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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021 
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 001-38853
NGM BIOPHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware26-1679911
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
333 Oyster Point Boulevard
South San Francisco, CA
94080
(Address of principal executive offices)(Zip Code)
(650) 243-5555
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class of Securities RegisteredTrading
 Symbol
Name of Each Exchange on which Securities are Registered
Common Stock, par value $0.001 per shareNGMThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of August 2, 2021, the registrant had 77,338,144 shares of common stock, $0.001 par value per share, outstanding.



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

i


PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
NGM BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
June 30,
2021
December 31,
2020*
Assets
Current assets:
Cash and cash equivalents$99,403 $147,017 
Short-term marketable securities291,147 148,139 
Related party receivable from collaboration3,586 333 
Related party contract asset 6,100 
Prepaid expenses and other current assets8,993 6,837 
Total current assets403,129 308,426 
Property and equipment, net12,790 14,526 
Restricted cash1,499 1,499 
Other non-current assets5,593 4,592 
Total assets$423,011 $329,043 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$5,141 $9,663 
Accrued liabilities31,891 29,945 
Deferred rent, current3,048 2,975 
Contract liabilities4,963  
Total current liabilities45,043 42,583 
Deferred rent, non-current4,893 6,417 
Total liabilities49,936 49,000 
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding as of June 30, 2021 and December 31, 2020, respectively
  
Common stock, $0.001 par value; 400,000,000 shares authorized; 77,307,156 and 70,585,364 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
77 71 
Additional paid-in capital735,860 578,599 
Accumulated other comprehensive income5 4 
Accumulated deficit(362,867)(298,631)
Total stockholders' equity373,075 280,043 
Total liabilities and stockholders' equity$423,011 $329,043 
See accompanying notes to unaudited condensed consolidated financial statements.
*The condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited financial statements as of that date.
1


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



Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Related party revenue$16,773 $19,755 $38,348 $44,119 
Operating expenses:
Research and development43,570 38,494 84,269 76,933 
General and administrative9,823 6,794 18,544 13,389 
Total operating expenses53,393 45,288 102,813 90,322 
Loss from operations(36,620)(25,533)(64,465)(46,203)
Interest income, net115 388 229 1,563 
Other expense, net(187)(471) (91)
Net loss$(36,692)$(25,616)$(64,236)$(44,731)
Net loss per share, basic and diluted$(0.48)$(0.38)$(0.84)$(0.66)
Weighted average shares used to compute net loss per share, basic and diluted
77,096,416 68,305,056 76,568,217 67,850,640 
See accompanying notes to unaudited condensed consolidated financial statements.
2


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




Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Net loss$(36,692)$(25,616)$(64,236)$(44,731)
Other comprehensive income, net of tax:
Net unrealized gain on available-for-sale marketable securities23 192 1 112 
Total comprehensive loss$(36,669)$(25,424)$(64,235)$(44,619)
See accompanying notes to unaudited condensed consolidated financial statements.
3


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




Common StockAdditional
Paid-In Capital
Other
Comprehensive Income (Loss)
Accumulated DeficitTotal
Stockholders' Equity
SharesAmount
Balance at December 31, 202070,583 $71 $578,599 $4 $(298,631)$280,043 
Issuance of common stock under offering, net of issuance costs5,324 5 134,565 134,570 
Issuance of common stock upon exercise of stock options1,001 1 5,906 — — 5,907 
Vesting of common stock from early exercises5 — 41 — — 41 
Stock-based compensation expense— — 6,582 — — 6,582 
Comprehensive loss— — — (22)— (22)
Net loss— — — — (27,544)(27,544)
Balance at March 31, 202176,913 $77 $725,693 $(18)$(326,175)$399,577 
Issuance of common stock upon exercise of stock options280 — 1,905 — — 1,905 
Issuance of common stock under employee stock purchase plan110 — 1,409 — — 1,409 
Issuance of common stock to participants in 401(k) plan4 — 125 — — 125 
Vesting of common stock from early exercises— — 2 — — 2 
Stock-based compensation expense— — 6,716 — — 6,716 
Issuance costs under offering— — 10 10 
Comprehensive income— — — 23 — 23 
Net loss— — — — (36,692)(36,692)
Balance at June 30, 202177,307 $77 $735,860 $5 $(362,867)$373,075 



See accompanying notes to unaudited condensed consolidated financial statements.

4


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




Common StockAdditional
Paid-In Capital
Other
Comprehensive Income (Loss)
Accumulated DeficitTotal
Stockholders' Equity
SharesAmount
Balance at December 31, 201966,886 $67 $526,771 $25 $(196,144)$330,719 
Issuance of common stock upon exercise of stock options984 1 3,590 — — 3,591 
Vesting of common stock from early exercises21 — 162 — — 162 
Stock-based compensation expense— — 3,695 — — 3,695 
Comprehensive loss— — — (80)— (80)
Net loss— — — — (19,115)(19,115)
Balance at March 31, 202067,891 $68 $534,218 $(55)$(215,259)$318,972 
Issuance of common stock upon exercise of stock options680 1 2,365 — — 2,366 
Issuance of common stock under employee stock purchase plan109 — 1,285 — — 1,285 
Issuance of common stock to participants in 401(k) plan6 — 119 — — 119 
Vesting of common stock from early exercises16 — 123 — — 123 
Stock-based compensation expense— — 3,723 — — 3,723 
Comprehensive income— — — 192 — 192 
Net loss— — — — (25,616)(25,616)
Balance at June 30, 202068,702 $69 $541,833 $137 $(240,875)$301,164 
See accompanying notes to unaudited condensed consolidated financial statements.

5


NGM BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
20212020
Cash flows from operating activities
Net loss$(64,236)$(44,731)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense13,298 7,418 
Reduction in related party contract asset due to Amended Collaboration Agreement with Merck4,600  
Depreciation3,118 3,381 
Amortization of premium (discount) on marketable securities1,518 (190)
Other non-cash expenses49 239 
Changes in operating assets and liabilities:
Related party receivable from collaboration(3,253)2,127 
Related party contract asset1,500  
Prepaid expenses and other assets(3,157)(3,119)
Accounts payable(4,522)(6,874)
Accrued liabilities2,038 7,634 
Deferred rent(1,451)(1,378)
Contract liabilities4,963 (2,798)
Net cash used in operating activities(45,535)(38,291)
Cash flows from investing activities
Purchase of marketable securities(194,525)(29,399)
Proceeds from maturities of marketable securities50,000 65,836 
Net purchase of property and equipment(1,355)(1,445)
Net cash (used in) provided by investing activities(145,880)34,992 
Cash flows from financing activities
Proceeds from follow on offering, net134,580  
Proceeds from exercise of stock options7,812 5,957 
Proceeds from employee stock purchase plan1,409 1,285 
Deferred offering costs paid (224)
Net cash provided by financing activities143,801 7,018 
Net (decrease) increase in cash and cash equivalents(47,614)3,719 
Cash, cash equivalents and restricted cash, at beginning of period148,516 247,472 
Cash, cash equivalents and restricted cash, at end of period$100,902 $251,191 
Non-cash investing and financing activities:
Vesting of common stock from early exercises$43 $285 
Property and equipment purchases accrued and not yet paid$77 $87 
Deferred offering costs accrued but not yet paid$ $235 
See accompanying notes to unaudited condensed consolidated financial statements.
6


