lead to a deep suppression of the B cells that produce pathogenic autoantibodies. Despite this transient suppression afforded by cell therapy thus far, some patients have shown sustained drug-free remissions that persist after recovery. This has potential applicability to multiple autoimmune diseases that are similarly driven by autoantibodies.

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Supportive data. NKX019 has been extensively evaluated in clinical and pre-clinical settings. In our NKX019 clinical trial in oncology, NKX019 drove responses in patients with various refractory B-cell malignancies. Further, in vitro assays reveal consistent sensitivity to B cells collected from patients with various autoimmune diseases.

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B cell susceptibility. Pathogenic B cells that secret autoantibody may be more susceptible to NK-mediated killing than cancer cells. Malignant B cells have multiple pathways for evading killing, including antigen escape via downregulation or loss of CD19 expression and growth in a tumor cluster which offers a relatively immunosuppressive and inaccessible tumor microenvironment, none of which is expected in non-malignant B cells,althoughNKX019 can target cells expressing low levels of CD19. Further, the cell burden of target cells is generally much lower at the time of treatment in autoimmune disease than in B-cell malignancies, thereby increasing the expected effector to target ratio of NKX019 in contrast to the antigen-dependent activationand expansion required by CD19-directed CAR T therapies.

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Tissue trafficking and penetration. NK cells traffic to nearly every tissue in the body, including immune-privileged sites that are known to be isolated from the rest of the body’s immune system. In addition, malignant B cells provide a proxy for trafficking of B cells, and NKX019 has driven complete responses in patients with NHL despite widespread malignant B cell (blood, bone marrow, lymph nodes, secondary lymphoid tissue, extra-nodal sites).

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Immediate activity. NK cells do not require expansion for maximal activity and peak exposure occurs near the time of infusion. The explosive growth of T cells is believed to be the basis of both their activity and the risk of CRS and immune effector cell-associated neurotoxicity syndrome ("ICANS") associated with CAR T cell therapy.

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Disease tailored LD. Adoptive cell therapy typically requires LD, which is preparative chemotherapy often with Cy and Flu, to provide an optimal cytokine milieu and suppress the host immune response.However, the pharmacokinetics of NK cells and T cells differ, enabling alternative LD approaches to address these differences. Specifically, the early peak exposure and mbIL-15 engineering of NKX019 allow evaluation of single agent LD with Cy. A Flu-sparing LD regimen would eliminate potential toxicities of this agent, including cytopenias and MDS. Further, Cy is already used by specialist providers for various autoimmune conditions and may provide an opportunity for expanding this potentially disease-modifying to multiple other areas of high unmet need beyond SLE.

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On-demand availability. Because an allogeneic NK cell therapy is produced in quantity then frozen in advance of patient need, it would be available for on-demand administration to patients, potentially in an outpatient setting, where patients with autoimmune diseases are typically treated. This approach also eliminates the need for infrastructure to support apheresis and other facets of bespoke manufacturing, lowering the burden for providers and facilities to deliver therapy.

The Opportunity for Engineered NK Cells in Treating Cancer

The development of CAR NK therapies can capitalize on the knowledge and experience gained from decades of CAR T research. Furthermore, the biology of NK cells offers potential advantages as the starting cell type for allogeneic, off-the-shelf engineered cell therapy. These advantages include:

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Inherent anticancer activity. We conducted a systematic literature review of published clinical trial results of allogeneic NK cells in cancer, which identified a 34% composite response rate ("Aggregate CR Rate") among 103 patients with r/r AML who were treated with non-engineered NK cells across six academic clinical studies. The Aggregate CR Rate includes complete remission with hematologic recovery ("CR"), complete remission with incomplete count (hematologic) recovery (“CRi”), and morphologic leukemia free state. These data demonstrate the anticancer activity of endogenous NK cells and support the opportunity for increasing the activity of NK cells through engineering.

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Allogeneic and off-the-shelf without genome editing or other modifications. Because NK cells are not generally activated by “non-self” cells, further modification of NK cells is not necessary to avoid the risk of Graft-versus-host disease ("GvHD") and thereby produce an allogeneic, off-the-shelf engineered NK cell therapy.

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Modest clonal expansion and therefore potential for reduced CRS risk. While T cells experience exponential growth when activated by a target antigen, NK cells expand only modestly upon activation. The explosive growth of T cells is believed to be the basis of the risk of CRS when CAR T cells are administered to patients. However, a significant incidence of CRS has not been reported in medical literature for NK cell therapy or by us in initial clinical data reported in 2022.

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Balance of activation and inhibition. The activity of NK cells is tightly regulated by a common set of activating receptors that serve to recognize and kill cancerous or virally infected cells, as well as a set of inhibitory receptors that identify healthy cells from the same individual. This balance of inhibition and activation spares healthy cells from the surveillance and killing effects of the innate immune system. Therefore, the fundamental biology of CAR NK cells drives their ability to discriminate between healthy and tumor cells.

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Ability to overcome tumor evasion of the immune system. Many solid tumors are able to evade the immune system by creating an immunosuppressive environment around the cancerous cells, which can dramatically reduce the normal tumor-killing ability of the immune system. This tumor microenvironment involves down-regulators of immune response, including regulatory T cells and myeloid-derived suppressor cells. However, these cell types also display NKG2D ligands, and preclinical models show that clearance of these cells can reduce immune suppression from the tumor microenvironment. Therefore, by acting through NKG2D, CAR NK cells may be able to reduce the immune suppression of the tumor microenvironment, and therefore uncover a broader opportunity for immuno-oncology cell therapy development for the treatment of solid tumors.

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Abilityto re-dose to deepen or consolidate patient responses. NK cells provide a unique opportunity to optimize responses and manage potential toxicities through re-dosing and retreatment. The favorable safety profile of NK cells observed to date combined with their off-the-shelf availability allows patients who achieve a partial response to be treated again to potentially deepen their response, and for those patients who achieve a complete response, additional doses of cells can be administered to consolidate their response. Retreatment is also possible in patients who progress after clinical benefit.

Challenges with Developing NK Cell Therapies

We believe that the emerging data from our clinical trials of NK cell products along with the prior academic experience with NK cells validate the opportunity for NK cells for the treatment of different cancers. To achieve a commercially viable engineered NK cell therapy, we believe that a number of challenges inherent with NK cells must be addressed. These include the following:

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Expansion. One of the historical challenges in treating patients with NK cells has been the lack of robust techniques to grow these cells in large numbers without causing exhaustion, or the inability of the expanded NK cells to kill target cells with the same potency as native NK cells.

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Engineering. Primary NK cells have been reported to be difficult to engineer efficiently. Poor efficiency of engineering could limit the potency and consistency of engineered NK cell therapies.

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Persistence. Non-engineered human NK cells turn over rapidly, with a half-life of seven to 10 days in the body. This short lifetime could limit the cytotoxicity of these NK cells.

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Cryopreservation. Without cryopreservation, a truly off-the-shelf engineered NK cell therapy would be challenging to commercialize. However, freezing then thawing NK cells while maintaining cytotoxicity is difficult to achieve using standard techniques for T cell cryopreservation.

Our NK Cell Engineering Platform

Our cell engineering platform is designed to operationalize the full therapeutic potential of NK cells and address the limitations and challenges of current technologies for engineering T cells and NK cells. The platform is a result of our internal expertise and deep understanding of NK cell biology. It includes proprietary technologies for NK cell expansion, persistence, targeting, genome editing, and cryopreservation. This enables us to generate an abundant supply of NK cells, engineer enhanced NK cell recognition of tumor targets, improve the persistence of these cells for sustained activity in the body, and freeze, transport and store our engineered NK cells for off-the-shelf use for the treatment of cancer.

We have chosen to use healthy donors as our source for NK cells. We believe this offers a number of advantages including:

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Starting with differentiated, natural, and mature NK cells with inherent cell-targeting and cytotoxic capabilities, as compared to other cell sources such as stem cells, which must be artificially manipulated in an in vitro setting to reproduce these fundamental features;

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A large number of NK cells as starting material for each manufacturing run, as compared to other potential sources of NK cells;

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The ability to select donors with consistent and favorable NK cell characteristics, thereby avoiding challenges with patient-derived or other cell sources; and

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A diverse repertoire of NK cells. Different NK cell sub-populations have different characteristics, and by utilizing the entire natural gamut of NK cells as our cell source, we can capitalize on the inherent diversity of the innate immune system.

