NORTHWEST BIOTHERAPEUTICS INC
10-Ks and 10-Qs
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UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the fiscal
year ended December
31, 2009
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or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period
from to .
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Commission
file number 000-33393
NORTHWEST
BIOTHERAPEUTICS, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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94-3306718
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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4800
Montgomery Lane, Suite 800
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20814
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Bethesda,
MD
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(Zip
Code)
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(Address
of principal executive offices)
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(240)
497-9024
Registrant’s
telephone number, including area code:
Securities
registered pursuant to section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $0.001 Par Value
(Title
of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
o
No
þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
o
No
þ
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
þ
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer
o
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Accelerated
filer
o
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Non-accelerated
filer
o
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Smaller
reporting company
þ
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(Do
not check if a smaller reporting
company)
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes
o
No
þ
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, computed by reference to the closing price on
the consolidated transaction reporting system on June 30, 2009 was
approximately $38.2 million.
As of
April 12, 2010, the Registrant had an aggregate of 62,365,460 shares of
common stock issued and outstanding.
Documents
Incorporated by Reference: None
TABLE
OF CONTENTS
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Page
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PART I
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Item
1.
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Business
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2
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Item
1A.
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Risk
Factors
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16
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Item
1B.
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Unresolved
Staff Comments
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26
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Item
2.
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Properties
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26
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Item
3.
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Legal
Proceedings
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26
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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31
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PART II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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31
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Item
6.
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Selected
Financial Data
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32
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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32
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Item
7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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36
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Item
8.
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Financial
Statements and Supplementary Data
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36
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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36
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Item
9A(T).
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Controls
and Procedures
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36
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Item
9B.
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Other
Information
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37
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PART III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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37
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Item
11.
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Executive
Compensation
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39
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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46
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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47
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Item
14.
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Principal
Accountant Fees and Services
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50
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PART IV
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Item
15.
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Exhibits,
Financial Statement Schedules
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50
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Signatures
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77
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Exhibit
Index
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78
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Forward-Looking
Statements
The
following description of our business, discussion and analysis of our financial
condition and results of operations should be read in conjunction with the
information included elsewhere in this Annual Report on Form 10-K. In
addition to historical information, this report 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”). These statements relate
to future events or our future financial performance and involve known and
unknown risks, uncertainties and other factors that might cause our actual
results, levels of activity, performance or achievements to differ materially
from any future results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements. The words “believes,”
“expects,” “intends,” “anticipates,” “may,” “might,” “will,” “should,” “plans,”
“could,” “target,” “projects,” “contemplates,” “estimates,” “predicts,”
“potential,” “continue,” the negative of these terms and similar expressions are
used to identify forward-looking statements, but their absence does not mean
that such statement is not forward-looking. You are encouraged to carefully
review the various disclosures made by us in this report and in the documents
incorporated herein by reference, in our previous filings with the Securities
and Exchange Commission (“SEC”), and those factors described under
Item 1A.”Risk Factors.” These factors, among others, could cause results to
differ materially from those presently anticipated by us. In addition, past
financial or operating performance is not necessarily a reliable indicator of
future performance and you should not use our historical performance to
anticipate results or future period trends. We can give no assurances that any
of the events anticipated by the forward-looking statements will occur or, if
any of them do, what impact they will have on our results of operations and
financial condition. Except as required by law, we undertake no obligation to
publicly revise our forward-looking statements to reflect events or
circumstances that arise after the filing of this Annual Report on
Form 10-K or documents incorporated by reference herein that include
forward-looking statements.
In this
Annual Report on Form 10-K, references to “Northwest Biotherapeutics,” the
“Company,” “we,” “us,” and “our” refer to Northwest Biotherapeutics, Inc. and
its subsidiary.
Overview
Northwest
Biotherapeutics, Inc. was formed in 1996 and incorporated in Delaware in July
1998. We are a development stage biotechnology company focused on discovering,
developing, and commercializing immunotherapy products that safely generate and
enhance immune system responses to effectively treat cancer. Currently approved
cancer treatments are frequently ineffective, can cause undesirable side effects
and provide marginal clinical benefits. Our approach in developing cancer
therapies utilizes our expertise in the biology of dendritic cells (“DC”), which
are a type of white blood cells that activate the immune system. Our primary
activities since incorporation have been focused on advancing a proprietary
dendritic cell immunotherapy for prostate and brain cancer together with
strategic and financial planning, and raising capital to fund our
operations.
We have
two basic technology platforms applicable to cancer therapeutics: dendritic
cell-based cancer vaccines, which we call DCVax
®
, and
monoclonal antibodies for cancer therapeutics. DCVax
®
is our
registered trademark. Our DCVax
®
dendritic cell-based cancer vaccine program is our main technology
platform.
We
completed an initial public offering of our common stock on the NASDAQ Stock
market in December 2001 and an initial public offering of our common stock on
the Alternative Investment Market (“AIM”) of the London Stock Exchange in June
2007.
2
Industry
Background
Cancer
Cancer is
characterized by aberrant cells that multiply uncontrollably. As cancer
progresses, the cancer cells may invade other tissues throughout the body
producing additional cancers, called metastases. Cancer growth can cause tissue
damage, organ failure and, ultimately, death. Many immunologists believe that
cancer cells occur frequently in the human body, yet are effectively controlled
by the immune system because these cells are recognized as aberrant. Cancer
growth occurs if this natural process fails.
Cancer
cells produce abnormal kinds and amounts of biomarkers (called antigens), which
may be distinguishable from the antigens produced by healthy cells. These
cancer-associated antigens provide the targets to enable the immune
system to seek and destroy cancer cells marked by these antigens.
The
Human Immune System
The
immune system is the body’s defense mechanism responsible for recognizing and
eliminating cancer cells, viruses, bacteria and other disease-causing organisms.
This system consists of populations of white blood cells whose components are
responsible for initiating the cellular immune response, and the humeral, or
antibody-based, immune response.
Dendritic
cells, a component of white blood cells, are the master cells of the immune
system responsible for mobilizing the overall immune response. The
dendritic cells stimulate cellular immune responses by processing and displaying
disease-associated antigen fragments on their outer cell surface, where they are
recognized by naive T-cells, that have not yet been exposed to antigens. Upon
exposure to these antigen fragments, naive T-cells become disease-specific
Helper T-cells or Killer T-cells. Helper T-cells then help Killer T-cells to
locate and potentially destroy the cells marked by the disease- associated
antigen.
Dendritic
cells also mobilize B-cells. Such B cells contribute to the immune
response by binding to disease-associated antigens on the surface of various
cell types, producing disease-specific antibodies. Helper T-cells also enhance
B-cell production of disease- specific antibodies. These antibodies bind to and
initiate the destruction of cells marked by the associated disease-specific
antigens.
The
immune system response to cancer can be generally characterized by the following
sequence:
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Step
1.
Dendritic
cells ingest cancer antigens, break them into small fragments and display
them on their outer cell
surfaces.
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Step
2.
Dendritic
cells bearing these cancer antigen fragments bind to and activate naive
T-cells, which become disease-specific Helper T-cells and Killer
T-cells.
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Step
3.
The
activated Helper T-cells produce factors that greatly enhance the cell
division of Killer T-cells and mature their cancer-killing
properties.
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Step
4.
Cancer
cells and their cancer-associated antigens are also recognized by
antibody-producing B-cells.
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Step
5.
The
activated Helper T-cells produce factors that greatly enhance antibody
production by B-cells that in turn are specific for the cancer-associated
antigens.
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Step
6.
The Killer
T-cells and antibodies, acting alone or in combination, destroy cancer
cells.
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Limitations
of Current Cancer Therapies
Traditional
treatments for cancer include:
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Surgery.
Surgery may be used to
remove cancer cells, but not all cancer cells can be removed surgically.
Surgery may also result in significant adverse side effects such as
collateral damage to healthy tissue, bleeding and
infection.
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3
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Radiation
Therapy.
Radiation therapy may be used to treat cancers, but it can cause
significant damage to healthy tissue surrounding the targeted cancer
cells. Recurrent cancers may not be treatable with further radiation
therapy. Radiation therapy may also cause additional significant adverse
side effects such as burns to treated skin, organ damage and hair
loss.
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Chemotherapy.
Chemotherapy may be used
to treat cancer, but involves the use of toxic chemical agents. These
toxic chemical agents affect both healthy and diseased cells and may cause
additional significant adverse side effects such as hair loss, immune
suppression, nausea and
diarrhea.
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Hormone
Therapy.
Hormone therapy may be used to treat cancer, but involves the use of
substances that chemically inhibit the production of growth and
reproductive hormones and is also limited in effectiveness. Hormone
therapy may cause significant adverse side effects such as bone loss, hot
flushes, impotence and blood
clots.
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Current
Cancer Immunotherapy Approaches
Immunotherapy
offers a new approach to be used as an adjuvant in combination with traditional
therapies (or potentially alone). It can stimulate and enhance the body’s
natural mechanism for destroying cancer cells, and may overcome many of the
limitations of traditional cancer therapies. In recent years, two cancer
immunotherapy approaches have emerged to address the limitations of traditional
therapies, which have resulted in a number of products approved by the
U.S. Food and Drug Administration, or FDA:
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Antibody-Based
Therapies.
Currently approved antibody-based cancer therapies have modestly
improved survival rates with partially reduced side effects when compared
with traditional therapies. However, these antibody-based therapies can
elicit an immune response against themselves because they often contain
mouse proteins or fragments of such proteins. This can limit their
effectiveness and potentially cause toxic side
effects.
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Immune-Modulating
Agents.
Currently approved immune-modulating agents, such as IL-2 and
alpha-interferon, are known to have some ability to enhance the immune
system and limited efficacy to control cancer growth. However, these
therapies involve delivery of the immune modulating agent through the
blood system and may result in significant toxicity to healthy
tissue.
|
Our
Approach
We have
developed a proprietary personalized-dendritic cell vaccine, DCVax
®
for
stimulating and enhancing a patient’s natural cellular and humeral (i.e.
antibody) immune response to cancer. Given appropriate funding for future
development, we believe that DCVax
®
may
overcome certain limitations of current cancer therapies and offer cancer
patients safe and effective treatment alternatives, alone or in combination with
other therapies.
DCVax
®
is a
platform technology which we believe is applicable to most cancers. It combines
a patient’s own dendritic cells either with a patient’s own cancer-related
biomarkers (called antigens), or with off-the-shelf antigens, to induce immune
responses against a patient’s cancer cells. The Company’s early-stage clinical
trial data, and those of its collaborators, suggest that DCVax
®
-Brain
and DCVax
®
-Prostate may have the ability to significantly delay disease progression and
significantly prolong patient survival, while maintaining a superior quality of
life when compared with current therapies.
The
natural immune response starts with activation of a master immune cell type, the
dendritic cell (DC). These cells direct all ensuing activities of all components
of the immune response. When a virus, bacteria, or a cancer cell, encounters a
DC, the DC consumes the virus, bacteria or cancer cell and chops it into small
pieces. In the process, the DC becomes activated and starts traveling to the
lymph node. In the lymph node, the DC elicits a cascade of events that leads to
an immune response. Importantly, the nature of the virus, bacteria or cancer
cell and the nature of the DC activation dictate the type of immune response.
Preparing the DC outside the body, as is done for DCVax
®
products, is intended to allow the greatest degree of control and effectiveness,
avoiding suppressive effects and obstacles generated by tumors in the patient’s
body. The prepared or “educated” DCs then are re-injected back into the patient
to begin the immune response in the natural fashion, leading to an enhanced
response against the virus, bacteria or cancer cell.