NGM BIOPHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
NGM Biopharmaceuticals, Inc. and its wholly-owned subsidiary, collectively referred to as the Company, is focused on discovering and developing novel therapeutics based on scientific understanding of key biological pathways underlying retinal diseases, cancer, and liver and metabolic diseases. The Company’s robust portfolio of product candidates range from early discovery to late-stage development and include NGM621, NGM120, NGM707, NGM438, MK-3655 and aldafermin. The Company has additional undisclosed programs that are in various stages of development ranging from functional validation to preclinical development.
The Company was incorporated in Delaware in December 2007 and commenced operations in 2008. Its headquarters are located at 333 Oyster Point Blvd., South San Francisco, California 94080.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, and Regulation S-X for interim consolidated financial information. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the United States Securities and Exchange Commission, or SEC, on March 15, 2021. These unaudited condensed consolidated financial statements reflect all adjustments that management believes are necessary for a fair presentation of the periods presented. All such adjustments are of a normal recurring nature and are not necessarily indicative of results expected for the full fiscal year or for any subsequent interim period.
These unaudited condensed consolidated financial statements include the consolidated accounts of NGM Biopharmaceuticals, Inc. and its wholly-owned foreign subsidiary in Australia. All intercompany balances and transactions have been eliminated upon consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Specific accounts that require management estimates include, but are not limited to, the valuation of common stock and the associated stock-based compensation expense, contract manufacturing accruals, clinical trial accruals and revenue recognition in accordance with Accounting Standards Codification 606 or, ASC 606. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.
Uses and Sources of Liquidity
Since inception, the Company has incurred net losses and negative cash flow from operations. Net losses were $36.7 million and $64.2 million during the three and six months ended June 30, 2021, respectively, and $25.6 million and $44.7 million for the three and six months ended June 30, 2020, respectively. As of June 30, 2021, the Company had an accumulated deficit of $362.9 million. The Company expects its accumulated deficit will increase significantly over time and does not expect to experience positive cash flows from operations in the near future.
As of June 30, 2021, the Company had $390.6 million of cash, cash equivalents and short-term marketable securities. In January 2021, the Company sold 5,324,074 shares of its common stock through an underwritten public offering at a price to the public of $27.00 per share for aggregate net proceeds to the Company of $134.6 million after deducting underwriting discounts and commissions and other offering expenses paid by the Company. In June 2020, the Company entered into an Open Market Sale AgreementSM, or the Sales Agreement, with Jefferies LLC. During the six months ended June 30, 2021, no shares of the Company's common stock were sold pursuant to
7


the Sales Agreement. As of June 30, 2021, $127.4 million of the Company's common stock remained available to be sold under the Sales Agreement, subject to conditions specified in the Sales Agreement.
The Company believes its existing cash, cash equivalents and short-term marketable securities will be sufficient to fund its operations for a period of at least one year from the date of these unaudited condensed consolidated financial statements.
To fully implement the Company’s business plan and fund its operations, the Company will need to raise additional capital through public or private equity offerings (which may include potential net proceeds from future sales, if any, under the Sales Agreement), debt financings, government or other third-party funding, collaborations, strategic alliances and licensing arrangements or a combination of the foregoing.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, the related party receivable from collaboration and other current assets and liabilities approximate their respective fair values due to their short-term nature.
Cash and Cash Equivalents
Cash and cash equivalents are stated at fair value. Cash equivalents are securities with an original maturity of three months or less at the time of purchase. The Company limits its credit risk associated with cash and cash equivalents by placing its investments with a bank it believes is highly creditworthy and with highly rated money market funds. As of June 30, 2021 and December 31, 2020, cash and cash equivalents consisted of bank deposits and investments in money market funds.
Marketable Securities
The appropriate classification of the Company’s marketable securities is determined at the time of purchase and such designations are re-evaluated at each balance sheet date. All of the Company’s securities are considered as available-for-sale and carried at estimated fair values and reported in cash equivalents and short-term marketable securities. Unrealized gains and losses on available-for-sale securities are excluded from net loss and reported in accumulated other comprehensive income, net of tax as a separate component of stockholders’ equity. Other income (expense), net, includes interest, amortization of purchase premiums and accretion of purchase discounts, realized gains and losses on sales of securities and other-than-temporary declines in the fair value of securities, if any. The cost of securities sold is based on the specific identification method.
The Company’s investments are regularly reviewed for other-than-temporary declines in fair value. This review includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company has the intent to sell the securities and whether it is more likely than not that the Company will be required to sell the securities before the recovery of their amortized cost basis. When the Company determines that the decline in fair value of an investment is below its carrying value and this decline is other-than-temporary, the Company reduces the carrying value of the security it holds and records a loss for the amount of such decline. As of June 30, 2021, the Company did not record any impairment related to other-than-temporary declines in the fair value of securities.
Restricted Cash
The Company’s restricted cash balance represents collateral required under the Company’s facility lease agreement and is classified as a non-current asset on the condensed consolidated balance sheets, as the collateral will not be returned to the Company within 12 months from the date of these condensed consolidated financial statements.
Concentration of Credit and Other Risks
Cash, cash equivalents and marketable securities from the Company’s available-for-sale and marketable security portfolio potentially subject the Company to concentrations of credit risk. The Company is invested in money market funds and marketable securities through custodial relationships with major U.S. and Australian banks. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government.
8


Related party receivables from collaborations are typically unsecured. Accordingly, the Company may be exposed to credit risk generally associated with its current collaboration agreement with Merck Sharp & Dohme Corp., or Merck, and any future collaboration agreements with other collaboration partners. To date, the Company has not experienced any losses related to these receivables.
Amounts recognized as revenue prior to the Company having an unconditional right (other than a right that is conditioned only on the passage of time) to receipt are recorded as contract assets in the Company's condensed consolidated balance sheets. Although the Company expects to have an unconditional right to receive such amounts, the Company may be exposed to the risk of not receiving the recorded amounts under its current collaboration agreement with Merck and any future collaboration agreements with other collaboration partners. To date, the Company has not experienced any losses related to contract assets.
Merck accounted for 100% of the Company’s revenue for the three and six months ended June 30, 2021 and 2020.
Property and Equipment, Net
Property and equipment is recorded at cost and consists of computer equipment, laboratory equipment and office furniture and leasehold improvements. Maintenance and repairs, and training on the use of equipment, are expensed as incurred. Costs that improve assets or extend their economic lives are capitalized. Depreciation is recognized using the straight-line method based on an estimated useful life of the asset, which is as follows:
Computer equipment3 years
Laboratory equipment and office furniture3 years
Leasehold improvementShorter of life of asset or lease term
Leases
The Company’s lease agreements for its laboratory and office facilities are classified as operating leases. Rent expense is recognized on a straight-line basis over the term of the lease. Incentives granted under the Company’s facilities leases, including allowances to fund leasehold improvements and rent holidays, are capitalized and are recognized as reductions to rental expense on a straight-line basis over the term of the lease.
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. As of June 30, 2021 and December 31, 2020, no revision to the remaining useful lives or write-down of long-lived assets was required.
Income Taxes
Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and the operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Deferred tax assets and liabilities are measured at the balance sheet date using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period such tax rate changes are enacted.
Revenue Recognition
Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers (Topic 606) requires an entity to recognize revenue upon the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company applies the following five-step revenue recognition model outlined in ASC 606 to adhere to this core
9