Below are the five core technologies that comprise our proprietary platform. Each of these technologies is part of an integrated approach to develop potent, scalable, and consistent NK cell products:

Expansion. The first pillar of our technology platform enables NK cell expansion without causing cell exhaustion. Our NKSTIM has been engineered with mbIL-15 as well as a protein named 4-1BB ligand ("4-1BBL"). IL-15 is a naturally occurring growth protein that induces cell proliferation in NK cells. 4-1BBL binds to 4-1BB, a receptor normally found on NK cells that stimulates NK cell division and expansion. Therefore, NKSTIM is selectively able to stimulate the expansion of NK cells as compared to other leukocytes, and thereby provide large numbers of NK cells. Based on our current process and early cGMP manufacturing experience, we believe that we can produce many hundreds of doses from a single manufacturing run. At the 2022 Annual Meeting of the Society for Immunotherapy of Cancer ("SITC"), we presented data demonstrating further optimization of our core process could allow the production of several thousand doses from a single manufacturing run.

Persistence. Pharmacokinetics of allogeneic NK cells will be limited by both immune suppression of allogeneic cells following LD, and by the intrinsic half-life of the administered cells. In addition to immune suppression, LD enhances the bioavailability of host cytokines, especially IL-15, which is associated with improved persistence of CAR T cell therapies. The second component of our technology platform is engineering NK cells with mbIL-15 to enhance their persistence without dependence on LD-mediated cytokines, facilitating a disease-tailored approach to LD. Because IL-15 is a selective driver of NK activation and expansion, tethering IL-15 to the surface of our engineered NK cells serves to stimulate the naturally occurring IL-15 receptor on these NKs, and thereby provide weeks of persistence in immune-deficient animal models. Because mbIL-15 selectively stimulates NK cells without elevating soluble IL-15 concentration, we believe that mbIL-15 provides meaningful advantages as compared to secreted IL-15 or the systemic administration of other cytokines such as IL-2 or IL-21. The first graph below shows data from a cell culture experiment which demonstrates the increase of the number and persistence of NK cells engineered with mbIL-15, as compared to unmodified NK cells or NK cells expressing soluble IL-15. The second graph below shows the increased number and persistence in mice of NK cells engineered with mbIL-15, as compared to unmodified NK cells, as a percentage of total peripheral blood mononuclear cells ("PBMCs").

Source: Imamura et al., Blood. 2014 Aug 14;124(7):1081-8

Targeting and Signaling. The third element of our technology platform is CARs optimized for NK cells, based on extensive preclinical evaluation of different possible constructs. We have performed extensive optimization of the CARs that serve to direct our engineered NK cells to target-cells as well as provide signals that engage the inherent ability of NK cells to target and kill transformed cells. For both NKX019 and NKX101, we have found that using the OX40 costimulatory domain enhances the ability of the engineered NK cells to kill cancerous cells repeatedly in several in vitro models, as compared to CAR NK cells that include other costimulatory domains commonly used for CAR T cells. We confirmed these findings in animal models for both product candidates.

Genome Editing. The fourth component of our platform is the ability to edit our NK cells using CRISPR-Cas9 technology. Through our collaboration with CRISPR, we have identified a number of genomic modifications that serve to further enhance the cytotoxicity and resistance to tumor-mediated immune suppression. We have shown that knocking out certain genes can prolong the persistence and activity of CAR NK cells, and improve their resistance to suppression by the tumor microenvironment.

Immune Clocking. Through a combination of ectopic expression and genome editing, we have identified a number of strategies that could enable NK cells to resist allogeneic suppression.

Cryopreservation. The fifth constituent of our technology platform is cryopreservation of our engineered NK cells, the ability to freeze and store these cells for an extended time. The development of robust cryopreservation techniques is a result of our insight into the biology of engineered NK cells as well as extensive experimental optimization. Based on our preclinical data, we are able to freeze and subsequently thaw individual doses of engineered NK cells without significant loss of cancer cell killing potency of our engineered NK cells as shown in the graph below. Cryopreservation of our allogeneic CAR NK cells will enable their off-the-shelf use in medical centers around the world, for administration to a patient at any time. Therefore, we believe that our cryopreservation of CAR NK cells will enable us to achieve the attractive commercial profile of an off-the-shelf, allogeneic cell therapy.

We believe that these key elements of our technology platform have the potential to grant us a key competitive advantage if our product candidates are approved.

Our Pipeline of Product Candidates and Discovery Programs

Our current pipeline of product candidates and discovery programs is shown below.

NKX019

NKX019 for Lupus Nephritis

Our product candidate NKX019 consists of allogeneic, donor-derived and expanded NK cells that have been genetically engineered to express mbIL-15 along with a CAR containing a CD19 binder, an OX40 costimulatory domain and a CD3ζ(zeta) signaling moiety. CD19 is expressed on B cells through various stages of development, including on plasmablasts, which are associated with autoantibody production in SLE. NKX019 is active against B cells, supported by our clinical data from patients in our clinical protocols, as well as in vitro studies using cell collected from patients with various autoimmune disease, including SLE.

In October 2023, we announced the clearance of an IND application by the FDA to evaluate NKX019 for the treatment of LN. The multi-center, open-label, Phase 1 clinical trial will assess the safety and clinical activity of NKX019 in patients with refractory LN. The clinical trial consists of dose-finding followed by dose-expansion and is designed to identify the recommended Phase 2 dose. Patients will receive a three-dose cycle of NKX019 at 1 billion or 1.5 billion cells per dose on Days 0, 7 and 14 following LD with single agent cyclophosphamide, an agent with an established safety profile in SLE and LN. The study is designed to enroll up to 12 patients, with the first patient expected to be enrolled in the first half of 2024. The dosing schema for the clinical trial is shown in the graphic below.

NKX019 for Blood Cancers

NKX019 is also being investigated for the treatment of various B-cell malignancies, including LBCL, ALL, and several other subtypes of NHL. We chose to target CD19 based on the clinical validation provided by Kymriah®, Yescarta®, Tecartus® and Breyanzi® which have all shown to improve remission rates and overall survival in patients with various B-cell malignancies, as well as the significant unmet medical need that remains for treating B-cell malignancies despite these recent approvals.

Our ongoing NKX019 Phase 1 oncology clinical trial evaluates the safety, pharmacology, and preliminary anti-tumor activity of NKX019, administered in a cycle of three weekly infusions following LD in multiple centers in the United States and Australia. Based on tumor response and tolerability, multiple treatment cycles can be administered. The clinical trial consists of dose-finding followed by dose-expansion and is designed to identify the recommended Phase 2 dose.

In April 2022, we announced preliminary data from the NKX019 oncology clinical trial in relapse/refractory B cell malignancies, in which three of six patients treated at the higher dose level in a three-dose regimen had a complete response (50% CR), including one patient with aggressive LBCL and one patient with mantle cell lymphoma ("MCL"). No dose limiting toxicity was observed and there were no CAR T-like adverse events of any grade.

We presented updated data from the ongoing NKX019 oncology clinical trial in December 2022. In this update, seven of ten patients treated at the higher dose levels in a three-dose regimen had a complete response (70% CR), including two patients with aggressive LBCL, one patient with MCL, and one patient with marginal zone lymphoma. No dose limiting toxicity, neurotoxicity / ICANS, GvHD, or >Gr3 CRS were observed in the study.

In October 2023, we announced the opening of a new cohort in the NKX019 oncology trial, introducing a compressed dosing schedule, where patients receive NKX019 doses on Days 0, 3 and 7 following LD. This schedule is designed to intensify NKX019 exposure in the first week after LD, when pharmacokinetic data suggested NKX019 exposure is highest. NKX019 is given after either standard LD with Flu and Cy, although LD with cy alone may be used in patients with protocol-defined cytopenias. There is no requirement for inpatient admission in this cohort, including NKX019 administration and monitoring. The cohort targets patients (n=6) with LBCL who have received prior CD19-directed CAR-T cell therapy. We also announced that data from this cohort may inform future dosing strategies across our platform.

All patients in the NKX019 oncology clinical trial have been treated with off-the-shelf material that has been manufactured at our in-house clinical cGMP facility.