In cancer
patients, the signaling through which the master immune cells (DCs) are
activated is impaired. Our technology, therefore, involves delivering the
necessary signals to activate the master immune cells outside the patients’
body. We believe that after receiving these signals, the master immune cells
will be able to function normally and mobilize the full immune response in the
natural manner.
4
THE
IMMUNE SYSTEM
Different
Approaches
Most
traditional immunization approaches, including traditional virus, specific
antigen or peptide vaccines, as well as some that are used for immunotherapy of
cancer, rely upon signaling inside the patient’s body to try to activate and
mobilize the already existing DCs in the body, or try to modulate only one arm
of the immune system. These approaches have worked well to address infectious
diseases, but have generally failed to work in cancer patients because such
approaches are reliant upon signaling in the patients’ bodies which, as
discussed above, is impaired in cancer patients.
In
addition, the immunogen, i.e. the virus, specific antigen, peptide or the cancer
cells used to prepare the vaccine, is in those cases injected into the body in a
formulation that aims at targeting and activating local DCs. Examples are viral,
specific antigen or peptide vaccines formulated with adjuvant, or killed tumor
cells alone or modified to produce the DC mobilizing protein GM-CSF. In these
instances, it is left to chance as to whether the immunogen arrives at the DC,
and whether the DCs are properly activated and effectively migrate to lymph
nodes to produce an effective immune response.
Treatments
that use only a single arm of the immune system may employ large amounts of
T-cells, or a single (monoclonal) antibody. We believe that the DCVax
®
products
have a clear advantage compared to this approach in that they are designed to
activate all aspects of the immune response, both cellular and antibody, thereby
potentially providing a broader and longer lasting immune and clinical response.
Our DCVax
®
products
consist of pure, activated DCs loaded with the immunogen as would naturally
occur, and that are capable of migrating to lymph nodes. The intended result is
a full immune response consisting of both a specific cellular T-cell response
and a specific antibody response against the cancer-associated antigen
consistent with our Phase I and Phase II clinical trial results for
DCVax
®
-Brain
and DCVax
®
-Prostate, respectively, and that is translated into a potential clinical
benefit — in this case, a delay in disease recurrence and an extension of
overall survival of the patient.
5
Cancer
and the Immune System
Cancer
cells produce many substances that shut down the immune response, as well as
substances that suppress or block the DCs that are resident in the body. The
optimal time for controlling cancer growth by activating the immune system is,
therefore, at the time when tumor burden is low. Our DCVax
®
products
target patients with brain cancer following surgery, radiation and chemotherapy,
and hormone independent prostate cancer patients with no detectable tumor. This
approach is designed to allow induction of powerful immune responses to control
progression of the disease. However, in clinical trials, delays in cancer
progression and extension of survival have also been seen in late stage patients
treated with DCVax
®
-Brain
and DCVax
®
-Prostate.
The
DCVax
®
Process
The
DCVax
®
platform
uses our proprietary process to efficiently produce and activate DCs outside a
patient’s body. The clinical trials with DCVax
®
-Brain
and DCVax
®
-Prostate suggest that these cells can generate an effective immune system
response when administered therapeutically. Manufacture of a DCVax
®
product
takes approximately 30 days to complete for DCVax
®
-Prostate and approximately 10 days for DCVax
®
-Brain,
and is characterized by the following sequence:
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Collection.
A sample of a patient’s
white blood cells is collected in a single and simple outpatient procedure
called leukapheresis.
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Isolation of
Precursors.
These cells are sent to a manufacturing facility, where DC
precursors are isolated from the patient’s white blood
cells.
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Differentiation
by Growth Factors.
DC precursors are transformed in a manner that mimics the natural
process in a healthy person’s body, through the application of specific
growth factors, into highly pure populations of immature DCs during a
six-day culture period.
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Maturation.
Immature DCs are exposed
to a proprietary maturation factor or maturation method in order to
maximize Helper T-cell, Killer T-cell, and B-cell
activation.
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Antigen
Display.
Cancer-associated antigens, fragments of cancer-associated antigens
or deactivated whole cancer cells are added to, ingested, and processed by
the maturing DCs, causing the DCs to display fragments of
cancer-associated antigens on their outer cell
surfaces.
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Harvest.
These DCs are harvested
and separated into standardized single-use DCVax
®
administration vials, frozen and
stored.
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Quality
Control.
DCVax
®
product lot undergoes, according
to current industry standards, rigorous quality control testing, including
sterility testing for bacterial and mycoplasma contamination, and potency
testing prior to shipment to the administration site for
injection.
|
DCVax
®
-Brain
Manufacturing Steps:
DCVax
®
—
Characteristics
The
DCVax
®
platform
combines our expertise in dendritic cell biology, immunology and antigen
discovery with our proprietary process of activating DCs outside of a patient’s
body to develop therapeutic products intended to stimulate beneficial immune
responses to treat cancer in a cost-effective manner. DCVax
®
has the
following significant characteristics, the combination of which we believe makes
it a highly attractive alternative to current therapies.
Activation
of the Natural Immune System
Our
DCVax
®
product
candidates are designed to elicit a natural immune response. Pre-clinical and
clinical trials suggest that our DCVax
®
product
candidates can train a patient’s own Killer T-cells to locate and destroy
specifically targeted cancer cells. These same clinical trials also suggest that
DCVax
®
-Prostate stimulates the body to produce antibodies and/or Killer T-cells that
bind to cancer-associated antigens and potentially destroy cancer cells marked
by these antigens. Moreover, the clinical trials show that this immune response
may be effective in delaying time to disease progression in brain and prostate
cancer, and both may prolong survival and improve the quality of life for brain
and prostate cancer patients.
6
Multiple
Cancer Targets
We
believe that our DCVax
®
platform
can be applied towards the treatment of a wide variety of cancers. The platform
affords the flexibility to target many different forms of cancer through the
pairing of DCs with cancer-associated antigens, fragments of cancer-associated
antigens or deactivated whole cancer cells as well as possible direct
intra-tumoral injection of partially mature dendritic cells.
Targeting
of Serious Cancers with No Effective Treatments
DCVax
®
-Prostate targets men with rising PSA levels while on hormone therapy, but
before metastases develop. There is currently no effective treatment for this
growing population of patients who invariably go on to develop complications
from the spread of their cancer to the bone and, eventually, succumb to their
disease. DCVax
®
-Brain
targets patients with GBM, a highly lethal form of brain cancer. In two Phase I
trials carried out at UCLA from 1999 to the present day, patients treated with
DCVax
®
-Brain
have survived more than twice as long without relapse compared to matched
concurrent controls not receiving DCVax
®
-Brain
(under “matched concurrent controls” patients received standard of care
treatment at the same time clinical trial patients were treated with standard of
care treatment together with DCVax
®
-Brain;
these control patients have been matched for the major prognostic factors for
GBM).
Low
Incidence of Significant Adverse Side Effects or Toxicity
Our
initial two DCVax
®
-Brain
Phase I trials and DCVax
®
-Prostate Phase I/II clinical trial have shown no significant adverse side
effects in over 250 administered injections. Some patients had moderate
injection site reactions, and we observed some severe injection site reactions
that we believe to be a result of immune activation. Patients treated with
DCVax
®
-Brain
or DCVax
®
-Prostate therefore might not need to take additional prescription drugs to
manage undesirable side effects as is often the case with certain current cancer
treatments. We minimize the potential for toxicity by using the patient’s own
cells to create its DCVax
®
product
candidates. Additionally, because our DCVax
®
products
are designed to target the cancer- associated antigens in the patient,
collateral damage to healthy cells is minimized.
Efficient
and Cost-Effective Manufacturing
We have
developed a second generation closed and automated device based on tangential
flow filtration (“TFF-Cell Separation System”) for manufacturing DC from patient
leukapheresis material. We have a contract with Cognate BioServices, Inc.
(“Cognate”) for the manufacture of DCVax
®
-Brain
product for clinical use. This TFF-Cell Separation System is currently
undergoing validation. See “— Manufacturing”.
Ease
of Administration
We
initially collect a sample of a patient’s white blood cells in a single standard
outpatient procedure called leukapheresis. After patient-specific manufacturing
and quality control testing, each small dose of a DCVax
®
product
candidate is administered by a simple intradermal injection in an outpatient
setting. Dendritic cells administered by intradermal injection migrate to the
draining lymph nodes where they interact with and activate T-cells.
Complementary
with Other Treatments
Our
DCVax
®
product
candidates are designed to stimulate the patient’s own immune system to safely
target cancer cells. Consequently, we believe these products may be used as an
adjuvant to standard therapies such as chemotherapy, radiation therapy, hormone
therapy and surgery.
7
Our
Clinical and Pre-clinical Development Programs
The
following table summarizes the targeted indications and status of our product
candidates:
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Product Candidate
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Target Indications
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Status
|
||
|
DCVax
®
Platform
|
||||
|
DCVax
®
-
Prostate
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Prostate
cancer
|
Phase
III — clinical trial cleared by the FDA for recruitment of patients
for non-metastatic hormone independent prostate cancer
|
||
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DCVax
®
-Brain
|
Glioblastoma
multiforme
|
Phase
II — clinical trial initiated. Orphan Drug designation granted in the
U.S. in 2006 and in the European Union in 2007
|
||
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DCVax
®
-LB
|
Non-small
cell lung cancer
|
Phase
I — clinical trial cleared by the FDA
|
||
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DCVax
®
-Direct
|
Solid
tumors
|
Phase
I — clinical trial cleared by the FDA for ovarian cancer, head and
neck cancer and two other indications (expected to be liver and pancreatic
cancers)
|
||
|
DCVax
®
-L
|
Resectable
solid tumors
|
Phase
I/II — completed clinical trial at the University of
Pennsylvania
|
Pre-clinical
means that a product candidate is undergoing efficacy and safety evaluation in
disease models in preparation for human clinical trials. Phase I-III clinical
trials denote safety and efficacy tests in humans as follows:
Phase I:
Evaluation of safety and dosing.
Phase II:
Evaluation of safety and efficacy.
Phase
III: Larger scale evaluation of safety and efficacy.
DCVax
®
Product
Candidates
DCVax
®
-L for
Brain Cancer
DCVax
®
-Brain
uses our DCVax
®
platform
in combination with the patient’s own glioblastoma tumor cell lysate antigens.
Our clinical collaborators at UCLA conducted two Phase I clinical trials to
assess the safety and efficacy of DC-based immunotherapy for Glioblastoma
multiforme (“GBM”). In the first Phase I clinical trial, DCVax
®
-Brain
was administered to 12 patients and in the second Phase I clinical trial it
was administered to 17 patients. The patients in both trials were treated with
DCVax
®
-Brain
being administered as an adjuvant to the standard of care.