principle: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation.
All of the Company’s revenue to date has been generated from its collaboration agreements, primarily its collaboration agreement with Merck. The terms of these agreements generally require the Company to provide (i) license options for its compounds, (ii) research and development services and (iii) non-mandatory services in connection with participation in research or steering committees. Payments received under these arrangements may include non-refundable upfront license fees, partial or complete reimbursement of research and development costs, contingent consideration payments based on the achievement of defined collaboration objectives and royalties on sales of commercialized products. In some agreements, the collaboration partner is solely responsible for meeting defined objectives that trigger contingent or royalty payments. Often the partner only pursues such objectives subsequent to exercising an optional license on compounds identified as a result of the research and development services performed under the collaboration agreement.
The Company assesses whether the promises in its arrangements, including any options provided to the partner, are considered distinct performance obligations that should be accounted for separately. Judgment is required to determine whether the license to a compound is distinct from research and development services or participation in research or steering committees, as well as whether options create material rights in the contract. In situations when a contract includes distinct services that are substantially the same and have the same pattern of transfer to the customer over time, they are recognized as a series of distinct services.
The transaction price in each arrangement is generally comprised of a non-refundable upfront fee and unconstrained variable consideration related to the performance of research and development services. The Company typically submits a budget for the research and development services to the partner in advance of performing the services. The transaction price is allocated to the identified performance obligations based on the standalone selling price, or SSP, of each distinct performance obligation. Judgment is required to determine the SSP. In instances where the SSP is not directly observable, such as when a license or service is not sold separately, SSP is determined using information that may include market conditions and other observable inputs. The Company utilizes judgment to assess the nature of its performance obligations to determine whether they are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress toward completion. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
The Company’s collaboration agreements may include contingent payments related to specified development and regulatory milestones or contingent payments for royalties based on sales of a commercialized product. Milestones can be achieved for such activities in connection with progress in clinical trials, regulatory filings in various geographical markets and marketing approvals from health authorities. Sales-based royalties are generally related to the volume of annual sales of a commercialized product. At the inception of each agreement that includes such payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price by using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s or its partner’s control, such as those related to regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation based on a relative SSP basis. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of each such milestone and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Pursuant to the guidance in ASC 606, sales-based royalties are not included in the transaction price. Instead, royalties are recognized at the later of when the performance obligation is satisfied or partially satisfied, or when the sale that gives rise to the royalty occurs.
Contract modifications, defined as changes in the scope or price (or both) of a contract that are approved by the parties to the contract, such as a contract amendment, exist when the parties to a contract approve a modification that either creates new, or changes existing, enforceable rights and obligations of the parties to the contract. Depending on facts and circumstances, the Company accounts for a contract modification as one of the following: (i) a separate contract; (ii) a termination of the existing contract and a creation of a new contract; or (iii) a combination of the preceding treatments. A contract modification is accounted for as a separate contract if the scope of the contract increases because of the addition of promised services that are distinct and if the price of the contract increases by an amount of consideration that reflects the Company’s standalone selling prices of the additional promised services. When a contract modification is not considered a separate contract and the remaining services are distinct from the services transferred on or before the date of the contract modification, the Company
10