* Efficacy based on: Lugano criteria for NHL; 2018 iwCLL guidelines for CLL; NCCN v1.2020 for B-ALL

CAR: chimeric antigen receptor; CR: complete response; ECOG PS: Eastern Cooperative Oncology

Group performance status; EOT: end of therapy; r/r: relapsed/refractory; iwCLL: International

Workshop on Chronic Lymphocytic Leukemia; NCCN: National Comprehensive Cancer Network.

NKX101

Our product candidate NKX101 consists of allogeneic, donor-derived and expanded NK cells that have been genetically engineered to express mbIL-15 along with a CAR containing an NKG2D activating receptor, an OX40 costimulatory domain and a CD3ζ(zeta) signaling moiety. We have designed NKX101 to increase longevity, potency and activity as compared to non-engineered NK cells. NKG2D is a primary activating receptor for NK cells, triggered through binding to any of eight known stress ligands frequently expressed on cancerous or virally infected cells. The detection of these ligands by NKG2D is a primary basis for tumor surveillance by NK cells and contributes to the mechanism of action for NKX101. We believe that the activity of non-engineered NK cells in treating cancer, previously described by others, validates targeting NKG2D ligands through the NKG2D receptor as the mechanism of action for NKX101.

We engineered NKX101 based on our understanding of NK cell biology, including extensive comparison and optimization of different ways to enhance natural NKG2D signaling and targeting of cells which display NKG2D ligands. Based on our preclinical studies, we believe that levels of NKG2D are increased significantly in NKX101 as compared to non-engineered NK cells. Because NKG2D is the primary activating receptor for NK cells, through its detection of stress ligands displayed by cancerous cells, NKX101 is thereby designed to increase the natural cancer cell killing ability of NK cells. Although some cancer cells are able to evade detection and killing by NK cells through shedding of NKG2D ligands, thereby reducing ligand display on the cell surface, NKX101 can recognize tumor cells expressing even low levels of NKG2D ligands, and maintains the ability of NK cells to recognize tumor cells through an array of other activating receptors that are broadly expressed in NK cells. Furthermore, we found in preclinical studies that the addition of mbIL-15 and the OX40 costimulatory domain each increase the activity of engineered NK cells. Because NKG2D is the primary activating receptor responsible for innate immune surveillance of cancerous cells, we believe that NKX101 presents a broad opportunity to treat a variety of blood cancers, as well as, potentially, solid tumors, which collectively represent approximately 90% of all cancer incidences in the United States.

NKX101 for Blood Cancers

We were evaluating NKX101 in a multi-center Phase 1 clinical trial for the treatment of r/r AML, but we have deprioritized development of NKX101 and closed patient enrollment in the Phase 1 study. In a review of updated preliminary safety and response data from patients with r/r AML that received NKX101 after LD comprising of fludarabine and cytarabine ("flu/Ara-C"), the aggregate CR/CRi rate (5 of 20 patients) was lower than what had been observed in the first 6 patients in the cohort. The safety profile of NKX101 was consistent with previously reported data. We plan no further spending on clinical development of NKX101.

This clinical trial of NKX101 was designed to evaluate safety, pharmacology, and preliminary anti-tumor activity of NKX101. According to the federal Surveillance, Epidemiology, and End Results Program database ("SEER"), the incidence of AML in the United States is approximately 20,000 cases per year, and newly-diagnosed patients have a five-year survival rate of approximately 30%.

The NKX101 clinical trial comprised standard dose-finding and dose-expansion phases. Patients received LD prior to administration of NKX101 in order to allow our engineered NK cells the opportunity to kill cancerous cells without first being cleared by the patient’s immune system. The LD regimen used in the current dose-expansion cohort was based upon clinical experience with Flu, cytarabine and anthracycline, a frequently used salvage regimen for patients with r/r AML.

The dosing schema of the flu/Ara-C dose-expansion cohort is shown in the graphic below.

In June 2023, we reported updated data from our Phase 1 clinical trial evaluating NKX101. As of data cut-off on June 10, 2023, in the cohort of patients with relapsed or refractory (r/r) AML that received treatment cycles with a three-dose regimen of NKX101 at 1.5 billion cells per dose after LD with flu/Ara-C, four of six patients achieved complete response (CR/CRi); three responses were measurable residual disease ("MRD") negative. In patients that received the highest doses of NKX101 (3 weekly doses at 1 billion or 1.5 billion cells per dose) after LD with Flu and Cy, 4 of 18 achieved CR/CRi and 3 of 18 achieved a complete response with hematologic recovery CR. There were no CRS at the lower doses of NKX101. NKX101 was well tolerated across dose-levels and LD regimens. There were no dose-limiting toxicities observed across all cohorts. No CRS, GvHD, or ICANS was observed. The most common higher-grade adverse events were myelosuppression and infection, which are common in this patient population following LD.

In 2023, the NKX101 clinical protocol was amended to enable patients that respond to NKX101 to receive retreatment or consolidation with an additional cycle of treatment with NKX101. As part of ongoing scale-up and optimization of manufacturing across its platform, Nkarta also filed a manufacturing process change amendment with the FDA. The focus of the process change was to enhance product yield to meet anticipated clinical demand and prepare for potential commercial scale manufacturing. In October 2023, we announced that patient enrollment was paused for inventory buildup and resumed with material generated with the amended manufacturing process. Subsequently, as noted above, following a recent review of the updated preliminary response data for the cohort, we closed further enrollment in the trial.

NKX101 for Solid Tumors

As part of a realignment of our pipeline, we have suspended further development of NKX101, including plans for future investigation of NKX101 in solid tumors. Should we later reprioritize development of NKX101 and achieve proof of concept in hematologic malignancies, we may opt to file an IND amendment for this clinical program.

Partnership with CRISPR Therapeutics

On May 5, 2021, we entered into a Research Collaboration Agreement with CRISPR (the "CRISPR Agreement"). Pursuant to the CRISPR Agreement, CRISPR and Nkarta will establish research plans for the purpose of collaboratively designing and advancing up to two allogeneic, gene-edited NK cell therapies, including NKX070, and one allogeneic, gene-edited NK+T cell therapy for use in the treatment of oncology, autoimmune disease, or infectious disease up to the filing of an application to a regulatory authority to request the ability to start a clinical trial. The first allogeneic, gene-edited NK cell therapy being developed in partnership with CRISPR is NKX070, and together with CRISPR, we may advance NKX070 for the treatment of solid tumors and blood cancers. The NK+T program combines CAR NK cells and CAR T cells, bringing together the advantages of the innate and adaptive immune systems.

Additionally, under the CRISPR Agreement, we have received licenses from CRISPR for four CRISPR-Cas9 gene editing targets and will receive a license from CRISPR for up to one more CRISPR-Cas9 gene editing target that can be engineered into an unlimited number of its own NK cell products. CRISPR also has an option to co-develop and co-commercialize a future Nkarta CAR NK cell program. On May 4, 2022, we amended the CRISPR Agreement to revise the transfer of materials and nomination provisions. On March 8, 2023, the CRISPR Agreement was further amended to permit our advancement of CRISPR-licensed product candidates targeting a specified tumor antigen and incorporate associated development and regulatory approval milestones and sales-based royalties.

Manufacturing

Our process for the generation of an allogeneic, off-the-shelf NK cell therapy requires multiple steps. To achieve a commercially viable product, we believe that each of these steps must be scalable, reproducible and cost-effective and must provide consistent cancer cell killing potency of our CAR NK cells once these cells are frozen and then thawed. Therefore, we have focused on developing a manufacturing process that incorporates the following elements:

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starting material consisting of differentiated, mature NK cells with inherent cytotoxic and tumor-recognizing capabilities, as compared to other cell sources such as stem cells, where these fundamental features must be engineered into the cells which must be artificially manipulated in an in vitro setting to reproduce these fundamental features;

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a cell source which provides high numbers of easily characterized NK cells;

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expansion technology which increases the number of NK cells by orders of magnitude, without inducing exhaustion;

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techniques for genetic engineering of NK cells which are cost-effective and which introduce a controlled and specified range of the number of copies of the gene into each cell;

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techniques for genome editing of NK cells to selectively knock-out or knock-in genetic targets in each cell;

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cryopreservation techniques that permit bulk CAR NK cells to be frozen in individual doses; and

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techniques for thawing the frozen NK cell product that are easy to adopt in different clinical settings, and that provide consistent CAR NK cell recovery, viability and potency.