The data
from progression and survival Kaplan Meier curves of both of these trials
together show that newly diagnosed GBM patients treated at UCLA, and matched for
the major prognostic factors, with DCVax
®
-Brain
had a delay in the median time to recurrence or progression of disease from
8.1 months with standard of care treatments in matched concurrent control
patients to 18.1 months in patients treated with DCVax
®
-Brain
(p = 0.00001;n=20). DCVax
®
-Brain
increased median overall survival from 17.0 months with standard of care in
matched concurrent control patients treatments to 36.4 months in patients
treated (and continuing as the median is not yet reached) for DCVax
®
-Brain
treated patients, again matched for the major prognostic factors (p < 0.0004;
n=20). The ‘p’ value measures the likelihood that the difference between the
treated and non-treated patients is due to chance. A p’ value less than or equal
to 0.05 (meaning there is a 5 percent or lower possibility that the
observed clinical effect is due to chance) is required for product approval by
the FDA and European regulatory authorities. The ‘p’ value of 0.0004 observed
with DCVax
®
-Brain
means that there is only a 0.04 percent (i.e. 4 in 10,000) possibility that
the observed effect between standard of care and DCVax
®
-treated
patients is due to chance, and the ‘p’ value of 0.00001 means that there is only
a 0.001 percent (i.e., 1 in 100,000) possibility that the results are due to
chance. Eight of the 20 patients remained alive for periods ranging, to
date, from 15.9 to 103 months, with five patients having lived for over
45 months without cancer recurrence. Similarly, in recurrent (late stage)
patients, DCVax
®
-Brain
has increased median survival from 6.4 months for those receiving standard
of care to 11.9 months for patients receiving DCVax
®
-Brain.
8
In
December 2006, we commenced recruiting patients with newly diagnosed GBM in a
141 patient Phase II DCVax
®
-Brain
clinical trial. We planned to carry out the study at 12 to 15 clinical sites.
The study was designed as a randomized study in which patients received either
DCVax
®
-Brain
in addition to standard of care or standard of care alone. The study was not
blinded because there was no available approach for making a placebo that was
indistinguishable from the DCVax
®
-L.
Almost 50 patients were screened at 4 clinical sites. However, patients
were reluctant to enroll in the study when faced with a 33% chance of being
randomized into the control arm of the study under which they will receive
standard of care alone. In addition, even patients who did enroll were reluctant
to stay in the study if they were assigned to the control arm. Since
the study was not blinded, patients were able to know which arm of the study
they were assigned to. So, the Company stopped and undertook a
development program to develop a placebo that is indistinguishable from
DCVax
With the
placebo developed the Company redesigned the study as a randomized, placebo
controlled, double blinded study with a cross-over arm allowing control patients
to be treated with DCVax
®
-Brain
in the event that their cancer progresses. The study size has been increased
from 141 to 240 patients and is designed to enable us to petition the FDA
for accelerated approval if the study generates results similar to those
achieved in the two prior clinical trials. We currently have 13 clinical sites
that are qualified and ready to enroll patients. In order to enable
rapid enrollment, we may add some additional clinical sites for this trial when
resources permit. We are engaged in discussions with the FDA concerning the
study design and end points. Depending on trial results, we plan to seek product
approval in both the U.S. and the European Union.
Subsequent
to the BAG’s favorable decision, the BAG and Swissmedic underwent a
reorganization, and the BAG’s jurisdiction was transferred to
Swissmedic. Following that reorganization, each party, who had
received a BAG decision such as NWBT had received, was requested to file a
Marketing Authorization Application (MAA) with Swissmedic for full product
approval. NWBT did so at year end 2007. During the two-plus years
since then, Swissmedic has conducted inspections, and has been reviewing and
evaluating the Company’s MAA.
Standard of Care:
The
current standard of care for GBM was established in a 573 patient study as
set out by Stupp et al. in N Engl J Med 352;10, and resulted in a median time to
progression of 6.9 months and a median overall survival rate of
14.6 months in patients receiving a standard of care treatment regimen. The
standard of care established in the Stupp trial for GBM patients consists of
surgery followed two weeks later by radiation therapy with concomitant daily
low-dose Temodar chemotherapy, followed by six monthly cycles of
full-doseTemodar chemotherapy. The DCVax
®
-Brain
treatment regimen fits between the steps of this current standard of care, and
does not require a change in clinical practices, other than one 30-day delay
after the first chemotherapy treatment.
Target Market:
The
American Cancer Society estimates that about 21,810 new cases of primary brain
cancer will be diagnosed in the U.S. during 2008. Deaths from newly
diagnosed malignant primary brain cancer in the U.S. are estimated to be
approximately 13,070 per year. Globocan has estimated that about 48,385 new
cases of primary brain cancer would be diagnosed in Europe in 2002 (the last
year for which estimates are available). Deaths from brain cancer in Europe were
estimated at 39,061 in 2002.
Current Treatments:
As
described above, existing treatments for GBM include surgery, radiation and
chemotherapy. Such treatments are often used in various combinations and/or
sequences and have significant adverse side effects such as bleeding, seizures,
nausea and collateral tissue damage. Following initial treatment, virtually all
cases of this cancer recur, with a life expectancy of approximately six months
following recurrence. Few, if any, effective therapies exist for these patients.
We believe that DCVax
®
-Brain
has the potential to address this critical unmet medical need.
DCVax
®
-L for
Ovarian Cancer
This
trial treated “no option” patients who had already been treated with most or all
major drugs currently available for recurrent, metastatic ovarian cancer
(including carboplatin, paclitaxel docetaxel, abraxane, gemcitabine and
topotecan), and whose cancer had still continued to progress. In
other recent clinical trials testing various drugs and drug combinations for
recurrent ovarian cancer, the treated patients have generally attained less than
3 or 4 months without progression of their cancer, and have experienced serious
side effects (including gastro-intestinal perforation, a life-threatening
condition).
9
In the
Company trial, the two patients who have received treatment attained 8 months
and 6 months without progression, respectively. Each of these NWBT
patients had metastases in 4 or 5 locations at the beginning of the trial and,
in both of the patients, all of their metastatic lesions responded following the
treatment regimen – either by shrinking somewhat (20-25%) or by remaining the
same size and not growing, or by disappearing. The patients did not
experience any toxicity or debilitating side effects.
Metastatic
ovarian cancer poses a particularly serious and urgent unmet medical
need. In most patients, the disease is not discovered until it is
already late stage, because ovarian cancer typically causes little or no
symptoms until it is late stage. When this cancer has metastasized,
as in the case of the no-option patients in NWBT’s trial, the cancer usually
progresses rapidly and aggressively. In other recent clinical trials
in recurrent ovarian cancer, only limited clinical responses were obtained in
the treated patients, and even those were only in a small percentage of patients
(for example, 18-28% of those treated).
DCVax
®
-Prostate
DCVax
®
-Prostate targets hormone independent (i.e. late stage) prostate cancer.
DCVax
®
-Prostate combines our DCVax
®
platform
with the cancer-associated antigen “prostate specific membrane antigen” or
“PSMA”. PSMA is located on the surface of prostate cells. It is expressed at
very low levels on benign or healthy prostate cells, and at much higher levels
on prostate cancer cells. Because PSMA is over-expressed in virtually all
prostate cancers, it represents an effective target for prostate cancer
therapeutics. In addition, we do not have to screen patients. DCVax
®
-Prostate is designed to be used in the whole patient population. In contrast,
the use of other cancer vaccines in development may be limited to part of the
patient population and require screening of patients.
In
September 1999, we filed an application to conduct a Phase I/II clinical trial
for DCVax
®
-Prostate to treat late-stage prostate cancer patients for whom hormone therapy
was no longer effective. This trial, which was carried out at the M.D. Anderson
Cancer Centre and at UCLA, involved the administration of DCVax
®
-Prostate to 33 evaluable patients in order to establish the safety of
three different dosage levels of DCVax
®
-Prostate.
Additional
data from our Phase I/II DCVax
®
-Prostate clinical trial in 33 patients with non-metastatic and metastatic
hormone independent prostate cancer indicates the following. Of a total of
33 patients who have been treated in this trial, 11 were non-metastatic
hormone independent prostate cancer patients (group A) and 22 were
metastatic hormone independent prostate cancer patients (group B). In group A,
there has been an increase in survival from 36 months for the natural
course of the disease to >54 months for DCVax
®
-Prostate treated patients. The median had not yet been reached as of the end of
2005 (the latest date to which long-term data is so far available). In this
group the time to metastases under the natural course of the disease is 28 to
36 weeks. This time was lengthened to 59 weeks in patients who
received DCVax
®
-Prostate. In group A, none of the 11 patients had progressed at
28 weeks and only five had progressed at 59 weeks. The group A patient
population is the patient population that we will focus on in our Phase III
clinical trial.
In group
B (hormone independent patients with metastases), there was an increase in
median overall survival from 18.9 months for standard of care to
38.7 months for DCVax
®
-Prostate treated patients. Patients in this study had a six-times greater
chance of being alive at 36 months compared to patients treated with the
standard of care.
Many
cancer therapeutics elicit a clinical response in only a small fraction of
patients. In clinical trials, DCVax
®
-Prostate has been shown to elicit a specific PSMA antibody response and a
specific and strong T-cell response in about 80 percent of patients. The
Company believes that the administration of DCVax
®
-Prostate may enhance progression free survival relative to placebo, delay the
development of symptomatic disease and increase overall survival.
DCVax
®
-Prostate has been cleared by the FDA for a Phase III clinical trial in
about 600 patients in 50 centers. The patient population is non-metastatic
hormone independent prostate cancer. We currently intend to separate the
600 patient Phase III trial into two Phase III clinical trials in
non- metastatic hormone independent prostate cancer patients with about
300 patients per trial.
Standard of Care.
The standard of care for metastatic hormone independent prostate
cancer was established in a 674 patient study as set out by Petrylak et al.
in
N Engl J Med 351;15
and resulted in a median overall survival rate of 18.9 months. This
standard of care consists of taxotere (chemotherapy) being administered as a
single dose every three weeks or in a weekly regime. Other drugs, such as
mitoxantrone and prednisone, are also administered to patients for pain derived
from bone metastasis. The DCVax
®
-Prostate treatment regimen fits between the steps of current standard of care,
and does not require a change in clinical practices. There is no established
standard of care for non-metastatic hormone independent prostate cancer as there
is no FDA approved therapeutic product for this type of prostate
cancer.
10
Target Market.
The American Cancer Society estimates that 186,320 new cases of
prostate cancer will be diagnosed in the U.S. during 2008. Deaths from
prostate cancer in the U.S. are estimated to be 28,660 for 2008. We
estimate that there is an initial DCVax
®
-Prostate target population in the U.S. consisting of approximately
100,000 patients per year with non-metastatic hormone independent prostate
cancer. Globocan has estimated that 230,627 new cases of prostate cancer would
be diagnosed in Europe in 2002 (the last year for which estimates are
available). Deaths from prostate cancer in Europe were estimated at 83,066 in
2002.
Current Treatments.
Existing treatments for localized (i.e. newly-diagnosed) prostate
cancer include surgery and/or various forms of radiation therapy. The current
standard of care for treating patients who fail primary therapy is hormone
therapy through which the effect of male hormones is blocked. Although this
therapy achieves temporary tumor control, prostate cancer patients eventually
fail hormone treatments, meaning that blocking of hormones no longer keeps the
cancer under control. The United States National Cancer Institute’s 1989-1996
five-year survival rate for metastatic prostate cancer is only 32 percent.
Moreover, hormone therapy may cause significant adverse side effects, including
bone loss, hot flushes and impotence. Disease progression despite hormone
therapy occurs on average in two years, and is then classified as hormone
independent prostate cancer. Approximately 55 percent of patients with
hormone independent prostate cancer will die within two years of its onset.
Currently, the only FDA approved treatments for hormone independent prostate
cancer are chemotherapy and radioactive pharmaceuticals, which can alleviate
cancer-related symptoms but may cause significant toxic side effects and only
prolong survival by approximately two and a half months. A large proportion of
hormone independent patients do not have objective metastatic disease as
measured by bone and CT scans. We believe that DCVax
®
-Prostate has the potential to address this critical unmet medical
need.