accounts for the contract modification as a termination of the existing contract and a creation of a new contract. When a contract modification is not considered a separate contract and the remaining services are not distinct, the Company accounts for the contract modification as an add-on to the existing contract and as an adjustment to revenue on a cumulative catch-up basis.
Research and Development
Research and development costs are expensed as incurred. Research and development expenses primarily include salaries and benefits for medical, clinical, quality, preclinical, manufacturing and research personnel, costs related to research activities, preclinical studies, clinical trials, drug manufacturing expenses and allocated overhead and facility occupancy costs. The Company accounts for non-refundable advance payments for goods or services that will be used in future research and development activities as expenses when the goods have been received or when the service has been performed rather than when the payment is made.
Clinical trial costs are a component of research and development expenses. The Company expenses costs for its clinical trial activities performed by third parties, including clinical research organizations, or CROs, and other service providers, as they are incurred, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements. The Company uses assessments by its internal personnel and information it receives from outside service providers to estimate the clinical trial costs incurred.
Stock-Based Compensation
The Company’s stock-based compensation programs include stock option grants, as well as shares issued under its 2019 Employee Stock Purchase Plan, or ESPP. Grants are awarded to employees, directors and nonemployees. The Company measures employee and director stock-based compensation expense for all stock-based awards at the grant date based on the fair value measurement of the award. Subsequent to the adoption of ASU No. 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting on January 1, 2019, stock-based compensation expense for non-employee awards is measured based on the fair value on the date of adoption. The expense is recorded on a straight-line basis over the requisite service period, which is generally the vesting period, for the entire award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures materially differ from estimates. The Company calculates the fair value measurement of stock options using the Black-Scholes option-pricing model.
Foreign Currency Transactions
The functional currency of NGM Biopharmaceuticals Australia Pty Ltd., the Company’s wholly-owned subsidiary, is the U.S. dollar. Accordingly, all monetary assets and liabilities of the subsidiary are remeasured into U.S. dollars at the current period-end exchange rates and non-monetary assets are remeasured using historical exchange rates. Income and expense elements are remeasured to U.S. dollars using the average exchange rates in effect during the period. Remeasurement gains and losses are recorded as other income (expense), net on the condensed consolidated statements of operations.
The Company is subject to foreign currency risk with respect to its clinical and manufacturing contracts denominated in currencies other than the U.S. dollar, primarily British Pounds, Swiss Francs, Australian dollars and the Euro. Payments on contracts denominated in foreign currencies are made at the spot rate on the day of payment. Changes in the exchange rate between billing dates and payment dates are recorded within other income (expense), net, on the condensed consolidated statements of operations.
Comprehensive Loss
Comprehensive loss is composed of net loss and certain changes in stockholders’ equity that are excluded from net loss, primarily unrealized gains or losses, net of taxes, on the Company’s marketable securities.
Net Loss per Share
Basic net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding during the period, less shares subject to repurchase and excludes any dilutive effects of stock-based options and awards. Diluted net income per ordinary share is computed by giving effect to all potentially dilutive shares, including common stock issuable upon exercise of stock options. However, where there is a diluted net loss per ordinary share, no adjustment is made for potentially issuable shares since their effect would be anti-dilutive. In this case, diluted net loss per share is equal to basic net loss per share.
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Net loss per share was computed as follows (in thousands, except share and per share amounts):
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Numerator:
Net loss$(36,692)$(25,616)$(64,236)$(44,731)
Denominator:
Weighted average number of shares used in calculating net loss per share—basic and diluted77,096,416 68,305,056 76,568,217 67,850,640 
Net loss per share—basic and diluted$(0.48)$(0.38)$(0.84)$(0.66)
Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
Three and Six Months Ended
June 30,
20212020
Options to purchase common stock11,124,234 10,478,682 
Shares committed under ESPP214,604 467,614 
Total11,338,838 10,946,296 
Segment and Geographical Information
The Company operates in one business segment. Substantially all of the Company’s long-lived assets, comprised of property and equipment, are based in the United States. For the three and six months ended June 30, 2021 and 2020, the Company’s revenues were entirely within the United States based upon the location of the Company and Merck.
Recent Accounting Pronouncements
New accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s results of operations and financial position upon adoption. Under the Jumpstart Our Business Startups Act of 2012, as amended, the JOBS Act, the Company currently meets the definition of an emerging growth company and has elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. The Company expects to be a large accelerated filer as of December 31, 2021 and as a result, the Company will no longer be an emerging growth company as of that date.
Recently Adopted Accounting Pronouncements
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (ASC 808): Clarifying the Interaction between ASC 808 and ASC 606, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer. In addition, ASC 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the participant is not a customer for that transaction. The Company adopted ASU 2018-18 effective January 1, 2021, noting no material impact on the Company’s results of operations and financial position.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance modifies ASC 740 to simplify several aspects of accounting for income taxes, including eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation. The Company adopted ASU 2019-12 effective January 1, 2021, noting no material impact on the Company’s results of operations and financial position.
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Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which increases lease transparency and comparability among organizations. Under the new standard, lessees will be required to recognize right-of-use, or ROU, assets and lease liabilities arising from lease arrangements on the balance sheet, with the exception of leases with a term of twelve months or less, which permits a lessee to make an accounting policy election by class of underlying asset not to recognize the ROU assets and lease liabilities. In March 2018, the FASB approved an alternative transition method to the modified retrospective approach, which eliminates the requirement to restate prior period financial statements and allows the cumulative effect of the retrospective allocation to be recorded as an adjustment to the opening balance of retained earnings at the date of adoption. In November 2019, the FASB issued ASU 2019-10, which deferred the effective date for certain ASUs including ASU 2016-02. In June 2020, due to the evolving impacts of the COVID-19 pandemic, the FASB issued ASU 2020-05, which further defers the effective date of ASU 2016-02, which is now effective for the Company’s fiscal year beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.
Given the Company expects that it will no longer be an emerging growth company as of December 31, 2021, the Company plans to adopt the new lease standard in the fiscal year beginning January 1,2021, using the optional transition method, which allows the Company to recognize a cumulative-effect adjustment to the opening balance of accumulated deficit at the date of adoption and apply the new disclosure requirements beginning in the period of adoption. The Company also plans to elect the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allows the Company to carryforward the historical lease classification and make an accounting policy election whereby ROU assets and lease liabilities associated with lease arrangements with terms less than one year will not be recognized. The Company continues to evaluate the impact of this new lease standard to its results of operations and financial position.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard amends guidance on reporting credit losses for financial assets held at amortized cost basis, including accounts receivable, investments classified as available for sale, such as our debt securities, and unbilled related party revenue. Estimated credit losses will be recorded as an allowance rather than a write-down. In November 2019, the FASB issued ASU 2019-10, which deferred the effective date for certain ASUs including ASU 2016-13. Given the Company expects that it will no longer be an emerging growth company as of December 31, 2021, it plans to adopt Topic 326 in the fiscal year beginning January 1, 2021 and the impact of adoption is not expected to materially impact the Company’s results of operations and financial position.
3. Fair Value Measurements
Cash equivalents and marketable securities are classified as available-for-sale securities and consisted of the following (in thousands):
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
As of June 30, 2021
U.S. government agencies securities$141,128 $13 $ $141,141 
Money market funds86,581   86,581 
Corporate and agency bonds76,065 4 (12)76,057 
Commercial paper73,949   73,949 
Totals$377,723 $17 $(12)$377,728 
Classified as:
Cash and cash equivalents$86,581 
Short-term marketable securities (amortized cost of $291,142)
291,147 
Total$377,728 
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Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
As of December 31, 2020
Money market funds$137,658 $ $ $137,658 
U.S. government agencies securities98,647 9 (3)98,653 
Commercial paper41,945   41,945 
Corporate and agency bonds7,543  (2)$7,541 
Totals$285,793 $9 $(5)$285,797 
Classified as:
Cash and cash equivalents$137,658 
Short-term marketable securities (amortized cost of $148,135)
148,139 
Total$285,797 
Cash and cash equivalents in the table above excludes cash on deposit with banks of $12.8 million and $9.4 million as of June 30, 2021 and December 31, 2020, respectively.
To date, the Company has not recorded any impairment charges against the market value of its marketable securities. In determining whether a decline is other than temporary, the Company considers various factors including the length of time and extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer and the Company’s intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.
As of June 30, 2021 and December 31, 2020, all of the Company’s marketable securities had remaining contractual maturities of less than one year. As of June 30, 2021, there were eleven marketable securities in an unrealized loss position compared to one marketable security in an unrealized loss position as of December 31, 2020. Marketable securities that had been in unrealized loss positions as of June 30, 2021 and December 31, 2020 had been in an unrealized loss position for less than 12 months. The Company does not intend to sell marketable securities that are in an unrealized loss position and it is highly unlikely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes, by major security type, our available-for-sale securities that were measured at fair value on a recurring basis and were categorized using the fair value hierarchy (in thousands):
Fair Value Measurements
As of June 30, 2021Level 1Level 2Level 3Total
Assets:
U.S. government agencies securities$ $141,141 $ $141,141 
Money market funds86,581   86,581 
Corporate and agency bonds 76,057  76,057 
Commercial paper 73,949  73,949 
Totals$86,581 $291,147 $ $377,728 
Fair Value Measurements
As of December 31, 2020Level 1Level 2Level 3Total
Assets:
Money market funds$137,658 $ $ $137,658 
U.S. government agencies securities 98,653  98,653 
Commercial paper 41,945  41,945 
Corporate and agency bonds 7,541  7,541 
Totals$137,658 $148,139 $ $285,797 
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The carrying amounts of cash and cash equivalents, the related party receivable and contract asset from collaboration and other current assets and liabilities approximate their respective fair values due to their short-term nature.
The Company estimates the fair values of investments in corporate agency bond securities, commercial paper and government agencies securities using Level 2 inputs by taking into consideration valuations obtained from third-party pricing services.
There were no transfers of assets or liabilities between the fair value measurement levels during the six months ended June 30, 2021 and year ended December 31, 2020.
4. Balance Sheet Components
Cash, Cash Equivalents and Restricted Cash
A reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amount reported within the condensed consolidated statements of cash flows is as follows (in thousands):
June 30,
2021
December 31,
2020
Cash and cash equivalents$99,403 $147,017 
Restricted cash1,499 1,499 
Total cash, cash equivalents and restricted cash$100,902 $148,516 
Property and Equipment
Property and equipment consisted of the following (in thousands):
June 30,
2021
December 31,
2020
Leasehold improvements$25,880 $25,880 
Laboratory equipment and office furniture22,917 23,638 
Computer equipment1,131 1,271 
Construction in process99 48 
Total property and equipment, gross50,027 50,837 
Less: accumulated depreciation and amortization(37,237)(36,311)
Total property and equipment, net$12,790 $14,526 
Depreciation expense was $1.6 million and $3.1 million for the three and six months ended June 30, 2021, respectively, compared to $1.7 million and $3.4 million for the same periods in 2020.
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
June 30,
2021
December 31,
2020
Clinical trials and research and development costs$13,272 $9,316 
Manufacturing costs8,696 8,297 
Personnel-related costs7,063 8,921 
Accrued expenses2,860 3,411 
Total accrued liabilities$31,891 $29,945 