Our overall manufacturing scheme is shown in the diagram below.

The source material for production of our off-the-shelf NK cell therapy product candidates is NK cells collected from healthy donors by leukapheresis, the selective collection of white blood cells from plasma. We then isolate the NK cells from the other cells in the leukapheresis product. Next, we selectively activate the NK cells by co-culture with NKSTIM. After initial expansion, we engineer the expanded NK cells using a gamma-retrovirus to express mbIL-15 and the CAR. We further expand the NK cells, followed by harvesting and cryopreservation to form the final cell product. For off-the-shelf administration, clinical sites will thaw the CAR NK product candidate for administration to patients at the clinical site.

We believe that establishing our own internal cGMP manufacturing capabilities will facilitate clinical product supply, lower the risk of manufacturing disruptions, and enable more cost-effective manufacturing for clinical and commercial supply of our product candidates. We have a 2,700-square foot clinical cGMP facility at our original corporate location in South San Francisco, California, which we have used to produce clinical supply. We recently completed construction and validation of a new facility in South San Francisco to support research and development and future manufacturing of Nkarta’s cell therapy products and product candidates, including potential needs for pivotal clinical trials and commercial launch. In addition to housing the new manufacturing facilities, the new site also serves as our headquarters with office space and research facilities. We currently manufacture clinical supply of NKSTIM and the gamma-retrovirus at third-party contract manufacturing sites. We intend to manufacture NKSTIM in house in the future.

Based on our current process and early cGMP manufacturing experience, we believe that we will be able to produce hundreds of doses from a single manufacturing run. At the 2022 Annual Meeting of the SITC, we presented

data demonstrating that further optimization of our core process could allow the production of several thousand doses from a single manufacturing run.

Compliance with government regulations related to the manufacture of our product candidates may require significant effort and financial resources. The design, construction, qualification and regulatory approvals for our cGMP manufacturing facilities require substantial capital and technical expertise. The facilities will be subject to inspection by the FDA and other regulatory agencies to ensure compliance with cGMP. Any delays in receiving regulatory approvals for our manufacturing facilities or any failure by us to comply with applicable regulations at our manufacturing facilities could delay our development and commercialization activities. In addition, if our product candidates fail to meet the required specifications after manufacture or if we change the manufacturing process, we may need to obtain additional regulatory approvals. If we are not able to obtain the necessary additional regulatory approvals, we may need to perform additional clinical trials or manufacturing runs or further refine our manufacturing processes, which could delay development and commercialization of our product candidates and cost substantial additional capital. Any delays in our development and commercialization activities could have a material effect on our business, financial position, results of operations and competitive position.

Patents, Trademarks and Proprietary Technology

We protect our intellectual property rights and proprietary technology with a combination of patent rights that we own or license in certain fields of use, trademark rights, confidentiality procedures and contractual provisions. We seek not only to protect our intellectual property rights and proprietary technology in select key global markets, but also to supplement our intellectual property portfolio with new filings and applications to enhance such protection and support commercialization of current and future product candidates. To that end, we continue to seek protection for our technological innovations and branding efforts by filing new patent and trademark applications when and where appropriate. Our patent portfolio consists of a combination of issued patents and pending patent applications licensed from third parties, jointly owned by us with third parties, and owned solely by us. The patents and patent applications in our portfolio can be categorized as related to our NK cell engineering platform (e.g., NK cell expansion and/or persistence), NKX019, NKX101, NKX070, or future pipeline product candidates and alternative technologies. Some of our issued patents and patent applications are exclusively licensed to us in therapeutic fields of use from the National University of Singapore ("NUS"), St. Jude Children’s Research Hospital, Inc., or both (collectively, "Licensors"). As of December 31, 2023, our patent portfolio includes at least 30 issued utility patents and at least 170 pending utility patent applications, which are solely owned by us, jointly owned with others, or licensed to us.

At least 20 of the issued utility patents and at least 55 of the pending utility patent applications in our portfolio are related to our NKX019 product candidate, and include composition-of-matter, manufacturing process, and method-of-use claims (e.g., targeting CD19-expressing cells, including monotherapies and combination therapies). These issued utility patents include patents in the United States, Europe, Japan, and other jurisdictions outside the United States and are solely owned by us or licensed from Licensors. These pending utility patent applications include applications in the United States, Europe, Japan, the Patent Cooperation Treaty ("PCT"), and other jurisdictions outside the United States. Of these pending patent applications, at least 45 are solely owned by us, with the remaining licensed from Licensors. The estimated expiration dates of the issued utility patents are between approximately 2024 and 2040 (with certain commercially relevant patents extending through approximately 2040), and the estimated expiration dates of these pending utility patent applications are between approximately 2024 and 2044 (with certain commercially relevant patent applications extending through approximately 2044).

At least 20 of the issued utility patents and at least 70 of the pending utility patent applications in our portfolio are related to our NKX101 product candidate, and include composition-of-matter, manufacturing process, and method-of-use claims (e.g., targeting NKG2D ligand-expressing cells, including monotherapies and combination therapies). These issued utility patents include patents in the United States, Europe, Japan, and other jurisdictions outside the United States that are licensed from Licensors, including one patent in the United States that is co-owned by us with NUS. These pending utility patent applications include applications in the United States, Europe, Japan, and other jurisdictions outside the United States. Of these pending patent applications, at least 60 are solely owned or co-owned by us, with the remaining patent applications (and the co-owned applications) licensed from Licensors. The estimated expiration dates of the issued utility patents are between approximately 2024 and 2038 (with certain commercially relevant patents extending through approximately 2038), and the estimated expiration dates of these pending utility patent applications are between approximately 2024 and 2044 (with certain commercially relevant patent applications extending through approximately 2044).

At least 15 of the issued utility patents and at least 60 of the pending utility patent applications in our portfolio are related to our NKX070 product candidate, and include composition-of-matter, manufacturing process, and method-of-use claims (e.g., targeting CD70-expressing tumors, including monotherapies and combination therapies). These issued utility patents include patents in the United States, Europe, Japan, and other jurisdictions outside the United States and are licensed from Licensors. These pending utility patent applications include applications in the United States, Europe, Japan, the PCT, and other jurisdictions outside the United States. Of these pending patent applications, at least 50 are solely owned by us or, in the case of two patent applications, co-owned by us with our collaboration partner on the NKX070 program, CRISPR, with the remaining licensed from Licensors. The estimated expiration dates of the issued utility patents are between approximately 2024 and 2035 (with certain commercially relevant patents extending through approximately 2035), and the estimated expiration dates of these pending utility patent applications are between approximately 2024 and 2044 (with certain commercially relevant patent applications extending through approximately 2044).

At least 15 of the issued utility patents and at least 30 of the pending utility patent applications in our portfolio are related to our NK cell engineering platform, and include manufacturing process, method-of-use and composition-of-matter claims relating to NK cell expansion and/or NK cell persistence. These issued utility patents include patents in the United States, Europe, Japan, and other jurisdictions outside the United States and are licensed from Licensors. These pending utility patent applications include applications in the United States, Europe, Japan, and other jurisdictions outside the United States. Of these pending patent applications, at least 20 are solely owned by us, with the remaining licensed from Licensors. The estimated expiration dates of the issued utility patents are between approximately 2024 and 2035 (with certain commercially relevant patents extending through approximately 2035), and the estimated expiration dates of these pending utility patent applications are between approximately 2024 and 2044 (with certain commercially relevant patent applications extending through approximately 2041). Composition-of-matter claims relating to our NKSTIM are estimated to expire in Q4 2024.

In August 2016, we entered into a license agreement with the Licensors. Pursuant to this license, the Licensors granted to us an exclusive, worldwide, royalty-bearing, sublicensable license under specified patents and patent applications related to NK cell technology in the field of therapeutics. Payments to the Licensors pursuant to the license agreement include single-digit royalty payments on commercial sales, a portion of any sublicensing revenue, patent expenses, license maintenance fees and milestone payments upon completion of certain regulatory and commercial milestones related to the clinical development and commercialization of our product candidates, in an aggregate amount of up to 5 million Singapore Dollars ("SGD"). The License Agreement also includes certain performance objectives which obligate us to meet various milestones related to the clinical development and commercialization of our product candidates over time for up to 120 months after the effective date of the License Agreement. The term of the license agreement extends until expiration of the last of the patent rights licensed to us by the Licensors, which is currently expected to occur in approximately 2039. We may terminate the license agreement at will upon 90 days’ prior written notice to the Licensors. The Licensors may terminate the license agreement for certain conditions such as uncured material breach by us, the cession of our business, or our insolvency, liquidation, or receivership.