DCVax
®
-LB
DCVax
®
-LB is
targeting non-small cell lung cancer, the largest cause of cancer deaths in both
the U.S. and Europe. DCVax
®
-LB
combines our DCVax
®
platform
with isolated and killed lung cancer cells as antigens. The autologous DCs used
to formulate DCVax
®
-LB are
activated through a process similar to that used in the manufacturing of
DCVax
®
-Prostate. We had an investigational new drug application cleared by the FDA in
May 2006 for a Phase I clinical trial using DCVax
®
-LB in
non-small cell lung cancer.
Target Market.
The American Cancer Society estimates that 215,020 new cases of lung
cancer will be diagnosed in the U.S. during 2008. Approximately
80 percent of these cases are expected to be attributable to non-small cell
lung cancer, the indication that we are targeting. Deaths from all forms of lung
cancer are estimated to be 161,840 for 2008. Globocan has estimated that 374,764
new cases of lung cancer would be diagnosed in Europe in 2002 (the last year for
which estimates are available). Deaths from lung cancer in Europe were estimated
at 341,595 in 2002.
Current Treatments.
Existing treatments for non-small cell lung cancer include surgery
and radiation therapy, which are used in various combinations. These treatments
have significant toxic side effects and have limited clinical benefit. The
American Cancer Society has reported that only 16 percent of patients
diagnosed with non-small cell lung cancer survive after five years. Following
initial treatment, virtually all cases of this cancer recur, with a life
expectancy of approximately one year following recurrence.
DCVax
®
-L
DCVax
®
-L
targets any kind of solid tumor cancer and it combines our DCVax
®
platform
with patient specific tumor lysate. Following surgery, the tumor is prepared as
a lysate (i.e. the tumor tissue is finely chopped) for loading into autologous
dendritic cells. The patient’s tumor lysate contains cancer specific biomarkers
which will be added to the patient’s own dendritic cells and subsequently
injected back into the patient to elicit a cancer specific immune response. The
company commenced a Phase I/II study using DCVax
®
-L at
the University of Pennsylvania in 2007.
Target Market:
The American Cancer Society estimates that 21,650 new cases of
ovarian cancer will be diagnosed in 2008 and that there will be approximately
15,520 deaths from the disease. Globocan has estimated that 63,467 new cases of
ovarian cancer were diagnosed in Europe in 2002 (the last year for which
estimates are available). Once ovarian cancer has recurred, there are currently
no effective treatments for the disease. Thus, new treatment modalities that
prevent or delay cancer recurrence are of importance in prolonging survival in
women with ovarian cancer. This study is being funded by the Ovarian Cancer
Vaccine Initiative (OCVI), a private philanthropic organization.
Current Treatments:
Standard therapy includes surgical debulking, followed by
chemotherapy with a taxane/platinum combination for six to eight cycles. Of the
patients who present with advanced stage disease (III or IV), 70 percent
will have an initial clinical remission following surgery and chemotherapy, with
no evidence of disease by physical examination, radiographic imaging (such as CT
or MRI) or normalization of the CA125 tumor marker. However, for most of these
patients, the ovarian cancer will recur within two years. The median time to
progression is approximately 20 months even for patients who received total
or near-total surgical removal of the initial tumor and is approximately
14 months for patients with less complete surgical removal of the initial
tumor. Once ovarian cancer has recurred, it is not considered curable and
progression to death is usually inevitable, despite aggressive chemotherapy
strategies. The overall five year survival for advanced ovarian cancer remains
at only 20 to 30 percent.
11
DCVax
®
-Direct
DCVax
®
-Direct
uses our DCVax
®
platform
to activate DCs suitable for direct injection into solid tumors. DCVax
®
-Direct
is designed to treat cancer patients whose tumor tissue is not available or
whose tumors are considered to be inoperable. Several scientific studies have
shown that DCs injected into solid tumors in animal models can result in tumor
regression. We have demonstrated in pre-clinical animal studies the ability of
activated DCs, when injected directly into just a single tumor of mice bearing
multiple tumors, to cause all tumors to regress. In these studies, subsequent
challenge of these now tumor-free mice with the injection of additional tumor
cells was met with total rejection of tumor growth demonstrating an immunization
of the mouse against regrowth of the tumor. The DCs used in the formulation of
DCVax
®
-Direct
are activated through a process similar to that used for DCVax
®
-Brain
and DCVax
®
-Prostate (i.e. using heat-killed and formalin-fixed BCG mycobacteria and
interferon gamma), although they are not loaded with tumor antigens prior to
injection. Rather, the antigen loading takes place
in vivo
after injection
of the DCVax
®
-Direct
DCs into the tumor tissue, typically following radiation therapy, chemotherapy,
or other treatments that kill tumor cells.
We have a
Phase I clinical trial protocol under the DCVax
®
-Direct
IND for the treatment of head and neck cancer. This clinical trial protocol was
cleared by the FDA in the third quarter of 2006. We intend to identify the most
appropriate cancers for the remaining two available trials under the DCVax
®
-Direct
IND at the appropriate time, although our present intention is to pursue liver
and pancreatic cancers.
Target markets:
The
American Cancer Society estimates that 21,650 new cases of ovarian cancer and
35,310 new cases of head and neck cancer will be diagnosed in the
U.S. during 2008. Globocan has estimated that 63,467 new cases of ovarian
cancer and 98,175 new cases of head and neck cancer were diagnosed in Europe in
2002 (the last year for which estimates are available). Deaths from ovarian
cancer and head and neck cancer in Europe were estimated at 41,024 and 43,273
respectively. Deaths from all solid tumors are estimated to be approximately
500,000 in 2008. Deaths from all solid tumors are estimated at approximately
815,000 in the E.U. in 2002 (the last year for which estimates are
available).
Current treatments:
Current treatments for solid tumors typically involve cytotoxic therapy
aimed at killing tumor cells. Such treatments include radiation therapy,
chemotherapy, or other cell killing treatments such as cryotherapy. These
treatments can still be used along with DCVax
®
-Direct
as they can potentially prepare the tumor tissue for the injection of DCVax
®
-Direct.
The ability to still use conventional cytotoxic agents along with DCVax
®
-Direct
will enable DCVax
®
-Direct
to be adopted in the market without requiring any change of existing clinical
practice if so desired.
Therapeutic
Antibody Product Candidates
We have
been issued patent coverage by the U.S. Patent and Trademark Office which
gives us broad rights to the use of CXCR4 antibodies to treat cancer. CXCR4 is a
protein that plays a key role in the progression of primary cancers and in the
metastatic process. CXCR4 is over-expressed in more than 75 percent of
cancers including non- small cell lung cancer, breast cancer, GBM, colon cancer,
melanoma, prostate, pancreatic, kidney, ovarian, and certain blood cancers. In
all of these cancers CXCR4 is centrally involved in all three phases of disease
progression: proliferation of the primary tumor, migration of cancer cells out
of the primary tumor, and establishment of distant metastatic
sites.
We have
completed substantial research and pre-clinical testing phases with two versions
of CXCR4 antibodies. We intend to identify the most appropriate cancers for
clinical trial or multiple clinical trials using CXCR4 antibodies at the
appropriate time.
Manufacturing
We have
developed a proprietary manufacturing system that enables us to produce vaccines
for an entire multi-year course of treatments in a single manufacturing run
using the cancer patient’s own DCs and the patient’s own tumor biomarkers. This
manufacturing process results in sufficient patient-specific DCVax
®
product
for at least a course of 11 injections of DCVax
®
, which
is sufficient for three years of treatment. The product thus becomes an
“off-the-shelf” personalized drug after the initial manufacturing run. The
advantages of this method, compared to other cell vaccine production, include
not only the “off-the-shelf” feature of drug delivery to clinics and patients,
but also the significant reduction in product cost due to the fact that the
product does not have to be separately manufactured for each treatment injection
or each couple of treatments.
We have
entered into a services agreement with Cognate pursuant to which Cognate will
provide certain consulting and manufacturing services, for our DCVax
®
-Brain
Phase II clinical trial. In this process, DC precursor cells are isolated
from the patient’s blood and matured into new functional DCs. These DCs are
combined with a patient’s own cancer biomarkers from the patient’s tumor tissue
removed in surgery. The finished vaccine is then frozen in single-dose vials ,
and can remain frozen for many years until required for treatment of the
patient.
12
Cognate
has moved its operations from Sunnyvale Califormia to Memphis Tennessee where it
has an existing cGMP (clean room manufacturing under current Good
Manufacturing Practices) facility that is newer and less expensive. The
capacity in Memphis is approximately 600 patients per year, which we believe
will be sufficient for our Phase II clinical trial for DCVax
®
-Brain.
We have a plan with Cognate to accommodate an increase in production capacity
based on demand and have detailed plans and cost analysis for additional
modular expansions which should increase the capacity of the current facilities
from approximately 600 patients to over 9,000 patients per
year.
The
Company has developed partial automation of its manufacturing process using a
TFF System. This TFF System has been cleared by FDA for use
in an upcoming DCVax
®
Phase I
clinical trials, and the Company’s patent coverage in the US issued during 2009.
The TFF System is also targeted to be implemented into the DCVax
®
-Brain
product after bioequivalence studies have been completed. Since the product
economics are favorable even with the existing first generation manufacturing
process, the Company intends to only implement the TFF System at a time and in a
manner that does not interfere with the pivotal Phase II clinical trial for
DCVax
®
-Brain,
or product approval or launch.
Intellectual
Property
We
protect our proprietary technologies through patents issued and licensed
throughout the world. We have 33 issued and licensed patents (9 in the
U.S. and 23 in other jurisdictions) and 134 patent applications pending (15
in the U.S. and 119 in other jurisdictions) which cover the use of DCs in
DCVax
®
as well
as targets for either the Company’s DC or monoclonal antibody therapy candidates
and isolation and manufacturing, handling and administration of DCVax
®
. The
issued patents expire at various dates between 2015 and 2026. We intend to
continue using our scientific expertise to pursue and patent new developments
with respect to uses, methods, and compositions to enhance our position in the
field of cancer treatment.
We have
received orphan designation in the U.S., the E.U. and Switzerland for
our DCVax
®
- Brain
product candidate applicable to gliomas, which comprise most primary brain
cancers, including GBM. Orphan designation in the U.S. entitles us to seven
years of market exclusivity for the particular indication and active ingredient
provided that the product is the first such orphan to be approved for that
indication. Orphan designation in the E.U. and Switzerland entitles us to ten
years of market exclusivity on a similar basis.
Any
patents that we obtain may be circumvented, challenged or invalidated by our
competitors. Our patent applications may not result in the issuance of any
patents, and any patents that may be issued may not offer any protection against
others who seek to practice the claimed inventions. We have obtained licenses
for certain technologies that we use, but we may be unable to maintain those
licenses and may be unable to secure additional licenses in the future. Thus, we
may be forced to abandon certain product areas or develop alternative methods
for operating in those areas.
In
addition to patents, we rely on copyright protection, trade secrets, proprietary
know-how and trademarks to maintain our competitive position. Our future success
will depend in part on our ability to preserve our copyrights and trade secrets.
Although our officers, employees, consultants, contractors, manufacturers,
outside scientific collaborators, sponsored researchers and other advisors are
required to sign agreements obligating them not to disclose our confidential
information, these parties may nevertheless disclose such information and
compromise our confidential data. We may not have adequate remedies for any such
breach. It is also possible that our trade secrets or proprietary know-how will
otherwise become known or be independently replicated or otherwise circumvented
by competitors.
Our
technologies may infringe the patents or violate other proprietary rights of
third parties. In the event of infringement or violation, we may be prevented
from pursuing further licensing, product development or commercialization. Such
a result would materially adversely affect our business, financial condition and
results of operations.