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5. Research Collaboration and License Agreements
Merck
In 2015, the Company entered into a research collaboration, product development and license agreement with Merck, which, together with amendments made prior to June 30, 2021, is referred to as the Original Agreement, covering the discovery, development and commercialization of novel therapies across a range of therapeutic areas, including a broad, multi-year drug discovery and early development program financially supported by Merck. On June 30, 2021, the Company and Merck entered into an amended and restated research collaboration, product development and license agreement, or the Amended Collaboration Agreement, with a narrower scope than contemplated in the Original Agreement, as described in more detail below.
The Original Agreement.
The Original Agreement had an initial five-year research term, and Merck was granted the unilateral right to extend the research phase of the collaboration for two additional two-year terms in exchange for a $20.0 million extension fee payable at each extension, as described in more detail below. Each extension, if and when exercised by Merck, would be considered and would be accounted for as a separate arrangement. Under the Original Agreement, in March 2019, Merck exercised its first option to extend the research phase of the collaboration for two additional years through March 16, 2022, agreeing at that time to continue to fund the Company’s research and development efforts up to $75.0 million each year consistent with the initial five-year term and, in lieu of the $20.0 million extension fee that would have otherwise been payable to the Company at that time, Merck agreed to make additional payments totaling up to $20.0 million in support of the Company’s research and development program activities during 2021 and in the first quarter of 2022. Merck’s decision whether or not to exercise its second option to extend the research phase of the collaboration under the Original Agreement was mooted when, on June 30, 2021, Merck and the Company entered into the Amended Collaboration Agreement, as described in more detail below.
Under the terms of Original Agreement, the Company determined the scientific direction and areas of therapeutic interest for the collaboration, with input from Merck, and was primarily responsible for the conduct of all research, preclinical and early clinical development activities through human proof-of-concept trials. The Company made the final determinations as to which collaboration compounds to advance into and through initial clinical trials, which collaboration compounds to progress into a human proof-of-concept trial and the design of any such trials, in each case with input from Merck through various governance committees.
Under the terms of the Original Agreement, upon completion of a human proof-of-concept trial for a particular collaboration compound, regardless of the results of such trial, Merck had the one-time option to obtain an exclusive, worldwide license, on specified terms, to that collaboration compound, as well as to all other molecules that are directed against the same target and that result in the same effect on such target, or the related molecules, and referred to as the Merck license option. For each program that Merck licensed, Merck was required to pay the Company a one-time fee of $20.0 million. Following exercise of a Merck license option, Merck was responsible, at its own cost, for any further development and any commercialization activities for compounds within the applicable program that it licensed, or the licensed compounds, subject to the Company’s option on a licensed compound-by-licensed compound basis, prior to Merck initiating any Phase 3 clinical trial of such licensed compound, to enter into a worldwide cost and profit share with Merck, or the cost and profit share option, and to co-detail the applicable licensed compound in the United States. If the Company elected to exercise its cost and profit share option for a particular licensed compound, Merck agreed to advance to the Company and/or assume up to 25% of the Company’s share of the global development costs for such licensed compound, subject to an aggregate cap over the course of the collaboration. All such amounts advanced or assumed by Merck accrued interest and would be recouped by Merck in full out of the Company’s share of any profits resulting from sales of the licensed compound for which the Company elected to exercise its cost and profit share option before the Company was entitled to receive any of those profits. If the Company did not elect to exercise its cost and profit share option for a particular licensed compound, the Company was eligible to receive (i) an aggregate of up to $449.0 million in pre-commercial milestone payments upon the achievement of specific clinical development and regulatory events with respect to the licensed compound for the first three indications in the United States, the European Union, or EU, and Japan; (ii) commercial milestone payments of up to $125.0 million; and (iii) royalties at ascending low-double digit to mid-teen percentage rates, depending on the level of net sales Merck achieves worldwide for such licensed compound.
Under the terms of the Original Agreement, the Company also granted Merck a worldwide, exclusive right to conduct research and development on, and to manufacture, use and commercialize, small molecule compounds identified or developed by Merck that have specified activity against any target that the Company researched or developed during the research phase of the collaboration and that, but for use of the Company’s confidential and proprietary information, Merck would not have discovered. If Merck ultimately did not exercise its Merck license
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option to a collaboration compound the Company advanced through a human proof-of-concept study that was directed to any such target, Merck’s research license for its own small molecule program with respect to such target would become non-exclusive, but it would retain an exclusive license to any small molecule compounds that it had, as of that time, identified and developed. Merck had sole responsibility for research and development of any of these small molecule compounds, at its own cost. The Company was eligible to receive milestone and royalty payments on small molecule compounds that were developed by Merck under such a license from the Company, in some cases at the same rates as those the Company was eligible to receive from Merck for a program that Merck licensed and that originated from the Company’s own research and development efforts, provided that, but for use of the Company’s confidential and proprietary information, Merck would not have discovered such small molecule compounds. However, the Company did not have the option to enter into a cost and profit share with respect to, or the option to co-detail, those small molecule compounds.
Under the terms of the Original Agreement, during the three-month period before the end of the research phase as defined in the Original Agreement, Merck had the right to review the Company’s then-existing programs and to elect to designate one or more such programs and require the Company to continue to conduct research and development on such Merck-designated programs for up to three years, a period referred to as the Original Agreement tail period. Merck would pay all of the Company’s internal and external costs for its work on such Merck-designated programs during the Original Agreement tail period, up to certain funding caps that decreased over the Original Agreement tail period based on a specified percentage of certain funding actually provided to the Company by Merck during the last 12 months of the research phase as defined in the Original Agreement. Merck also had the right to take over such Merck-designated programs and conduct such research and development activities itself or in partnership with a third party, at its own cost, or to terminate the Original Agreement tail period after a specified notice period. If Merck terminated the Original Agreement tail period, it had the right to elect to transition to itself or a third-party partner, at its own cost, any clinical trials that were then being conducted in such Merck-designated programs. If the Company completed a human proof-of-concept trial in one of such Merck-designated programs during the Original Agreement tail period or if Merck or its third-party partner completed a human proof-of-concept trial of a collaboration compound in one of such Merck-designated programs during or after the Original Agreement tail period, then Merck would have the same one-time Merck license option to obtain an exclusive, worldwide license, on specified terms, to that collaboration compound, as well as to all its related molecules. Merck would lose its Merck license option rights at the end of the Original Agreement tail period with respect to all programs for which no collaboration compound had completed a human proof-of-concept trial by such time, except for Merck-designated programs that Merck was continuing to use commercially reasonable efforts to research and develop.
The Company evaluated the Original Agreement under ASC 606. The Company identified the following promised goods or services at the inception of the Original Agreement: (i) a license to the Company’s growth differentiation factor 15, or GDF15, agonist program; (ii) a license to pursue research and development and commercialization of small molecule compounds; (iii) the performance of research and development services for five years; (iv) two options to extend performance of the research and development services, each for two additional years; and (v) Merck license options to obtain licenses to collaboration compounds and related molecules after proof-of-concept trials. The Company determined that the GDF15 agonist program license and small molecule program license were not distinct from the research and development services, resulting in these items being combined into a single performance obligation.
The Company also considered whether such options created material rights in the contract and concluded that the fee attached to the exercise of such options approximated the SSP of the promised goods or services included in the options. Therefore, the Company concluded that such options did not give rise to material rights, were not performance obligations in the Original Agreement and, if and when exercised, would be accounted for as separate arrangements under ASC 606.
Additionally, if a separate arrangement were created by the exercise of such an option, such amounts would be contingent on events outside of either party’s control, such as products proving to be commercially viable and governmental agencies granting regulatory approval. Such contingencies and uncertainties resulted in the amounts being constrained and withheld from inclusion in the estimated transaction price of a separate arrangement. Consequently, the estimated transaction price related to the Original Agreement was comprised of the upfront cash licensing fee of $94.0 million and ongoing research and development reimbursements.
Any fees associated with such options, including upfront fees, funding fees and milestones, were not included in the transaction price related to the Original Agreement as they were associated with options that were not material rights and, thus, were not performance obligations within the Original Agreement. For example, in November 2018, Merck exercised its option for a license to further research and develop MK-3655, an agonistic antibody discovered by the Company that selectively activates fibroblast growth factor receptor 1c-beta-klotho, or
17