The U.S. government has certain rights in some of our licensed patents (including U.S. Patent Nos. 7,435,596, 8,026,097, and 11,673,937 and certain related U.S. patent applications, which relate to our NK cell engineering platform) in accordance with the Bayh-Dole Act of 1980. These rights in certain technology developed under government-funded research include, for example, a license to use those inventions for governmental purposes and the right to require us to grant exclusive licenses to such inventions to a third party under certain circumstances. In addition, the U.S. government requires that any products embodying any of these inventions or produced through the use of any of these inventions be manufactured substantially in the United States unless domestic manufacture is not feasible or the requirement is waived. For further details about risks related to the government’s rights in such inventions, see “—The U.S. government could choose to exercise certain rights in technology developed under government-funded research, which could eliminate our exclusive use of such technology or require us to commercialize our product candidates in a way we consider sub-optimal” in the section titled “Risk Factors” in Part I, Item 1A in this Annual Report on Form 10-K.

Our continuing research and development activities, technical expertise and contractual arrangements supplement our existing intellectual property protection and help us maintain our competitive position, and we rely on trade secrets to protect our proprietary information and technologies, especially where we do not believe patent protection is appropriate or obtainable, or where such patents would be difficult to enforce. In order to maintain such trade secrets and other proprietary information, we rely in part on confidentiality agreements with our employees, consultants, contractors, outside scientific collaborators and other advisors.

We also protect our brand through trademark rights. As of December 31, 2023, we are the listed owner of the U.S. registered trademark, NKARTA, and 15 related foreign registered trademarks. In addition, we have a pending U.S. trademark application for NKSTIM. In order to supplement the protection of our brand, we also have a registered internet domain name.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.

FDA Approval Process

In the United States, the FDA regulates investigational drugs, including biological products, under the Federal Food, Drug, and Cosmetic Act ("FDCA") and its implementing regulations. Marketing authorization of a biological product via a biologics license application ("BLA") occurs under section 351 of the Public Health Service Act ("PHSA"). The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including imposition of a clinical hold, refusal by the FDA to approve applications, withdrawal of an approval, import/export delays, issuance of warning letters and other types of enforcement letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits or civil or criminal investigations and penalties brought by the FDA and the Department of Justice ("DOJ") or other governmental entities. The clinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things, of our product candidates are governed by extensive regulation by governmental authorities in the United States and other countries. The FDA, under the FDCA and PHSA, regulates biopharmaceutical products in the United States. The steps required before a product candidate may be approved for marketing in the United States generally include:

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preclinical laboratory tests and animal tests conducted under Good Laboratory Practices ("GLP");

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the submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials commence;

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approval by an independent institutional review board ("IRB") representing each clinical site before each clinical trial may be initiated;

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adequate and well-controlled human clinical trials to establish the safety and efficacy of the product for each indication and conducted in accordance with Good Clinical Practices ("GCP");

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the preparation and submission to the FDA of a BLA;

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FDA acceptance, review and approval of the BLA, which might include an advisory committee review; and

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satisfactory completion of an FDA inspection of the manufacturing facilities at which the product, or components thereof, are made to assess compliance with cGMPs and in the case of cell-based advanced therapy, additionally, current Good Tissue Practices.

The testing and approval process typically requires many years and substantial effort and financial resources, and the receipt and timing of any approval is uncertain. The actual time required may vary substantially based upon the type, complexity, and novelty of the product or disease. For example, the FDA has, at times, taken longer than its usual 30-day window to complete its review of certain first-of kind INDs. In addition, the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unreasonable and significant health risk.

Preclinical and Human Clinical Trials in Support of a BLA

Preclinical studies generally include laboratory evaluations of product chemistry, formulation, and toxicity, as well as animal studies to assess the potential safety and bioactivity of the product candidate. The conduct of preclinical trials is subject to federal regulations and requirements including GLP regulations. The results of the preclinical studies, together with manufacturing information and analytical data, among other things, are submitted to the FDA as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the IND prior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. If outstanding concerns cannot be resolved, the FDA will place the clinical trial, or a portion of it, on clinical hold. A partial clinical hold could stop new patients from enrolling in a clinical trial, or a certain aspect of the study from progressing. A complete clinical hold further requires all patients currently enrolled to discontinue treatment with the product candidate being evaluated. The FDA may also initiate a full or partial clinical hold after the 30 days if, for example, significant public health risks arise during the trial, if FDA believes the study is not being conducted in accordance with FDA regulations, or if results from additional preclinical studies are required by the FDA to evaluate the potential risk and benefit to patients for such a trial. Clinical holds may be temporary or permanent.

Clinical trials involve the administration of the product candidate to human subjects under the supervision of qualified investigators in accordance with federal regulations, in compliance with GCP requirements, and in accordance with a protocol submitted to FDA as part of the IND detailing the objectives of the trial, the parameters used to monitor safety, and the effectiveness criteria, if any, to be evaluated. Each clinical trial and informed consent information must also be reviewed and approved by an independent IRB at each of the sites at which the trial will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions if it believes that the patients are subject to unacceptable risk.

Clinical trials to support BLAs for marketing approval are typically conducted in three sequential phases prior to approval, but the phases may overlap or be combined. These phases generally include the following:

Phase 1. Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects. In Phase 1 trials of cellular therapies, the product candidate is tested for safety, including adverse effects.

Phase 2. Phase 2 clinical trials usually involve studies in a limited patient population to (i) evaluate the efficacy of the product candidate for specific indications, (ii) determine dosage tolerance and optimal dosage and (iii) identify possible adverse effects and safety risks.

Phase 3. If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 clinical trials, the clinical trial program will be expanded to Phase 3 clinical trials to further demonstrate clinical efficacy, optimal dosage and safety within a larger number of patients, typically at geographically dispersed clinical trial sites.

Phase 4. Phase 4 clinical trials may be conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA (post-approval commitments) or required by the FDA (post-approval requirements). Failure to promptly conduct any required Phase 4 clinical trials could result in enforcement action or withdrawal of approval.

A Phase 2/3 trial design is often used in the development of pharmaceutical and biological products. The trial includes Phase 2 elements, such as an early interim analysis of safety or activity, and Phase 3 elements, such as larger patient populations with less restrictive enrollment criteria. With appropriate statistical restrictions, an early interim analysis of clinical or physiologic activity and/or safety may provide for the trial to be stopped, changed or continued before a large number of patients have been enrolled, while still allowing all data from enrolled patients to count in the analysis used to support approval.

A pivotal trial is a clinical trial that is designed to meet regulatory requirements to demonstrate a product candidate’s safety and efficacy to support the approval of the drug or biologic. Generally, pivotal trials are Phase 3 trials, but the FDA may accept results from any phase clinical trial if the design provides a well-controlled and reliable assessment of clinical benefit, particularly in situations in which there is an unmet medical need and the results are sufficiently robust.

The FDA, the IRB or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Additionally, an independent group of qualified experts organized by the clinical trial sponsor, often known as a Data Safety Monitoring Board ("DSMB") or committee, may oversee some clinical studies. Depending on the trial design, this group may provide authorization for whether or not a trial may move forward at designated check points based on access to certain data from the trial. We may also suspend or terminate a clinical trial based on evolving business objectives and the competitive climate.

Clinical trials require substantial time, effort and financial resources. The costs associated with running clinical trials typically increase as a product candidate advances to later stage clinical trials, since the later stage clinical trials typically involve a larger number of patients than the early-stage clinical trials. If a clinical trial for one of our product candidates is put on clinical hold by the FDA (or another regulatory authority in a foreign country), further development and any eventual commercialization of that product candidate would be delayed or may not be possible at all. Any delays in our clinical trials or termination of a program due to a clinical hold could materially adversely affect our business, financial conditions, results of operations, growth prospects and competitive position.