If we
become involved in any litigation, interference or other administrative
proceedings, we will incur substantial expenses and the efforts of our technical
and management personnel will be significantly diverted. An adverse
determination may subject us to significant liabilities or require us to seek
licenses, which may not be available. We may also be restricted or prevented
from manufacturing and selling our products, if any, in the event of an adverse
determination in a judicial or administrative proceeding, or if we fail to
obtain necessary licenses. In addition, any potential litigation or dispute may,
as a result of our lack of funding, require us to further reduce or even curtail
our operations entirely.
Competition
The
biotechnology and biopharmaceutical industries are characterized by rapidly
advancing technologies and a strong emphasis on proprietary products. Several
companies, such as Dendreon Corporation, Immuno-Designed Molecules,
Inc., ImmunoCellular Therapeutics, Celldex Therapeutics, Inc., Ark Therapeutics
plc, Oxford Biomedica plc, Argos Therapeutics, Inc., Antigenics and
others are actively involved in the research and development of
immunotherapies or cell-based cancer therapeutics.
13
Of these
companies, Dendreon has completed its Phase III clinical trials
in patients with prostate cancer, although their patient populations are
different from those targeted by our Phase III DCVax
®
-Prostate product candidate. Celldex Therapeutics has conducted a Phase II
clinical trial, with a peptide immunotherapy for newly diagnosed GBM. Ark
Therapeutics has completed a Phase III trial with a gene therapy for
operable high grade gliomas and applied for product approval in the EU, but
recently received a negative decision from the European regulator. The clinical
trial data reported to date by these companies for brain and prostate cancer
have not shown as long a delay in disease progression, or as long an extension
of survival, as have our clinical data to date. As far as we are aware, no
cell-based therapeutic product for cancer is currently available for commercial
sale, although Dendreon’s vaccine is expected to become commercially available
soon.
Additionally,
several companies, such as Medarex, Inc., Amgen, Inc., Agensys, Inc., and
Genentech, Inc. are actively involved in research and development of monoclonal
antibody-based cancer therapies. Currently, at least seven antibody-based
products are approved for commercial sale for cancer therapy. Genentech is also
engaged in several Phase III clinical trials for additional antibody-based
therapeutic products for a variety of cancers, and several other companies are
in early stage clinical trials for such products. Many other third parties
compete with us in developing alternative therapies to treat cancer,
including:
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biopharmaceutical
companies;
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biotechnology
companies;
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pharmaceutical
companies;
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academic
institutions; and
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other research
organizations.
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Most of
our competitors have significantly greater financial resources and expertise in
research and development, manufacturing, pre-clinical testing, conducting
clinical trials, obtaining regulatory approvals and marketing. In addition, many
of these competitors have become more active in seeking patent protection and
licensing arrangements in anticipation of collecting royalties for use of
technology they have developed. Smaller or early-stage companies may also prove
to be significant competitors, particularly through collaborative arrangements
with large and established companies. These competitors may prevent us from
recruiting and retaining qualified scientific and management personnel, or from
acquiring technologies complementary to our programs.
We expect
that our ability to compete effectively will be dependent upon our ability
to:
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secure the necessary funding to
continue our development efforts with respect to our product
candidates;
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successfully complete clinical
trials and obtain all requisite regulatory
approvals;
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maintain a proprietary position
in our technologies and
products;
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•
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attract and retain key
personnel; and
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maintain existing or enter into
new partnerships.
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Governmental
Regulation
Governmental
authorities in the United States and other countries extensively regulate the
pre-clinical and clinical testing, manufacturing, labeling, storage,
record-keeping, advertising, promotion, export, marketing and distribution,
among other things, of immunotherapeutics. In the United States, the FDA
subjects pharmaceutical and biologic products to rigorous review. Even if we
ultimately receive FDA approval for one or more of our products, if we or our
partners do not comply with applicable requirements, we may be fined, our
products may be recalled or seized, our production may be totally or partially
suspended, the government may refuse to approve our marketing applications or
allow us to distribute our products and we may be criminally prosecuted. The FDA
also has the authority to revoke previously granted marketing
authorizations.
14
In order
to obtain approval of a new product from the FDA, we must, among other
requirements, submit proof of safety and efficacy as well as detailed
information on the manufacture and composition of the product. In most cases,
this proof requires documentation of extensive laboratory tests, and
pre-clinical and clinical trials. This testing, and the preparation of necessary
applications and processing of those applications by the FDA, are expensive and
typically take several years to complete. The FDA may not act quickly or
favorably in reviewing these applications, and we may encounter significant
difficulties or costs in our efforts to obtain FDA approvals that could delay or
preclude us from marketing any products we may develop. The FDA also may require
post-marketing testing and surveillance to monitor the effects of approved
products or place conditions on any approvals that could restrict the commercial
applications of these products. Regulatory authorities may withdraw product
approvals if we fail to comply with regulatory standards or if we encounter
problems following initial marketing. With respect to patented products or
technologies, delays imposed by the governmental approval process may materially
reduce the period during which we might have the exclusive right to exploit the
products or technologies.
After an
Investigational New Drug, or IND, application becomes effective, a sponsor may
commence human clinical trials in the United States. The sponsor typically
conducts human clinical trials in three sequential phases, but these phases may
overlap. In Phase I clinical trials, the product is tested in a small number of
patients or healthy volunteers, primarily for safety at one or more doses. In
Phase II, in addition to safety, the sponsor evaluates the efficacy of the
product in a patient population somewhat larger than Phase I clinical trials.
Phase III clinical trials typically involve additional testing for safety
and clinical efficacy in an expanded population at geographically dispersed test
sites. The sponsor must submit to the FDA a clinical plan, or protocol,
accompanied by the approval of a clinical site responsible for ongoing review of
the investigation, prior to commencement of each clinical trial. The FDA or a
clinical site may order the temporary or permanent discontinuation of a clinical
trial at any time, if the trial is not being conducted in accordance with FDA or
clinical site requirements or presents a danger to its subjects.
The
sponsor must submit to the FDA the results of the pre-clinical and clinical
trials, together with, among other data, detailed information on the manufacture
and composition of the product, in the form of a new drug application or, in the
case of a biologic, a biologics license application. The FDA is regulating our
therapeutic vaccine product candidates as biologics and, therefore, we must
submit biologics license applications, or BLA, to the FDA to obtain approval of
our products. The clinical trial process generally takes several years, and the
FDA reviews the BLA and, when and if it decides that adequate data is available
to show that the new compound is both safe and effective and that all other
applicable requirements have been met, the FDA approves the drug or biologic for
marketing. The amount of time taken for this approval process is a function of a
number of variables, including the quality of the submission and studies
presented, the potential contribution that the compound will make in improving
the treatment of the disease in question, and the workload at the FDA. It is
possible that our product candidates will not successfully proceed through this
approval process or that the FDA will not approve them in any specific period of
time.
The FDA
may, during its review of a new drug application or biologics license
application, ask for additional test data. If the FDA does ultimately approve a
product, it may require post-marketing testing, including potentially expensive
Phase IV studies, and surveillance to monitor the safety and effectiveness
of the drug. In addition, the FDA may in some circumstances impose restrictions
on the use of an approved drug, which may be difficult and expensive to
administer, and may require prior approval of promotional
materials.
Before
approving a new drug application or biologics license application, the FDA also
will inspect the facilities at which the product is manufactured and will not
approve the product unless the manufacturing facilities are in compliance with
guidelines for the manufacture, holding and distribution of a product. Following
approval, the FDA periodically inspects drug and biologic manufacturing
facilities to ensure continued compliance with manufacturing guidelines.
Manufacturers must continue to expend time, money and effort in the areas of
production, quality control, record keeping and reporting to ensure full
compliance with those requirements. The labeling, advertising, promotion,
marketing and distribution of a drug or biologic product must also be in
compliance with FDA regulatory requirements. Failure to comply with applicable
requirements can lead to the FDA demanding that production and shipment cease,
and, in some cases, that the manufacturer recall products, or to FDA enforcement
actions that can include seizures, injunctions and criminal prosecution. These
failures can also lead to FDA withdrawal of marketing approval for the
product.
We and
our partners are also subject to regulation by the Occupational Safety and
Health Administration, the Environmental Protection Agency, the Nuclear
Regulatory Commission and other foreign, federal, state and local agencies under
various regulatory statutes, and may in the future be subject to other
environmental, health and safety regulations that may affect our research,
development and manufacturing programs. We are unable to predict whether any
agency will adopt any regulation which could limit or impede on our
operations.
Sales of
pharmaceutical products outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. Whether or not
we have obtained FDA approval, we must obtain approval of a product by
comparable regulatory authorities in foreign countries prior to the commencement
of marketing the product in those countries. The time required to obtain this
approval may be longer or shorter than that required for FDA approval. The
foreign regulatory approval process includes all the risks associated with FDA
regulation set forth above, as well as country-specific
regulations.
15
Employees
The
Company employs four full-time employees, as of March 28, 2010. The
Company’s internal staff is supplemented by more than two dozen external
staff on a contract services basis, and by consultants. Each of our
employees has signed a confidentiality and invention assignment agreement, and
none are covered by a collective bargaining agreement. We have never experienced
employment-related work stoppages and consider our employee relations to be
positive.
Available
Information
We are
subject to the informational requirements of the Exchange Act and, accordingly,
file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, proxy statements and other information with
the SEC. You may read and copy this Annual Report on Form 10-K and the
other reports and information we file with the SEC at the SEC’s Public Reference
Room at 100 F Street, N.E., Washington, DC 20549. You may obtain
information on the operation of the public reference room by calling the SEC at
1-800-SEC-0330. The SEC maintains a web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC.
Our
website address is www.nwbio.com. The information available on or through our
website is not part of this Annual Report on Form 10-K.
Our
business, operations and financial condition are subject to various risks and
uncertainties, including those described below and elsewhere in this Annual
Report on Form 10-K. This section discusses factors that, individually or
in the aggregate, we think could cause our actual results to differ materially
from expected and historical results. Our business, operations or financial
condition could be materially adversely affected by the occurrence of any of
these risks.
We
will need to raise additional capital, which may not be available.
As of
April 12, 2010, we had approximately $215,000 of cash on hand. We will need
additional capital to support and fund the research, development and
commercialization of our product candidates and to fund our other operating
activities. We are negotiating additional financing with several other parties,
which we hope to complete later this year. There can be no assurance that we
will be able to complete any of the financings, or that the terms for such
financings will be attractive. If we are unable to obtain additional funds on a
timely basis or on acceptable terms, we may be required to curtail or cease
certain of our operations. We may raise additional funds by issuing additional
common stock or securities (equity or debt) convertible into shares of common
stock, in which case, the ownership interest of our stockholders will be
diluted. Any financing, if available, is likely to include restrictive
covenants that could limit our ability to take certain actions. Further, we may
seek funding from Toucan Capital or Toucan Partners or their affiliates or other
third parties. Such parties are under no obligation to provide us any additional
funds, and any such funding may be dilutive to stockholders and may contain
restrictive covenants. If we are unable to obtain sufficient additional capital
in the near term, we may cease operations at any time.
16
We are likely to continue to incur
substantial losses, and may never achieve
profitability.
We have
incurred net losses every year since our formation in March 1996 and had a
deficit accumulated during the development stage of approximately
$189.9 million as of December 31, 2009. We expect that these losses
will continue and anticipate negative cash flows from operations for the
foreseeable future. We will need additional funding, and over the medium term we
will need to generate revenue sufficient to cover operating expenses, clinical
trial expenses and some research and development costs to achieve profitability.