FGFR1c/KLB, and other FGFR1c/KLB agonists and paid the Company $20.0 million. The $20.0 million license fee for MK-3655 was not included in the transaction price related to the Original Agreement and was instead recognized in the period of exercise in the fourth quarter of 2018 as the Company had no further obligation related to that license. The Phase 3 clinical study for MK-3655 has not begun, and the Company has therefore not made an election as to whether it will participate in the cost and profit share or receive milestone and royalty payments with respect to MK-3655.
The transaction price associated with the initial five-year term of the Original Agreement consisted of the $94.0 million upfront fee and the funding amounts of up to $75.0 million per year for each of the first five years of the Original Agreement. No milestones or other forms of consideration were included in the transaction price related to the Original Agreement as those amounts were contingent upon Merck exercising an option for licenses on collaboration compounds and would, therefore, be pursuant to separate arrangements and not part of the Original Agreement estimated transaction price. As there was only one performance obligation in the Original Agreement, the transaction price was allocated entirely to that performance obligation.
At the end of the initial five-year term of the Original Agreement, the remaining contract liability amount of $4.9 million related to the upfront license fee included within the transaction price as of December 31, 2019 was fully earned and recognized during the three months ended March 31, 2020. The Company has fully recognized revenue of approximately $388.1 million related to the single performance obligation associated with the initial five-year term of the Original Agreement.
Upon Merck exercising its option to extend the research phase of the collaboration through March 16, 2022, the Company deemed that a separate arrangement containing a two-year performance obligation to provide distinct research and development services was created on March 17, 2020. The transaction price of $170.0 million for this two-year performance obligation under the Original Agreement consisted of the potential funding of amounts of up to $75.0 million per year plus the additional funding amount of $20.0 million to be made during 2021 through to the first quarter of 2022 if the Company exceeded the $75.0 million funding cap. The Company used a cost-based input method to calculate the corresponding amount of revenue to recognize. In applying the cost-based input measure of revenue recognition, the Company measured actual costs incurred relative to budgeted costs to fulfill this distinct two-year performance obligation. These costs consisted of Company employee full-time equivalent hours plus allowable external (third-party) costs incurred. Revenue was recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completed its performance obligation applied to the transaction price. The Company re-evaluated the estimate of expected costs to satisfy the performance obligation each reporting period and made adjustments for any significant changes. In addition, the Company also considered any necessary adjustments in an effort to ensure that the transaction price was within the range of potential funding amounts as described above. As such, management applied considerable judgment in estimating expected costs as such costs were key inputs when applying the cost-based input method. As the Company’s estimated measure of progress was updated at each reporting period and revenue was recognized on a cumulative catch-up basis, a significant change in the estimate of expected costs for the remainder of the contract term could have had a material impact on revenue recognized (including the possible reversal of previously recognized revenue) at each reporting period, as well as the related impact on contract assets and liabilities.
Since the transaction price under the Original Agreement included an additional funding amount of $20.0 million to be made during 2021 and in the first quarter of 2022, the timing of when the revenue was recognized for this additional funding amount for performance of the services and when this additional funding amount can be billed resulted in the recognition of a related party contract asset of $4.6 million at March 31, 2021.