Submission and Review of a BLA

The results of preclinical studies and clinical trials, together with detailed information on the product’s manufacture, composition, quality, controls and proposed labeling, among other things, are submitted to the FDA in the form of a BLA, requesting approval to market the product. The cost of preparing and submitting a BLA is substantial. The application must also be accompanied by a significant user fee payment, which typically increases annually, although waivers may be granted in limited cases. Under an approved BLA, the applicant is also subject to an annual program fee. The FDA has 60 days from its receipt of a BLA to determine whether the application will be accepted for filing based on the Agency’s determination that it is adequately organized and sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has substantial discretion in the approval process and may refuse to accept an application or decide that the data are insufficient for approval and require additional preclinical, clinical or other studies.

Once a BLA has been accepted for filing, the FDA sets a user fee goal date that informs the applicant of the specific date by which the FDA intends to complete its review. The FDA has agreed to certain performance goals to complete the review of BLAs. This is typically ten months from the date that the FDA accepts the BLA for filing for standard review BLAs. Applications classified as Priority Review are reviewed within six months of the date the FDA accepts the BLA for filing. A BLA can be classified for Priority Review when the FDA determines the biologic product has the potential to treat a serious or life-threatening condition and, if approved, would be a significant improvement in safety or effectiveness compared to available therapies. The review process can be extended by FDA requests for additional information or clarification. The FDA reviews BLAs to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity. The FDA may also refer applications for novel biologic products, or biologic products that present difficult questions of safety or efficacy, to be reviewed by an advisory committee—typically a panel that includes clinicians, statisticians and other experts—for review, evaluation, and a recommendation as to whether the BLA should be approved. The FDA is not bound by the recommendation of an advisory committee, but generally follows such recommendations.

Before approving a BLA, the FDA typically will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facilities comply with cGMP. Additionally, the FDA will typically inspect the sponsor and one or more clinical trial sites for compliance with GCP and integrity of the data supporting safety and efficacy.

The FDA will provide a preliminary determination as to whether a REMS is necessary to assure the safe use of the product prior to the BLA, but a final decision will be made during the approval process. If the FDA concludes a REMS is needed, the sponsor of the application must submit a proposed REMS, and the FDA will not approve the application without an approved REMS, if required. A REMS can include medication guides, communication plans for healthcare professionals, and elements to assure a product’s safe use ("ETASU"). An ETASU can include, but is not limited to, special training or certification for prescribing or dispensing the product, dispensing the product only under certain circumstances, special monitoring, and the use of patient-specific registries. A REMS can substantially increase the costs of obtaining approval. The FDA could also require a special warning, known as a boxed warning, to be included in the product labeling in order to highlight a particular safety risk. The FDA may delay approval of a BLA if applicable regulatory criteria are not satisfied and/or the FDA requires additional testing or information. The FDA may require substantial post-marketing testing and surveillance to monitor safety or efficacy of a product.

On the basis of the FDA’s evaluation of the BLA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA will issue either an approval of the BLA or a Complete Response Letter, detailing the deficiencies in the submission and the additional testing or information required for reconsideration of the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the BLA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. An approval letter authorizes commercial marketing and distribution of the biologic with specific prescribing information for specific indications. Even with submission of this additional information, the FDA may ultimately decide that the application does not satisfy the regulatory criteria for approval.

Once granted, product approvals may need be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing. Changes to some of the conditions established in an approved BLA, including changes in indications, product labeling, manufacturing processes or facilities, require submission and FDA approval of a new BLA or BLA supplement before the change can be implemented. A BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing BLA supplements as it does in reviewing BLAs. BLA supplement review timelines are typically ten months from the date of submission to the FDA for standard review and six months from the date of submission to the FDA for Priority Review.

If we are unable to obtain a BLA for a product candidate accepted or approved, commercialization of that product candidate will be delayed or we may not be able to commercialize that product candidate at all. This would have a material effect on our business, financial conditions, results of operations, growth prospects and competitive position.

Expedited Programs, Accelerated Approval Programs, Breakthrough Therapy Designation, and Regenerative Medicine Advanced Therapies and Priority Medicine Designation

A sponsor may seek approval of its drug candidate under programs designed to accelerate FDA’s review of INDs and BLA. For example, the FDA may grant Fast Track Designation to a drug intended for treatment of a serious or life-threatening disease or condition that has potential to address unmet medical needs for the disease or condition. The key benefits of fast track designation are the eligibility for priority review, rolling review (submission of portions of an application before the complete marketing application is submitted) and accelerated approval, if the application meets relevant criteria. Under the accelerated approval program, the FDA may approve a BLA on the basis of either a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. The FDA generally requires post-marketing studies or completion of ongoing studies after marketing authorization to verify the drug’s clinical benefit in relationship to the surrogate endpoint or ultimate outcome in relationship to the clinical benefit to convert the accelerated approved to a full approval.

Based on results of the Phase 3 clinical trials or trials submitted in a BLA, upon the request of an applicant, the FDA may grant the BLA a priority review designation, which sets the target date for FDA action on the application at six months after the FDA accepts the application for filing. The FDA grants priority review where there is evidence that the proposed drug would be a significant improvement in the safety or effectiveness of the treatment, diagnosis or prevention of a serious condition. If the criteria for priority review are not met, the application is subject to the standard FDA review period of ten months after FDA accepts the application for filing. Priority review designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.

In addition, a sponsor may seek a FDA IND designation of its drug candidate as a breakthrough therapyif the drug can, alone or in combination with one or more other drugs, treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. A breakthrough therapy designation ("BTD") allows companies to work earlier, more closely, and frequently with the FDA, and they may be eligible for priority review and accelerated approval. The sponsor of a new biologic product candidate may request that the FDA designate the candidate for a specific indication as a Breakthrough Therapy concurrent with, or after, the submission of the IND for the biologic product candidate. The FDA must determine if the biological product qualifies for BTD within 60 days of receipt of the sponsor’s request.

Cell-based advanced therapies intended to treat, modify, reverse or cure a serious medical condition can receive Regenerative Medicine Advanced Therapy ("RMAT") designation from the FDA once preliminary clinical evidence has been obtained demonstrating the therapy has the potential to address unmet medical needs for the condition. Similar to BTD, the RMAT allows companies developing regenerative medicine therapies to work earlier, more closely, and frequently with the FDA, and RMAT designated products may be eligible for priority review and accelerated approval. Interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. The timing of a sponsor’s request for designation and FDA response are the same as for the breakthrough therapy designation program. Like the other expedited development programs previously mentioned, RMAT designation does not change the scientific or medical standard for approval or the quality of evidence necessary to support approval. In Europe, the European Medicines Agency ("EMA") can grant PRIority MEdicine ("PRIME"), designation to support development of product candidates that may address unmet needs and improve quality of life, based on the potential to benefit patients from early clinical data.

Special Protocol Assessment

A company may reach an agreement with the FDA under the Special Protocol Assessment ("SPA") process as to the required design and size of clinical trials intended to form the primary basis of an efficacy claim. Under the FDCA and FDA guidance implementing the statutory requirement, an SPA is generally binding upon the FDA except in limited circumstances, such as if the FDA identifies a substantial scientific issue essential to determining safety or efficacy after the clinical trial begins, public health concerns emerge that were unrecognized at the time of the protocol assessment, the sponsor and the FDA agree to the change in writing, or if the clinical trial sponsor fails to follow the protocol that was agreed upon with the FDA.

Disclosure of Clinical Trial Information

Sponsors of clinical trials of FDA-regulated products, including biological products, are required to register and disclose certain clinical trial information on the website www.clintrials.gov. Information related to the product, patient population, phase of investigation, trial sites and investigators, and other aspects of a clinical trial are then made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of clinical trials can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of clinical development programs as well as clinical trial design. Failure to timely register a covered clinical study or to submit study results as provided for in the law can give rise to civil monetary penalties and also prevent the non-compliant party from receiving future grant funds from the federal government. The U.S. National Institutes of Health’s ("NIH") Final Rule on ClinicalTrials.gov registration and reporting requirements became effective in 2017, and both NIH and FDA have signaled the government’s willingness to begin enforcing those requirements against non-compliant clinical trial sponsors.