We may never achieve or sustain profitability.
Our
auditors have issued a “going concern” audit opinion.
Our
independent auditors have indicated in their report on our December 31,
2009 financial statements that there is substantial doubt about our ability to
continue as a going concern. A “going concern” opinion indicates that the
financial statements have been prepared assuming we will continue as a going
concern and do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty. Therefore, you should not rely on our consolidated balance sheet as
an indication of the amount of proceeds that would be available to satisfy
claims of creditors, and potentially be available for distribution to
stockholders, in the event of liquidation.
As a company in the early stage of
development with an unproven business strategy,
our limited history of operations
makes an evaluation of our business and prospects
difficult.
We have
had a limited operating history and we are at an early stage of development. We
may not be able to achieve revenue growth in the future. We have generated the
following limited revenues: $529,000 in 2003; $390,000 in 2004; $124,000 in
2005; $80,000 in 2006; $10,000 in 2007; $10,000 in 2008 and $10,000 in 2009. We
have derived most of these limited revenues from the sale of research products
to a single customer, contract research and development for related parties,
research grants and royalties from licensing fees generated from a licensing
agreement. Our limited operating history makes it difficult to assess our
prospects for generating revenues.
We
may not be able to retain existing personnel.
We employ
four full-time employees. The uncertainty of our business prospects and the
volatility in the price of our common stock may create anxiety and uncertainty,
which could adversely affect employee morale and cause us to lose employees whom
we would prefer to retain. To the extent that we are unable to retain existing
personnel, our business and financial results may suffer.
We
may not be able to attract expert personnel.
In order
to pursue our product development and marketing plans, we will need additional
management personnel and personnel with expertise in clinical testing,
government regulation, manufacturing and marketing. Attracting and retaining
qualified personnel, consultants and advisors will be critical to our success.
There can be no assurance that we will be able to attract personnel on
acceptable terms given the competition for such personnel among biotechnology,
pharmaceutical and healthcare companies, universities and non-profit research
institutions. The failure to attract any of these personnel could impede the
achievement of our development objectives.
We must rely at present on a single
relationship with a third-party contract
manufacturer, which will limit our
ability to control the availability of our product
candidates in the
near-term.
We rely
upon a single contract manufacturer, Cognate. The majority owner of Cognate is
Toucan Capital, one of our majority stockholders. Cognate provides consulting
services and is the manufacturer of our product candidates. We have an agreement
in place with Cognate pursuant to which Cognate has agreed to provide
manufacturing and other services in connection with our Phase II clinical
trial for DCVax
®
-Brain.
The agreement requires us to make minimum monthly payments to Cognate
irrespective of whether any DCVax
®
products
are manufactured. The agreement does not extend to providing services in respect
of commercialization of the DCVax
®
-Brain
product, nor for other clinical trials or commercialization of any of our other
product candidates. If and to the extent we wish to engage Cognate to
manufacture our DCVax
®
-Brain
for commercialization or any of our other product candidates (including
DCVax
®
-Prostate) for clinical trials or commercialization, we will need to enter into
a new agreement with Cognate or another third-party manufacturer which might not
be feasible on a timely or favorable basis. The failure to timely enroll
patients in our clinical trials will have an adverse impact on our financial
results due, in part, to the minimum monthly payments that we make to
Cognate.
17
Problems
with our contract manufacturer’s facilities or processes could result in a
failure to produce, or a delay in production, of adequate supplies of our
product candidates. Any prolonged interruption in the operations of our contract
manufacturer’s facilities could result in cancellation of shipments or a
shortfall in availability of a product candidate. A number of factors could
cause interruptions, including the inability of a supplier to provide raw
materials, equipment malfunctions or failures, damage to a facility due to
natural disasters, changes in FDA regulatory requirements or standards that
require modifications to our manufacturing processes, action by the FDA or by us
that results in the halting or slowdown of production of components or finished
products due to regulatory issues, the contract manufacturer going out of
business or failing to produce product as contractually required or other
similar factors. Because manufacturing processes are highly complex and are
subject to a lengthy FDA approval process, alternative qualified production
capacity may not be available on a timely basis or at all. Difficulties or
delays in our contract manufacturer’s manufacturing and supply of components
could delay our clinical trials, increase our costs, damage our reputation and,
if our product candidates are approved for sale, cause us to lose revenue or
market share if it is unable to timely meet market demands.
Our
success partly depends on existing and future collaborators.
We work
with scientists and medical professionals at academic and other institutions,
including UCLA, among others, some of whom have conducted research for us or
have assisted in developing our research and development strategy. We do not
employ these scientists and medical professionals. They may have commitments to,
or contracts with, other businesses or institutions that limit the amount of
time they have available to work with us. We have little control over these
individuals. We can only expect that they devote time to us as required by our
license, consulting and sponsored research agreements. In addition, these
individuals may have arrangements with other companies to assist in developing
technologies that may compete with our products. If these individuals do not
devote sufficient time and resources to our programs, or if they provide
substantial assistance to our competitors, our business could be seriously
harmed.
The
success of our business strategy may partially depend upon our ability to
develop and maintain our collaborations and to manage them effectively. Due to
concerns regarding our ability to continue our operations or the commercial
feasibility of our personalized DCVax
®
product
candidates, these third parties may decide not to conduct business with us or
may conduct business with us on terms that are less favorable than those
customarily extended by them. If either of these events occurs, our business
could suffer significantly.
We may
have disputes with our collaborators, which could be costly and time consuming.
Failure to successfully defend our rights could seriously harm our business,
financial condition and operating results. We intend to continue to enter into
collaborations in the future. However, we may be unable to successfully
negotiate any additional collaboration and any of these relationships, if
established, may not be scientifically or commercially successful.
The
process of obtaining and maintaining regulatory approvals for new therapeutic
products is expensive, lengthy and uncertain. It can vary substantially, based
upon the type, complexity and novelty of the product involved. Accordingly, any
of our current or future product candidates could take a significantly longer
time to gain regulatory approval than we expect or may never gain approval,
either of which could reduce our anticipated revenues and delay or terminate the
potential commercialization of our product candidates.
We
have limited experience in conducting and managing clinical trials.
We rely
on third parties to assist us in managing and monitoring all our clinical
trials. Our reliance on these third parties may result in delays in completing,
or failure to complete, these trials if the third parties fail to perform under
the terms of our agreements with them. We may not be able to find a sufficient
alternative supplier of these services in a reasonable time period, or on
commercially reasonable terms, if at all. If we were unable to obtain an
alternative supplier of these services, we might be forced to curtail our
Phase II clinical trial for DCVax
®
-Brain.
Our product candidates will require a
different distribution model than conventional
therapeutic
products.
The
nature of our product candidates means that different systems and methods will
need to be followed for the distribution and delivery of the products than is
the case for conventional therapeutic products. The personalized nature of these
products, the need for centralized storage, and the requirement to maintain the
products in frozen form may mean that we are not able to take advantage of
distribution networks normally used for conventional therapeutic products. If
our product candidates are approved, it may take time for hospitals and
physicians to adapt to the requirements for handling and storage of these
products, which may adversely affect our sales.
18
We lack sales and marketing
experience and as a result may experience significant
difficulties commercializing our
research product candidates.
The
commercial success of any of our product candidates will depend upon the
strength of our sales and marketing efforts. We do not have a sales force and
have no experience in sales, marketing or distribution. To fully commercialize
our product candidates, we will need a substantial marketing staff and sales
force with technical expertise and the ability to distribute these products. As
an alternative, we could seek assistance from a third party with a large
distribution system and a large direct sales force. We may be unable to put
either of these plans in place. In addition, if we arrange for others to market
and sell our products, our revenues will depend upon the efforts of those
parties. Such arrangements may not succeed.
Even if
one or more of our product candidates is approved for marketing, if we fail to
establish adequate sales, marketing and distribution capabilities, independently
or with others, our business will be seriously harmed.
Competition in the biotechnology and
biopharmaceutical industry is intense and most
of our competitors have substantially
greater resources than we do.
The
biotechnology and biopharmaceutical industries are characterized by rapidly
advancing technologies, intense competition and a strong emphasis on proprietary
products. Several companies, such as Dendreon Corporation, Celldex
Therapeutics, Inc., Ark Therapeutics plc, Oxford Biomedica plc, Argos
Therapeutics, Inc., Antigenics, Immunocellular Therapeutics, and others are
actively involved in the research and development of immunotherapies or
cell-based cancer therapeutics. Of these companies, we believe that only
Dendreon and Ark Therapeutics have completed Phase III clinical trials with
a cell-based therapy. To our knowledge no DC-based therapeutic product is
currently approved for commercial sale, although it is expected that Dendreon’s
Provenge product will be approved soon. Additionally, several companies, such as
Medarex, Inc., Amgen, Inc., Agensys, Inc., and Genentech, Inc., are actively
involved in the research and development of monoclonal antibody-based cancer
therapies. Currently, at least seven antibody-based products are approved for
commercial sale for cancer therapy. Genentech is also engaged in several
Phase III clinical trials for additional antibody-based therapeutics for a
variety of cancers, and several other companies are in early stage clinical
trials for such products. Many other third parties compete with us in developing
alternative therapies to treat cancer, including: biopharmaceutical companies;
biotechnology companies; pharmaceutical companies; academic institutions; and
other research organizations.
Most of
our competitors have significantly greater financial resources and expertise in
research and development, manufacturing, pre-clinical testing, conducting
clinical trials, obtaining regulatory approvals and marketing than we do. In
addition, many of these competitors are actively seeking patent protection and
licensing arrangements in anticipation of collecting royalties for use of
technology they have developed. Smaller or early-stage companies may also prove
to be significant competitors, particularly through collaborative arrangements
with large and established companies. These third parties compete with us in
recruiting and retaining qualified scientific and management personnel, as well
as in acquiring technologies complementary to our programs.
We expect
that our ability to compete effectively will be dependent upon our ability to:
obtain additional funding; successfully complete clinical trials and obtain all
requisite regulatory approvals; maintain a proprietary position in our
technologies and products; attract and retain key personnel; and maintain
existing or enter into new partnerships.
Our
competitors may develop more effective or affordable products, or achieve
earlier patent protection or product marketing and sales. As a result, any
products developed by us may be rendered obsolete and
non-competitive.
Our intellectual property rights may
not provide meaningful commercial protection for
our research products or product
candidates, which could enable third parties to use
our technology, or very similar
technology, and could reduce our ability to compete
in the market.
We rely
on patent, copyright, trade secret and trademark laws to limit the ability of
others to compete with us using the same or similar technology in the United
States and other countries. However, as described below, these laws afford only
limited protection and may not adequately protect our rights to the extent
necessary to sustain any competitive advantage we may have. The laws of some
foreign countries do not protect proprietary rights to the same extent as the
laws of the United States, and we may encounter significant problems in
protecting our proprietary rights in these countries.
We have
33 issued and licensed patents (9 in the United States and 23 in other
jurisdictions) and 134 patent applications pending (19 in the United States and
115 in other jurisdictions) which cover the use of dendritic cells in DCVax
®
as well
as targets for either our dendritic cell or fully human monoclonal antibody
therapy candidates. The issued patents expire at various dates from 2015 to
2026.