The Amended Collaboration Agreement.
Under the Original Agreement, Merck was required to notify the Company no later than March 17, 2021 of its unilateral decision whether to exercise its option to extend the research phase of the collaboration for an additional two-year term through March 16, 2024. In March 2021, Merck initiated discussions with the Company with respect to elements of the ongoing collaboration that might be optimized to better address the evolving interests and priorities of both the Company and Merck. On June 30, 2021, the Company and Merck entered into the Amended Collaboration Agreement. Pursuant to the Amended Collaboration Agreement, the prior two-year extension of the research phase under the Original Agreement was deemed to end on March 31, 2021, while a new three-year research phase commenced on April 1, 2021. Under the Original Agreement, all of the Company’s research and development programs, both those existing at the time the Company entered into the Original Agreement and those the Company worked on during the research phase of the collaboration, other than aldafermin, were included within the scope of the collaboration. Under the Amended Collaboration Agreement, the scope of the collaboration and the resulting programs for which Merck has the Merck license option was narrowed. The collaboration as conducted
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under the Amended Collaboration Agreement, or the continuing collaboration, is focused primarily on the identification, research and development of collaboration compounds directed to targets of interest to Merck in the fields of ophthalmology and cardiovascular or metabolic, or CVM, disease, including heart failure, as well as certain laboratory testing and other activities on molecules that are directed to one of up to two undisclosed targets outside of the fields of ophthalmology and CVM disease, referred to as the lab programs. The ophthalmology compounds in the continuing collaboration include NGM621, an ophthalmology compound in a Phase 2 clinical trial, and its related molecules, and compounds directed against two other undisclosed ophthalmology targets and their related molecules. Collaboration compounds that remain within the scope of the continuing collaboration under the Amended Collaboration Agreement are referred to as continuing collaboration compounds. Given the narrowed research scope under the Amended Collaboration Agreement, the Company now has the sole right, in its sole discretion, to independently research, develop and commercialize the collaboration compounds known as NGM120, NGM707 and NGM438, their related molecules and all other preclinical and research assets that the Company researched or developed under the Original Agreement but that are not included within the research and development scope of the continuing collaboration, which are referred to as the released NGM compounds. Merck retained the right to receive royalties at low single digit rates on the sales of any released NGM compounds that receive regulatory approval and, if the Company decides during a certain time period to engage in a formal partnering process for a released NGM compound or negotiations regarding a license or asset sale of a released NGM compound, the Company is obligated to notify Merck, provide Merck with certain information and engage in good faith, non-exclusive negotiations with respect to such released NGM compound with Merck at Merck’s request.
Under the Amended Collaboration Agreement, Merck continues to have a Merck license option, as it did under the Original Agreement, to each continuing collaboration compound that is identified, researched and developed under the Amended Collaboration Agreement and reaches the specified option exercise point for such continuing collaboration compound as described below, and to its related molecules (each such continuing collaboration compound and its related molecules are referred to generally as a continuing program). In addition, under the terms of the Amended Collaboration Agreement, new CVM-related programs may be added to the continuing collaboration if recommended by the Company and selected by Merck, and Merck would have a Merck license option to such CVM-related continuing program. Merck has a one-time right to exercise its Merck license option, during the research phase or a tail period following such research phase, as applicable, for any continuing collaboration compound on a continuing program-by-continuing program basis when the Company or Merck achieves the specified Merck license option exercise point. The Merck license option exercise point for collaboration compounds under the Original Agreement was the completion of a human proof-of-concept trial. This generally continues to be the Merck license option exercise point under the Amended Collaboration Agreement for continuing collaboration compounds that are directed to ophthalmology targets, including NGM621 and its related molecules and all of the continuing collaboration compounds from two other ophthalmology continuing programs directed against undisclosed ophthalmology targets and their related molecules (collectively, including NGM621 and its related molecules, referred to as the continuing ophthalmology collaboration compounds). Upon the completion of the ongoing Phase 2 NGM621 CATALINA clinical trial, Merck will have an additional one-time option to obtain an exclusive, worldwide license to all of the continuing ophthalmology collaboration compounds together, referred to as the ophthalmology bundle option. If Merck does not exercise this one-time ophthalmology bundle option for all continuing ophthalmology collaboration compounds, it may nevertheless exercise its regular Merck license option with respect to NGM621 and its related molecules at such time, and it may also exercise its regular Merck license option for the continuing ophthalmology collaboration compounds from each of the other two programs if a continuing ophthalmology collaboration compound from such continuing program completes a human proof-of-concept trial. Unlike the Original Agreement, the Merck license option exercise point for a continuing collaboration compound from the CVM-related continuing programs or the lab programs will be the designation by Merck of such continuing collaboration compound as a research program development candidate that Merck intends to progress into preclinical development.
As was the case under the Original Agreement, if Merck exercises a Merck license option and obtains the relevant exclusive, worldwide license for a continuing collaboration compound and its related molecules, Merck will pay an option exercise fee to the Company and will be responsible, at its own cost, for any further development and commercialization activities for continuing collaboration compounds within that licensed continuing program. In such case, the Company will have the option to receive milestones and royalty payments or, in certain cases, to co-fund development and participate in a global cost and profit share arrangement of up to 50%, with an additional option to co-detail any such licensed continuing collaboration compound in the United States under the same terms as set forth in the Original Agreement. Except for the bundle option, the amount of the option exercise fees for continuing ophthalmology collaboration compounds upon completion of a human proof-of-concept trial remains the same as under the Original Agreement. If Merck exercises the ophthalmology bundle option, it will pay the Company either $40.0 million or $45.0 million as the Merck license option exercise fee, depending upon the stage of development of
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one of the two earlier stage ophthalmology programs that is included in the ophthalmology bundle option. Under the Amended Collaboration Agreement, if Merck exercises the Merck license option for a continuing collaboration compound from a CVM-related continuing program or a lab program, Merck will pay the Company a $6.0 million option exercise fee at the time of selection to progress such licensed continuing collaboration compound or any of its related molecules into preclinical development and an additional $10.0 million milestone payment if such continuing collaboration compounds or one of its related molecules subsequently completes a human proof-of-concept trial.
Under the Amended Collaboration Agreement, the parties’ rights and obligations with respect to MK-3655 and related FGFR1c/KLB agonists for which Merck exercised its Merck license option in November 2018 did not change as compared to the Original Agreement.
Under the Amended Collaboration Agreement, Merck will provide up to $86.0 million in research funding for the four calendar quarters ending March 31, 2022, which includes the remaining $16.0 million of the up to $20.0 million in additional payments Merck agreed to pay as part of exercising its first option to extend the research phase of the collaboration under the Original Agreement for two years through March 16, 2022. The Company is obligated to use commercially reasonable efforts to expend $35.0 million of such funding during the same time frame on the ophthalmology- and CVM-related continuing programs and the lab programs. The Company is permitted to use the remaining research funding provided by Merck during such time frame to advance the released NGM compounds. During the remaining two years of the research phase after March 2022, Merck will provide up to a total of $20.0 million in research funding for the ophthalmology- and CVM-related continuing programs. Merck will also fund the research and development costs related to NGM621 during the earlier of the remaining two years of the research phase after March 2022 or until Merck exercises, or decides not to exercise, its license option with respect to NGM621, subject to certain limitations. After March 2022, the Company will use its own funding to complete the work needed to be ready to submit an investigational new drug application, or IND, for a specific continuing collaboration compound included in one of the two earlier stage ophthalmology-related continuing programs and it will use commercially reasonable efforts to complete such work by March 31, 2023. If Merck exercises its regular Merck license option with respect to NGM621 or the ophthalmology bundle option for all of the continuing ophthalmology collaboration compounds upon completion of the ongoing Phase 2 CATALINA clinical trial of NGM621 and pays the applicable option exercise fee to the Company, then the Company will be obligated to reinvest $5.0 million or up to $15.0 million, respectively, of such option fee to fund research on the ophthalmology- and CVM-related continuing programs.
The research phase for the ophthalmology-related continuing programs will end no later than March 31, 2024. The research phase for the CVM-related continuing programs will also continue until March 31, 2024, unless the parties mutually agree to extend the research phase to March 31, 2026, in which case Merck will provide up to a total of $20.0 million in research funding during those additional two years. The research phase for the lab programs will end no later than December 31, 2022.
As under the Original Agreement, Merck has the right under the Amended Collaboration Agreement to review the then-ongoing continuing programs in the three-month period before the end of applicable research phase and to elect to designate one or more continuing programs for which research and development would continue to be conducted, until the applicable Merck license option exercise point is reached, for up to three years after the end of such research phase, with the possibility of extension if NGM is conducting ongoing ophthalmology clinical trials, if Merck is using commercially reasonable efforts to progress one or more ophthalmology-related continuing programs, or if Merck determines to continue progressing a CVM-related continuing program or lab program toward the nomination of a research program development candidate, and any such extension is referred to as an Amended Collaboration Agreement tail period. Under the Amended Collaboration Agreement, the Amended Collaboration Agreement tail period, if any, for the ophthalmology-related continuing programs would be separate from the Amended Collaboration Agreement tail period, if any, for the CVM-related continuing programs or any lab program, and Merck would be primarily responsible for performing all research and development activities, itself or through third party contractors, during the Amended Collaboration Agreement tail period, if any, for the CVM-related continuing programs or any lab program.
The Company concluded that the Amended Collaboration Agreement is a separate arrangement containing a three-year performance obligation to provide distinct research and development services in accordance with ASC 606. The total transaction price under the Amended Collaboration Agreement is $121.3 million and represents the sum of potential funding amounts, including $86.0 million in research funding for the four calendar quarters ending March 31, 2022, $20.0 million in research funding for the ophthalmology- and CVM-related continuing programs during the remaining two years of the research phase after March 2022 and $15.3 million in estimated NGM621 reimbursable expenses also during the remaining two years of the research phase after March 2022. The Company
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will re-evaluate the transaction price as uncertain events are resolved or other changes in circumstances occur. The Company continues performing a series of research and development services in the area of both the continuing collaboration compounds and the released NGM compounds and has one performance obligation across all continuing programs. The Company will continue to use the cost-based input method to calculate the amount of revenue to recognize as services are being rendered from April 1, 2021 through March 31, 2024.
The Company considered whether the Merck license option and the ophthalmology bundle option created material rights in the contract and concluded that the fee attached to the exercise of such options approximated the SSP of the promised goods or services included in the options. Therefore, the Company concluded that such options did not give rise to material rights, were not performance obligations in the Amended Collaboration Agreement and, if and when exercised, would be accounted for as separate arrangements under ASC 606.
If Merck exercises its regular Merck license option for NGM621 or the ophthalmology bundle option for all of the continuing ophthalmology collaboration compounds upon completion of the Phase 2 CATALINA clinical trial and pays the applicable Merck license option exercise fee to the Company, this would not result in a modification of the contract as total contract consideration and the Company's performance obligation under the Amended Collaboration Agreement will not change.
As of March 31, 2021, the Company had a contract asset of $4.6 million under the prior two-year extension of the research phase under the Original Agreement which, under the Amended Collaboration Agreement, was no longer billable to Merck at any point and therefore was recorded as a reduction in both the transaction price under the Original Agreement and revenue on June 30, 2021.
A breakout of the milestone payments in connection with the potential achievement of certain clinical development events is as follows (in thousands):
First
Indication
Second
Indication
Third
Indication
Upon administration of an applicable product to the first patient in the first Phase 3 clinical trial for such product for the given indication$35,000 $25,250 $17,500 
Upon first completion of a proof-of-concept trial for a CVM-related research program development candidate $10,000 $ $ 
Upon first completion of a proof-of-concept trial for a certain research development candidate for a lab program$10,000 $ $ 