Orphan Drugs

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition affecting fewer than 200,000 individuals in the United States, or in other limited cases. Orphan drug designation must be requested before submitting a BLA. If the FDA grants orphan drug designation, the identity of the biological product and its potential orphan disease use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process, though companies developing orphan drugs may be eligible for certain incentives, including tax credits for qualified clinical testing. In addition, a BLA for a product that has received orphan drug designation is not subject to a prescription drug user fee unless the application includes an indication other than the rare disease or condition for which the drug was designated. In December 2021, we announced that the FDA granted orphan drug designation to our product candidate NKX101 for treatment of AML.

Generally, if a product that has orphan drug designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same active moiety for the same indication for seven years, except in limited circumstances, such as another drug’s showing of clinical superiority over the drug with orphan exclusivity. A product can be considered clinically superior if it is safer, more effective or makes a major contribution to patient care. Competitors, however, may receive approval of different active moieties for the same indication or obtain approval for the same active moiety for a different indication. In some cases, orphan drug status is contingent on a product with an orphan drug designation demonstrating that it is clinically superior to a previously approved product or products.

Pediatric Information

Under the Pediatric Research Equity Act ("PREA"), new drug applications ("NDAs") or BLAs or supplements to NDAs or BLAs must contain data to assess the safety and effectiveness of the biological product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the biological product is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of data. Unless otherwise required by regulation, PREA does not apply to any biological product with orphan product designation except a product with a new active ingredient that is a molecularly targeted cancer product intended for the treatment of an adult cancer and directed at a molecular target determined by the FDA to be substantially relevant to the growth or progression of a pediatric cancer that is subject to an NDA or BLA submitted on or before August 18, 2020. If a BLA is submitted after August 18, 2020, the sponsor is subject to the requirements of Sections 504(a) and (b) of the FDA Reauthorization Act of 2017 ("FDARA") which will require pediatric studies regardless of orphan designation.

Additional Controls for Biologics

To help reduce the increased risk of the introduction of adventitious agents, the PHSA emphasizes the importance of manufacturing controls for products whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend biologics licenses in situations where there exists a danger to public health, to prepare or procure products in the event of shortages and critical public health needs, and to authorize the creation and enforcement of regulations to prevent the introduction or spread of communicable diseases within the United States.

After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturing process, the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the lot manufacturing history and the results of all of the manufacturer’s tests performed on the lot. The FDA may also perform certain confirmatory tests on lots of some products, such as viral vaccines, before allowing the manufacturer to release the lots for distribution. In addition, the FDA conducts laboratory research related to the regulatory standards on the safety, purity, potency, and effectiveness of biological products. As with drugs, after approval of a BLA, biologics manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing, and are subject to periodic inspection after approval.

Biosimilars

The Biologics Price Competition and Innovation Act of 2009 ("BPCIA") creates an abbreviated approval pathway for biological products shown to be highly similar to or interchangeable with an FDA licensed reference biological product. Biosimilarity sufficient to reference a prior FDA-approved product requires that there be no differences in conditions of use, route of administration, dosage form, and strength, and no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency. Biosimilarity must be shown through analytical trials, animal trials, and a clinical trial or trials, unless the Secretary of Health and Human Services waives a required element. A biosimilar product may be deemed interchangeable with a previously approved product if it meets the higher hurdle of demonstrating that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. To date, a small number of biosimilar products and no interchangeable products have been approved under the BPCIA. Complexities associated with the larger, and often more complex, structures of biological products, as well as the process by which such products are manufactured, pose significant hurdles to biosimilar product implementation, which is still being evaluated by the FDA.

A reference biologic is granted 12 years of exclusivity from the time of first licensure, or BLA approval, of the reference product, and no application for a biosimilar can be submitted for four years from the date of licensure of the reference product. The first biologic product submitted under the biosimilar abbreviated approval pathway that is determined to be interchangeable with the reference product has exclusivity against a finding of interchangeability for other biologics for the same condition of use for the lesser of (i) one year after first commercial marketing of the first interchangeable biosimilar, (ii) 18 months after the first interchangeable biosimilar is approved if there is no patent challenge, (iii) 18 months after resolution of a lawsuit over the patents of the reference biologic in favor of the first interchangeable biosimilar applicant, or (iv) 42 months after the first interchangeable biosimilar’s application has been approved if a patent lawsuit is ongoing within the 42-month period.

Post-Approval Requirements or Commitments

Approved drugs and biologics that are manufactured or distributed in the United States pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, adverse event reporting, product sampling and distribution, advertising and promotion including standards and regulations for direct-to-consumer advertising, off label promotion, industry-sponsored scientific and educational activities and promotional activities involving the Internet. Biologics may be marketed only for the approved indications and in a manner consistent with the provisions of the approved labeling and reporting of adverse experiences with the product.

The FDA may impose a number of post-approval requirements or commitments as a condition of approval of a BLA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance programs to further assess and monitor the product’s safety and effectiveness after commercialization or the FDA may place conditions on an approval that could restrict the distribution or use of the product. The FDA may also require a REMS, which could involve requirements for, among other things, medication guides, special trainings for prescribers and dispensers, patient registries and elements to assure safe use.

In addition, entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. The FDA has promulgated specific requirements for drug cGMP. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may issue enforcement letters or product approvals may need to be withdrawn if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Corrective action could delay product distribution and require significant time and financial expenditures. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information, imposition of post-market studies or clinical trials to assess new safety risks or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

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restrictions on the marketing or manufacturing of the product, suspension of the approval, complete withdrawal of the product from the market or product recalls;

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fines, warning letters or holds on post-approval clinical trials;

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refusal of the FDA to approve applications or supplements to approved applications, or

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suspension or revocation of product approvals;

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product seizure or detention, or refusal to permit the import or export of products; or

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injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including investigation by federal and state authorities.

Foreign Regulation

In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable foreign regulatory authorities before we can commence clinical trials or marketing of the product in foreign countries and jurisdictions. Although many of the issues discussed above with respect to the United States apply similarly in the context of the European Union and other geographies, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

Coverage, Reimbursement and Pricing

Significant uncertainty exists as to the coverage and reimbursement status of any products for which we may obtain regulatory approval. In the United States and foreign markets, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the availability of coverage and the adequacy of reimbursement from third-party payors. Third-party payors include government authorities and private entities, such as managed care organizations, private health insurers and other organizations. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the reimbursement rate that the payor will pay for the product. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication. Moreover, a third-party payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. For example, the payor’s reimbursement payment rate may not be adequate or may require co-payments that patients find unacceptably high. Additionally, coverage and reimbursement for products can differ significantly from payor to payor. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Further, some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they provide reimbursement for use of such therapies.

Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of products and services, in addition to their safety and efficacy. To obtain coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmaco-economic studies to demonstrate the medical necessity and cost-effectiveness of our product. These studies will be in addition to the studies required to obtain regulatory approvals. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products at a profit. Thus, obtaining and maintaining reimbursement status is time-consuming and costly.

The U.S. and foreign governments regularly consider reform measures that affect healthcare coverage and costs. For example, the U.S. and state legislatures have shown significant interest in implementing cost containment programs to limit the growth of government-paid health care costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription products. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the "ACA") contains provisions that may reduce the profitability of products, including, for example, increased rebates for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. The Centers for Medicare and Medicaid Services ("CMS") may develop new payment and delivery models, such as bundled payment models. Adoption of government controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for our products.

The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, the focus on cost containment measures, particularly in the United States, has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if we attain favorable coverage and reimbursement status for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

European Union Coverage Reimbursement and Pricing

In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost effectiveness of a particular drug candidate to currently available therapies, or so called health technology assessments, in order to obtain reimbursement or pricing approval.

For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company.