We will
only be able to protect our technologies from unauthorized use by third parties
to the extent that they are covered by valid and enforceable patents or are
effectively maintained as trade secrets. The patent positions of companies
developing novel cancer treatments, including our patent position, generally are
uncertain and involve complex legal and factual questions, particularly
concerning the scope and enforceability of claims of such patents against
alleged infringement. Recent judicial decisions in the United States are
prompting a reinterpretation of the limited case law that exists in this area,
and historical legal standards surrounding questions of infringement and
validity may not apply in future cases. A reinterpretation of existing
U.S. law in this area may limit or potentially eliminate our patent
position and, therefore, our ability to prevent others from using our
technologies. The biotechnology patent situation outside the United States is
even more uncertain. Changes in either the patent laws or the interpretations of
patent laws in the United States and other countries may, therefore, diminish
the value of our intellectual property.
19
We own or
have rights under licenses to a variety of issued patents and pending patent
applications. However, the patents on which we rely may be challenged and
invalidated, and our patent applications may not result in issued patents.
Moreover, our patents and patent applications may not be sufficiently broad to
prevent others from using our technologies or from developing competing
products. We also face the risk that others may independently develop similar or
alternative technologies or design around our patented
technologies.
We have
taken security measures to protect our proprietary information, especially
proprietary information that is not covered by patents or patent applications.
These measures, however, may not provide adequate protection for our trade
secrets or other proprietary information. We seek to protect our proprietary
information by entering into confidentiality agreements with employees, partners
and consultants. Nevertheless, employees, collaborators or consultants may still
disclose our proprietary information, and we may not be able to protect our
trade secrets in a meaningful way. In addition, others may independently develop
substantially equivalent proprietary information or techniques or otherwise gain
access to our trade secrets.
Our
success will depend to a substantial degree upon our ability to develop,
manufacture, market and sell our research products and product candidates
without infringing the proprietary rights of third parties and without breaching
any licenses entered into by us regarding our product candidates.
There is
a substantial amount of litigation involving patent and other intellectual
property rights in the biotechnology and biopharmaceutical industries generally.
Infringement and other intellectual property claims, with or without merit, can
be expensive and time-consuming to litigate and can divert management’s
attention from our core business. For example, Lonza Group AG filed a complaint
against us in the United States District Court for the District of Maryland
alleging patent infringement. The case was groundless, and NWBT succeeded in
getting all claims withdrawn by Lonza, with no payment of any consideration
(more detailed description under Legal Proceedings). However, the defense of the
case used up substantial amounts of management time and Company
resources. In addition, we may be exposed to future litigation
by third parties based on claims that our products infringe their intellectual
property rights. This risk is exacerbated by the fact that there are numerous
issued and pending patents in the biotechnology industry and the fact that the
validity and breadth of biotechnology patents involve complex legal and factual
questions for which important legal principles remain unresolved.
Competitors
may assert that our products and the methods we employ are covered by
U.S. or foreign patents held by them. In addition, because patents can take
many years to issue, there may be currently pending applications, unknown to us,
which may later result in issued patents that our products may infringe. There
could also be existing patents of which we are not aware that one or more of our
products may inadvertently infringe.
If we
lose a patent infringement claim, we could be prevented from selling our
research products or product candidates unless we can obtain a license to use
technology or ideas covered by such patent or we are able to redesign our
products to avoid infringement. A license may not be available at all or on
terms acceptable to us, or we may not be able to redesign our products to avoid
infringement. If we are not successful in obtaining a license or redesigning our
products, we may be unable to sell our products and our business could
suffer.
We may not receive regulatory
approvals for our product candidates or there may be a
delay in obtaining such
approvals.
Our
products and our ongoing development activities are subject to regulation by
governmental and other regulatory authorities in the countries in which we or
our collaborators and distributors wish to test, manufacture or market our
products. For instance, the FDA will regulate the product in the U.S. and
equivalent authorities, such as the European Medicines Agency (“EMEA”), will
regulate in other jurisdictions. Regulatory approval by these authorities will
be subject to the evaluation of data relating to the quality, efficacy and
safety of the product for its proposed use.
The time
taken to obtain regulatory approval varies between countries. Different
regulators may impose their own requirements and may refuse to grant, or may
require additional data before granting, an approval, notwithstanding that
regulatory approval may have been granted by other regulators. Regulatory
approval may be delayed, limited or denied for a number of reasons, including
insufficient clinical data, the product not meeting safety or efficacy
requirements or any relevant manufacturing processes or facilities not meeting
applicable requirements.
Further trials and other costly and
time-consuming assessments of the product may be
required to obtain or maintain
regulatory approval.
Medicinal
products are generally subject to lengthy and rigorous pre-clinical and clinical
trials and other extensive, costly and time-consuming procedures mandated by
regulatory authorities. We may be required to conduct additional trials beyond
those currently planned, which could require significant time and expense. For
example, the field of cancer treatment is evolving, and the standard of care for
a particular cancer could change while we are in the process of conducting the
clinical trials for our product candidates. Such a change in standard of care
could make it necessary for us to conduct additional clinical trials, which
could delay our opportunities to obtain regulatory approval of our product
candidates.
20
As for
all biological products, we may need to provide pre-clinical and clinical data
evidencing the comparability of products before and after any changes in
manufacturing process both during and after product approval. Regulators may
require that we generate data to demonstrate that products before or after any
change are of comparable safety and efficacy if we are to rely on studies using
earlier versions of the product. DCVax
®
-Brain
has been the subject of process changes during the early clinical phase of its
development and regulators may require comparability data unless they are
satisfied that changes in process do not affect the quality, and hence efficacy
and safety, of the product.
Only the
data for DCVax
®
-Brain
has been discussed with European regulators. On an informal basis, a number of
European national regulators have indicated that additional pre-clinical and
clinical data could be required before the DCVax
®
-Brain
product would be approved. However, it is not clear whether such data will be
required until formal scientific advice is sought from the EMEA, which is the
regulator that will ultimately review any application for approval of this
product. Unless the EMEA grants a deferral or a waiver, we may also be obliged
to generate clinical data in pediatric populations.
The
Company’s plan for a 600-patient Phase III clinical trial was cleared by
the FDA in January 2005. However, it is likely that we will split this single
600-patient Phase III trial into two separate 300-patient Phase III
trials. These revisions in trial design may cause delay in the development
process for DCVax
®
-Prostate. It is not yet known whether the FDA will consider the two-trial
design sufficient for marketing approval, or whether the agency will require us
to design and carry out additional studies. If, after the Phase III studies
are carried out, the FDA is not satisfied that its concerns have been adequately
addressed, additional clinical studies could be required at that
time.
Any delay
in completing sufficient trials or other regulatory requirements will delay our
ability to generate revenue from product sales and we may have insufficient
capital resources to support its operations. Even if we do have sufficient
capital resources, our ability to generate meaningful revenues or become
profitable may be delayed.
Regulatory
approval may be withdrawn at any time.
After
regulatory approval has been obtained for medicinal products, the product and
the manufacturer are subject to continual review and there can be no assurance
that such approval will not be withdrawn or restricted. Regulators may also
subject approvals to restrictions or conditions, or impose post-approval
obligations on the holders of these approvals, and the regulatory status of such
products may be jeopardized if we do not comply. Extensive post-approval safety
studies are likely to be a condition of the approval and will commit us to
significant time and expense.
We
may fail to comply with regulatory requirements.
Our
success will be dependent upon our ability, and our collaborative partners’
abilities, to maintain compliance with regulatory requirements, including
regulators’ current good manufacturing practices (“cGMP”) and safety reporting
obligations. The failure to comply with applicable regulatory requirements can
result in, among other things, fines, injunctions, civil penalties, total or
partial suspension of regulatory approvals, refusal to approve pending
applications, recalls or seizures of products, operating and production
restrictions and criminal prosecutions.
We may not obtain or maintain orphan
drug status and the associated benefits,
including marketing
exclusivity.
We may
not receive the benefits associated with orphan drug designation. This may
result from a failure to achieve or maintain orphan drug status, or result from
the development of a competing product that has an orphan designation for the
same indication. In Europe, the orphan status of DCVax
®
-Brain
will be reassessed shortly prior to the product receiving any regulatory
approval. The EMEA will need to be satisfied that there is evidence that
DCVax
®
-Brain
offers a significant benefit relative to existing therapies for the treatment of
glioma if DCVax
®
-Brain
is to maintain its orphan drug status.
New
legislation may have an adverse effect on our business.
Changes
in applicable legislation and/or regulatory policies or discovery of problems
with the product, production process, site or manufacturer may result in delays
in bringing products to market, the imposition of restrictions on the product’s
sale or manufacture, including the possible withdrawal of the product from the
market, or may otherwise have an adverse effect on our
business.
21
The availability and amount of
reimbursement for our product candidates and the
manner in which government and
private payers may reimburse for our potential
products is
uncertain.
In many
of the markets where we intend to operate, the prices of pharmaceutical products
are subject to direct price controls (by law) and to drug reimbursement programs
with varying price control mechanisms.
We expect
that many of the patients in the United States who may seek treatment with our
products that may be approved for marketing will be eligible for coverage under
Medicare, the federal program that provides medical coverage for the aged and
disabled. Other patients may be covered by private health plans or may be
uninsured. The Medicare program is administered by the Centers for
Medicare & Medicaid Services (“CMS”), an agency within the
U.S. Department of Health and Human Services. Coverage and reimbursement
for products and services under Medicare are determined pursuant to regulations
promulgated by CMS and pursuant to CMS’s subregulatory coverage and
reimbursement determinations. It is difficult to predict how CMS will apply
those regulations and subregulatory determinations to novel products such as
ours.
Moreover,
the methodology under which CMS makes coverage and reimbursement determinations
is subject to change, particularly because of budgetary pressures facing the
Medicare program. For example, the Medicare Prescription Drug, Improvement, and
Modernization Act (the “Medicare Modernization Act”), enacted in 2003, provided
for a change in reimbursement methodology that has reduced the Medicare
reimbursement rates for many drugs, including oncology therapeutics. Even if our
product candidates are approved for marketing in the U.S., if we are unable to
obtain or retain coverage and adequate levels of reimbursement from Medicare or
from private health plans, our ability to successfully market such products in
the U.S. will be adversely affected. The manner and level at which the
Medicare program reimburses for services related to our product candidates
(e.g., administration services) also may adversely affect our ability to market
or sell any of our product candidates that may be approved for marketing in the
U.S.
In the
U.S., efforts to contain or reduce health care costs have resulted in many
legislative and regulatory proposals at both the federal and state level, and it
is difficult to predict which, if any, of these proposals will be enacted, and,
if so, when. Cost control initiatives by governments or third party payers could
decrease the price that we receive for any one or all of our potential products
or increase patient coinsurance to a level that makes our product candidates
unaffordable for patients. In addition, government and private health plans are
more persistently challenging the price and cost-effectiveness of therapeutic
products. If third-party payers were to determine that one or more of our
product candidates is not cost-effective, this could result in refusal to cover
those products or in coverage at a low reimbursement level. Any of these
initiatives or developments could prevent us from successfully marketing and
selling any of our potential products.
In the
E.U., governments influence the price of pharmaceutical products through their
pricing and reimbursement rules and control of national health care systems that
fund a large part of the cost of such products to consumers. The approach taken
varies from member state to member state. Some jurisdictions operate positive
and/or negative list systems under which products may only be marketed once a
reimbursement price has been agreed. Other member states allow companies to fix
their own prices for medicines, but monitor and control company profits. The
downward pressure on health care costs in general, particularly prescription
drugs, has become very intense. As a result, increasingly high barriers are
being erected to the entry of new products, as exemplified by the role of the
National Institute for Health and Clinical Excellence in the U.K. which
evaluates the data supporting new medicines and passes reimbursement
recommendations to the government. In addition, in some countries cross-border
imports from low-priced markets (parallel imports) exert commercial pressure on
pricing within a country.