A breakout of the milestone payments in connection with the potential achievement of various regulatory events for each of the three geographic areas is as follows (in thousands):
First
Indication
Second
Indication
Third
Indication
Total
United States$75,000 $56,250 $37,500 $168,750 
European Union60,000 45,000 30,000 135,000 
Japan30,000 22,500 15,000 67,500 
$165,000 $123,750 $82,500 $371,250 
Summary of Related Party Revenue
The Company recognized revenue from its collaboration and license agreements as follows (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Related party revenue$16,773 $19,755 $38,348 $44,119 
For the three and six months ended June 30, 2021, the Company recognized collaboration and license revenue of $16.8 million and $38.3 million, respectively, primarily related to reimbursable research and development activities associated with the performance obligation for the two-year extension period through March 31, 2021 under the Original Agreement and from April 1, 2021 through June 30, 2021 under the Amended Collaboration Agreement, all of which were recognized using the cost-based input model. For the six months ended June 30,
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2020, collaboration and license revenue under the Original Agreement included $4.9 million related to the upfront license fee under the initial five-year term that ended in March 2020.
Related Party Contract Assets and Liabilities
Amounts recognized as revenue prior to the Company having an unconditional right (or a right that is conditioned only on the passage of time) to receipt are recorded as contract assets in the Company's condensed consolidated balance sheets. If the Company expects to have an unconditional right to receive the consideration in the next twelve months, the contract asset will be classified in current assets. The Company did not record a related party contract asset as of June 30, 2021. As of December 31, 2020, the Company recorded a related party contract asset of $6.1 million.
Amounts received prior to satisfying the revenue recognition criteria are recorded as contract liabilities in the Company’s condensed consolidated balance sheets. If the related performance obligation is expected to be satisfied within the next twelve months, the contract liability will be classified in current liabilities. As of June 30, 2021, the Company recorded a contract liability of $5.0 million. The Company did not record a contract liability as of December 31, 2020.
6. Commitments and Contingencies
Operating Lease and Lease Guarantee
In December 2015, the Company entered into an operating lease for its corporate office space and laboratory facility at 333 Oyster Point Blvd, South San Francisco, California for approximately 122,000 square feet that expires in December 2023. The lease provided a tenant improvement allowance of $15.2 million that the Company used in 2016 towards $22.3 million in total leasehold improvements that are amortized over the lease term of seven years. The 333 Oyster Point lease agreement required a letter of credit in the amount of $2.3 million as a security deposit to the lease, which the Company has recorded as non-current restricted cash on the condensed consolidated balance sheets. The Company has the right to reduce the letter of credit amount by $0.4 million on each of the third anniversary and fourth anniversary of the rent commencement date. In 2020, the Company reduced its letter of credit by $0.4 million and reclassified that amount from restricted cash to cash and cash equivalents on the condensed consolidated balance sheets.
In September 2009, the Company entered into an operating lease for a corporate office space and laboratory facility at 630 Gateway Blvd, in South San Francisco, California for approximately 50,000 square feet, as amended in June 2014. In July 2016, the Company assigned the operating lease of 630 Gateway to Merck, as part of the Company’s relocation to 333 Oyster Point. The operating lease expired in November 2020. Following expiration of the operating lease, the Company retains the obligation to indemnify the landlord and Merck under certain limited circumstances, but has no further payment obligations.
The Company recognizes rent expense on a straight-line basis over the lease period with the difference recorded as deferred rent. In addition, tenant improvement allowances recorded are amortized as a reduction to rent expense on a straight-line basis over the lease term. Rent expense under these facility operating leases was approximately $0.5 million for the three-month periods ended June 30, 2021 and 2020 and approximately $1.1 million for the six-month periods ended June 30, 2021 and 2020.
Future minimum payments under the unassigned lease obligations described above are as follows as of June 30, 2021 (in thousands):
Year Ending December 31,
2021$2,607 
20225,294 
20235,455 
Total$13,356 
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Indemnification
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and may provide for indemnification of the counterparty. The Company’s exposure under these agreements is unknown because it involves claims that may be made against it in the future but have not yet been made.
In accordance with the Company’s amended and restated certificate of incorporation and its amended and restated bylaws, the Company has indemnification obligations to its officers and directors, subject to some limits, with respect to their service in such capacities. The Company has also entered into indemnification agreements with its directors and certain of its officers. To date, the Company has not been subject to any claims, and it maintains director and officer insurance that may enable it to recover a portion of any amounts paid for future potential claims.
The Company’s exposure under these agreements is unknown because it involves claims that may be made against it in the future but have not yet been made. The Company believes that the fair value of these indemnification obligations is minimal and, accordingly, it has not recognized any liabilities relating to these obligations for any period presented.
7. Stockholders’ Equity
Preferred Stock
The Company has 10,000,000 shares of preferred stock authorized, which may be issued at the discretion of the Company’s board of directors. The board of directors may issue shares of preferred stock in one or more series and fix the number, rights, preferences, privileges and restrictions for such series. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms. As of June 30, 2021, the Company did not have any shares of preferred stock issued or outstanding.
Common Stock
Public Offering of Common Stock
In January 2021, the Company sold 5,324,074 shares of its common stock through an underwritten public offering at a price to the public of $27.00 per share for aggregate net proceeds to the Company of $134.6 million, after deducting underwriting discounts and commissions and other offering expenses paid by the Company. The offering closed on January 8, 2021.
As of June 30, 2021 and December 31, 2020, the Company had 77,307,156 and 70,585,364 shares of common stock outstanding, respectively, which included shares subject to repurchase of 657 and 6,508, respectively, as a result of early exercise of stock options not yet vested.
As of June 30, 2021 and December 31, 2020, the Company had reserved shares of common stock for issuance as follows:
June 30,
2021
December 31,
2020
Reserve balance for Sales Agreement14,190,300 14,190,300 
Common stock options outstanding11,124,234 10,017,918 
Common stock options available for grant6,623,782 6,186,497 
ESPP shares available for purchase590,219 700,074 
401(k) Matching Plan17,813 21,930 
Total32,546,348 31,116,719 
Open Market Sale Agreement
In June 2020, the Company entered into the Sales Agreement with Jefferies relating to the sale of shares of its common stock. In accordance with the terms of the Sales Agreement, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $150.0 million from time to time through Jefferies acting as its sales agent.
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During the six months ended June 30, 2021, no shares of the Company's common stock were sold pursuant to the Sales Agreement. As of June 30, 2021, $127.4 million of the Company’s common stock remained available to be sold under the Sales Agreement, subject to conditions specified in the Sales Agreement.
Equity Incentive Plan
In 2018, the Company adopted the 2018 Equity Incentive Plan, or the 2018 Plan, for eligible employees, officers, directors, advisors and consultants, which provides for the grant of incentive and non-statutory stock options, restricted stock awards and stock appreciation rights. The terms of the stock option agreements, including vesting requirements, are determined by the board of directors, subject to the provisions of the 2018 Plan. Options granted by the Company generally vest within four years and are exercisable from the grant date until ten years after the date of grant. Vesting of certain employee options may be accelerated in the event of a change in control of the Company.
Early Exercise of Stock Options
The 2018 Plan allows for the granting of options that may be exercised before the options have vested. Shares issued as a result of early exercise that have not vested are subject to repurchase by the Company upon termination of the purchaser’s employment or services, at the price paid by the purchaser, and are not deemed to be issued for accounting purposes until those related shares vest. The amounts received in exchange for these shares have been recorded as a liability on the condensed consolidated balance sheets and will be reclassified into common stock and additional paid-in-capital as the shares vest. The Company’s right to repurchase these shares generally lapses in equal installments over four years beginning from the original vesting commencement date. Since the beginning of March 2021, the Company has not granted any options under the 2018 Plan that can be early exercised prior to vesting.
Stock Option Activity
A summary of the activity under the 2008 Plan and the 2018 Plan is as follows:
Outstanding OptionsWeighted
Average
Remaining
Contractual Life
(In Years)
Aggregate
Intrinsic
Value
(In Thousands)
Number of
Options
Weighted
Average
Exercise
Price
Balances at December 31, 202010,017,918 $10.52 6.45$198,097 
Options granted2,604,583 30.56 
Options exercised(1,280,194)6.10 
Options cancelled(218,073)19.46 
Balances at June 30, 202111,124,234 $15.55 7.00$74,692 
Vested and expected to vest at June 30, 202110,903,901 $15.36 6.95$74,384 
Exercisable at June 30, 20218,994,528 $11.97 6.42