Healthcare Laws and Regulations

Physicians, other healthcare providers, and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our arrangements with healthcare professionals, principal investigators, consultants, customers and third-party payors are and will be subject to various federal, state and foreign fraud and abuse laws and other healthcare laws and regulations. These laws and regulations may impact, among other things, our arrangements with third-party payors, healthcare professionals who participate in our clinical research programs, healthcare professionals and others who purchase, recommend or prescribe our approved products, and our proposed sales, marketing, distribution and education programs. The U.S. federal and state healthcare laws and regulations that may affect our ability to operate include, without limitation, the following:

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The federal Anti-Kickback Statute, which prohibits persons from, among other things, knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federally funded healthcare programs, such as Medicare and Medicaid. The term “remuneration” has been broadly interpreted to include anything of value;

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The federal civil and criminal false claims laws, including, without limitation, the federal civil monetary penalties law and the civil False Claims Act (which can be enforced by private citizens through qui tam actions), prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment of federal funds, and knowingly making, or causing to be made, a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government;

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The federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA") which creates federal criminal laws that prohibit, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;

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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and its implementing regulations, which imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without the appropriate authorization by entities subject to the law, such as certain healthcare providers, health plans and healthcare clearinghouses and their respective business associates who use, disclose, store or otherwise process HIPAA-protected health information on their behalf;

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The federal transparency requirements under the Physician Payments Sunshine Act, created under the ACA, which requires certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid or the Children’s Health Insurance Program ("CHIP") to report to the Department of Health and Human Services ("HHS") information related to payments and other transfers of value provided to physicians and teaching hospitals and physician ownership and investment interests;

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Analogous state laws and regulations, such as state anti-kickback and false claims laws, that impose similar restrictions and may apply to items or services reimbursed by non-governmental third-party payors, including private insurers;

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State laws that require pharmaceutical companies to implement compliance programs, comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or to track and report gifts, compensation and other remuneration provided to physicians and other health care providers;

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State and local laws requiring the registration of pharmaceutical sales representatives;

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State health information privacy and data breach notification laws, which govern the collection, use, disclosure and protection of health-related and other personal information, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts; and

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State unfair and deceptive trade practices statutes, pursuant to which significant statutory fines and penalties can be imposed against pharmaceutical companies alleged to have engaged in consumer fraud.

We will be required to spend substantial time and money to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations. Recent healthcare reform legislation has strengthened these federal and state healthcare laws. For example, the ACA amends the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statutes to clarify that liability under these statutes does not require a person or entity to have actual knowledge of the statutes or a specific intent to violate them. Moreover, the ACA provides that the government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. Government regulators have been very active in the last several years in revising existing regulations and promulgating new regulations. Government enforcement regulators have also become increasingly active in bringing enforcement actions based on these laws. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws.

If we are found to be in violation of these laws, we may be subject to criminal, civil and administrative sanctions including monetary penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of noncompliance with these laws, and reputational harm, in which case we may be required to curtail or restructure our operations. Moreover, we expect that there will continue to be federal and state laws and regulations, proposed and implemented, that could impact our future operations and business.

Healthcare Reform

In the United States, the European Union and other jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect our results of operations. In particular, there have been and continue to be a number of initiatives at the United States federal and state levels that seek to reduce healthcare costs. For example, in March 2010, the ACA was enacted, which includes measures that have significantly changed the way healthcare is financed by both governmental and private payors. The provisions of the ACA of importance to the pharmaceutical and biotechnology industry are, among others, the following:

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an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drug agents or biologic agents, which is apportioned among these entities according to their market share in certain government healthcare programs;

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an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for branded and generic drugs, respectively;

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a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts to negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;

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extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, unless the drug is subject to discounts under the 340B drug discount program;

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a methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;

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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability;

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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

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requirements under the federal Physician Payments Sunshine Act for drug manufacturers to report information related to payments and other transfers of value made to physicians and teaching hospitals as well as ownership or investment interests held by physicians and their immediate family members;

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a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct, comparative clinical effectiveness research, along with funding for such research;

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creation of the Independent Payment Advisory Board, which, if and when impaneled, will have authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription drugs; and

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establishment of a Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.

Since its enactment, there have been legislative, judicial, and executive challenges to certain aspects of the ACA, including efforts to repeal or replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of the ACA have been signed into law. The Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandates,” and the Bipartisan Budget Act of 2018 (the "BBA") among other things, amends the ACA to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” Further, the 2020 federal spending package eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminated the health insurer. Congress could continue to consider other legislation to repeal or replace certain elements of the ACA.

On December 14, 2018, a U.S. District Court judge in the Northern District of Texas ruled that the individual mandate portion of the ACA is an essential and inseverable feature of the ACA, and therefore because the mandate was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the ACA are invalid as well. On December 18, 2019, the Court of Appeals for the Fifth Circuit court affirmed the lower court’s ruling that the individual mandate portion of the ACA is unconstitutional and it remanded the case to the district court for reconsideration of the severability question and additional analysis of the provisions of the ACA. Thereafter, on March 2, 2020, the U.S. Supreme Court agreed to hear this case. Oral argument in the case took place on November 10, 2020. On June 17, 2021, the U.S. Supreme Court dismissed the case without specifically ruling on the constitutionality of the ACA, finding that the plaintiffs lacked standing to bring the action.

Prior to the Supreme Court’s decision, an executive order was issued to initiate a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.

It is unclear how other efforts, if any, to challenge, repeal or replace the ACA, and other healthcare reform measures, will impact our business.

Other federal health reform measures have been proposed and adopted in the United States since the ACA was enacted. For example, as a result of the Budget Control Act of 2011, among other things, providers are subject to Medicare payment reductions of 2% per fiscal year which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030 pursuant to the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). Further, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment center, and increased the statute of limitations period for the government to recover overpayments from providers from three to five years. The Medicare Access and CHIP Reauthorization Act of 2015 also introduced a quality payment program under which certain individual Medicare providers will be subject to certain incentives or penalties based on new program quality standards. Payment adjustments for the Medicare quality payment began in 2019. These new laws or any other similar laws introduced in the future may result in additional reductions in Medicare and other health care funding, which could negatively affect our customers and accordingly, our financial operations.

There have also been a number of proposals in the United States, at both the federal and state level, to control the escalating cost of healthcare, including the cost of drug treatments, patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and we expect that coverage and reimbursement for new therapies will be increasingly restricted. For example, certain states, including California, have implemented state-level cost containment strategies, which could adversely impact adoption of higher-cost medicines that are new to the market. Further, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which have resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient

programs, and reform government program reimbursement methodologies for products. Most significantly, on August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was signed into law. The IRA includes provisions that will, among others: (i) direct CMS to negotiate the price of certain single-source prescription drugs reimbursed under Medicare, and subject drug manufacturers to civil monetary penalties and a potential excise tax by offering a price that is not equal to or less than the negotiated “maximum fair price” under the law; (ii) impose requirements on drug manufacturers to provide rebates to CMS under Medicare Part B and Medicare Part D as a penalty for price increases that outpace inflation; (iii) cap Medicare Part D beneficiaries’ annual out-of-pocket drug expenses to $2,000 starting in 2025, effectively eliminating the “donut hole” for Medicare Part D; and (iv) delay the rebate rule that would limit the fees that pharmacy benefit managers can charge. The IRA also extends enhanced subsidies for individuals purchasing coverage in a health insurance marketplace through plan year 2025. The effect of the IRA on our business and the healthcare industry in general is not yet known, but we continue to evaluate its potential impact. At the state level, individual states in the United States have also become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In December 2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to regulate pharmaceutical benefit managers ("PBMs") and other members of the health care and pharmaceutical supply chain, an important decision that may lead to further and more aggressive efforts by states in this area. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing.

We cannot predict what initiatives may be adopted in the future. Further federal, state, and regional developments are likely, and we expect ongoing initiatives to increase pressure on drug pricing. These changes may adversely impact the prices we or our future collaborators may charge for our products candidates, if commercialized.

Additional Regulation

In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservation and Recovery Act and the Toxic Substances Control Act, affect our business. These and other laws govern the use, handling and disposal of various biologic, chemical and radioactive substances used in, and wastes generated by, operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. Equivalent laws have been adopted in foreign countries that impose similar obligations.

Anti-Corruption Laws

The Foreign Corrupt Practices Act (the "FCPA") the U.S. domestic bribery statute contained in 18 U.S.C. §201, the U.S. Travel Act, the USA PATRIOT Act, and possibly other state and national anti-bribery and anti-money laundering laws in countries in which we conduct activities. These anti-corruption laws prohibit any U.S. individual or business from paying, offering or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. This could become relevant in the conduct of international clinical trials where the sites for such trials may be a government-owned hospital. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight and debarment from government contracts.

Foreign Regulation

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NKTX · 10-K · period ended 2023-12-31

Item 1. Business.

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NKTX · 10-K · period ended 2023-12-31

Item 1. Business.

NKTX US Equity