Unlike
many pharmaceutical companies that have a number of products in development and
which utilize many technologies, we are dependent on the success of our
DCVax
®
platform
and, potentially, our CXCR4 antibody technology. While DCVax
®
technology has a number of potentially beneficial uses, if that core technology
is not commercially viable, we would have to rely on the CXCR4 technology, which
is at an early pre-clinical stage of development, for our success. If the CXCR4
technology also fails, we currently do not have other technologies to fall back
on and our business could fail.
We
may be prevented from using the DCVax
®
name in
Europe.
The EMEA
has indicated that DCVax
®
may not
be an acceptable name because of the suggested reference to a vaccine. Failure
to obtain the approval for the use of the DCVax
®
name in
Europe would require us to market our potential products in Europe under a
different name which could impair the successful marketing of our product
candidates and may have a material adverse effect on our results of operations
and financial condition.
Competing
generic medicinal products may be approved.
In the
E.U., there exists a process for the approval of generic biological medicinal
products once patent protection and other forms of data and market exclusivity
have expired. If generic medicinal products are approved, competition from such
products may reduce sales of our products. Other jurisdictions, including the
U.S., are considering adopting legislation that would allow the approval of
generic biological medicinal products.
22
We may be exposed to potential
product liability claims, and insurance against these
claims may not be available to us at
a reasonable rate in the future, if at all.
Our
business exposes us to potential product liability risks that are inherent in
the testing, manufacturing, marketing and sale of therapeutic products. Our
insurance coverage may not be adequate to cover claims against us or may not be
available to us at an acceptable cost, if at all. Regardless of their merit or
eventual outcome, product liability claims may result in decreased demand for a
product, injury to our reputation, withdrawal of clinical trial volunteers and
loss of revenues. Thus, whether or not we are insured, a product liability claim
or product recall may result in losses that could be material.
We store,
handle, use and dispose of controlled hazardous, radioactive and biological
materials in our business. Our current use of these materials generally is below
thresholds giving rise to burdensome regulatory requirements. Our development
efforts, however, may result in our becoming subject to additional requirements,
and if we fail to comply with applicable requirements we could be subject to
substantial fines and other sanctions, delays in research and production, and
increased operating costs. In addition, if regulated materials were improperly
released at our current or former facilities or at locations to which we send
materials for disposal, we could be liable for substantial damages and costs,
including cleanup costs and personal injury or property damages, and incur
delays in research and production and increased operating costs.
Insurance
covering certain types of claims of environmental damage or injury resulting
from the use of these materials is available but can be expensive and is limited
in its coverage. We have no insurance specifically covering environmental risks
or personal injury from the use of these materials and if such use results in
liability, our business may be seriously harmed.
Toucan Capital and Toucan Partners
beneficially own a majority of our shares of
common stock and, as a result, the
trading price for our common stock may be
depressed and these stockholders can
take actions that may be adverse to the
interests of other
investors.
As of
April 9, 2010, Toucan Capital, its affiliate, Toucan Partners and its managing
member, Ms. Linda Powers, who also serves as our Chairperson of the Board of
Directors, collectively beneficially owned an aggregate of
32,923,510 shares of our common stock, representing
approximately 58.1 percent of our issued and outstanding common stock.
In addition, as of April 9, 2010, Toucan Capital may acquire an aggregate of
approximately 22 million shares of common stock upon exercise of warrants
and Toucan Partners may acquire an aggregate of approximately 10.3 million
shares of common stock upon the exercise of warrants. This significant
concentration of ownership may adversely affect the trading price of our common
stock because investors often perceive disadvantages in owning stock in
companies with controlling stockholders. Toucan Capital has the ability to exert
substantial influence over all matters requiring approval by our stockholders,
including the election and removal of directors and any proposed merger,
consolidation or sale of all or substantially all of our assets. In addition, a
managing member of Toucan Capital is a member of the Board. In light of the
foregoing, Toucan Capital can significantly influence the management of our
business and affairs. This concentration of ownership could have the effect of
delaying, deferring or preventing a change in control, or impeding a merger or
consolidation, takeover or other business combination that could be favorable to
investors.
23
Our Certificate of Incorporation and
Bylaws and stockholder rights plan may delay or
prevent a change in our
management.
Our
Seventh Amended and Restated Certificate of Incorporation, as amended (the
“Certificate of Incorporation”), Third Amended and Restated Bylaws (the
“Bylaws”) and stockholder rights plan contain provisions that could delay or
prevent a change in our management team. Some of these provisions:
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authorize the issuance of
preferred stock that can be created and issued by the Board without prior
stockholder approval, commonly referred to as “blank check” preferred
stock, with rights senior to those of the common
stock;
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•
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allow the Board to call special
meetings of stockholders at any time but restrict the stockholders from
calling special meetings;
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authorize the Board to issue
dilutive common stock upon certain
events; and
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provide for a classified
Board.
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These
provisions could allow our Board to affect the rights of an investor since the
Board can make it more difficult for holders of common stock to replace members
of the Board. Because the Board is responsible for appointing the members of the
management team, these provisions could in turn affect any attempt to replace
the current management team.
There
may not be an active, liquid trading market for our common stock.
Our
common stock is currently listed on the Over-The-Counter Bulletin Board, or
OTCBB which are generally recognized as being less active markets
than NASDAQ, the stock exchange on which our common stock previously was listed.
You may not be able to sell your shares at the time or at the price desired.
There may be significant consequences associated with our stock trading on the
OTCBB rather than a national exchange. The effects of not being able to list our
securities on a national exchange include:
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limited release of the market
price of our securities;
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limited news
coverage;
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limited interest by investors in
our securities;
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volatility of our stock price due
to low trading volume;
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increased difficulty in selling
our securities in certain states due to “blue sky”
restrictions; and
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limited ability to issue
additional securities or to secure additional
financing.
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24
Because our common stock is subject
to “penny stock” rules, the market for the common
stock may be
limited.
Because
our common stock is subject to the SEC’s “penny stock” rules, broker-dealers may
experience difficulty in completing customer transactions and trading activity
in our securities may be adversely affected. Under the “penny stock” rules
promulgated under the Exchange Act, broker-dealers who recommend such securities
to persons other than institutional accredited investors must:
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make a special written
suitability determination for the
purchaser;
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receive the purchaser’s written
agreement to a transaction prior to
sale;
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provide the purchaser with risk
disclosure documents which identify certain risks associated with
investing in “penny stocks” and which describe the market for these “penny
stocks” as well as a purchaser’s legal
remedies; and
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obtain a signed and dated
acknowledgment from the purchaser demonstrating that the purchaser has
actually received the required risk disclosure document before a
transaction in a “penny stock” can be
completed.
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As a
result of these rules, broker-dealers may find it difficult to effectuate
customer transactions and trading activity in our common stock may be adversely
affected. As a result, the market price of our common stock may be depressed,
and stockholders may find it more difficult to sell our common
stock.
The
price of our common stock may be highly volatile.
The share
price of publicly traded biotechnology and emerging pharmaceutical companies,
particularly companies without earnings and consistent product revenues, can be
highly volatile and are likely to remain highly volatile in the future. The
price at which our common stock is quoted and the price which investors may
realize in sales of their shares of our common stock will be influenced by a
large number of factors, some specific to us and our operations and some
unrelated to our operations. These factors could include the performance of our
marketing programs, large purchases or sales of the shares, currency
fluctuations, legislative changes and general economic conditions. In the past,
shareholder class action litigation has often been brought against companies
that experience volatility in the market price of their shares. Whether or not
meritorious, litigation brought against us following fluctuations in the trading
price of our common stock could result in substantial costs, divert management’s
attention and resources and harm our financial condition and results of
operations.
Our
business could be adversely affected by animal rights activists.
Our
business activities have involved animal testing. These types of activities have
been the subject of controversy and adverse publicity. Some organizations and
individuals have attempted to stop animal testing by pressing for legislation
and regulation in these areas. To the extent the activities of such groups are
successful, our business could be adversely affected. Negative publicity about
us, our pre-clinical trials and our product candidates could have an adverse
impact on our sales and profitability.
The requirements of the
Sarbanes-Oxley Act of 2002 and other U.S. securities laws
reporting requirements impose cost
and operating challenges on us.
We are
subject to certain of the requirements of the Sarbanes-Oxley Act of 2002 in the
U.S. and the reporting requirements under the Exchange Act. These laws
require, among other things, an attestation report of our independent auditor on
the effectiveness of our internal control over financial reporting, currently
expected to begin with our annual report for the year ended December 31,
2010, as well as the filing of annual reports on Form 10-K, quarterly
reports on Form 10-Q and periodic reports on Form 8-K following the
happening of certain material events. To meet these compliance deadlines, we
will need to have our internal controls designed, tested and operational by
early 2010 to ensure compliance with applicable standards. We initiated the
process of documenting and evaluating our internal controls and financial
reporting procedures in early 2008. This process is ongoing and will continue to
likely be time consuming and will result in us having to significantly change
our controls and reporting procedures due to our small number of employees and
lack of governance controls. Most similarly-sized companies registered with the
SEC have had to incur significant costs to ensure compliance.
25
Our management has identified
significant internal control deficiencies, which
management and our independent
auditor believe constitute material weaknesses.
In
connection with the preparation of our financial statements for the year ended
December 31, 2009, certain significant internal control deficiencies became
evident to management that, in the aggregate, represents material weaknesses,
including:
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lack of a sufficient number of
independent directors on our audit
committee;
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lack of a financial expert on our
audit committee
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insufficient segregation of
duties in our finance and accounting function due to limited
personnel;
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insufficient corporate governance
policies; and
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inadequate approval and control
over transactions and commitments made on our behalf by related
parties.
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As part
of the communications by our independent auditors with our audit committee with
respect to audit procedures for the year ended December 31, 2009, our
independent auditors informed the audit committee that these deficiencies
constituted material weaknesses, as defined by Auditing Standard No. 5, “An
Audit of Internal Control Over Financial Reporting that is Integrated with an
Audit of Financial Statements and Related Independence Rule and Conforming
Amendments,” established by the Public Company Accounting Oversight Board, or
PCAOB. We intend to take appropriate and reasonable steps to make the necessary
improvements to remediate these deficiencies but we cannot be certain that we
will have the necessary financing to address these deficiencies or that we will
be able to attract qualified individuals to serve on our Board and to take on
key management roles within the Company. Our failure to successfully remediate
these issues could lead to heightened risk for financial reporting mistakes and
irregularities and a loss of public confidence in our internal
controls that could harm the market price of our common stock.
None.
On
March 21, 2008, the Company executed a Sublease Agreement (the “Sublease
Agreement”) with Toucan Capital for the space the Company used as its
headquarters at 7600 Wisconsin Avenue, Suite 750, Bethesda, Maryland.
During the term of the Sublease Agreement, the Company incurred monthly rent
expense payable to Toucan Capital amounting to $34,000. Effective
November 30, 2009, the Sublease was terminated in connection with termination
and buyout of the overall lease of this space. (The overall lease and
the Company’s Sublease had 7 years left to run at that time). The
termination and buyout did not require any lump sum exit
payment. Instead, it requires a partial payout over several
years. The obligation for the Company will be less than $5,000
per month during 2010 and 2011.
From time
to time, we are involved in claims and suits that arise in the ordinary course
of our business. At present, the Company is not involved in any suits
other than an action by a creditor with respect to certain disputed amounts.
Although management currently believes that resolving any such claims against us
will not have a material adverse impact on our business, financial position or
results of operations, these matters are subject to inherent uncertainties and
management’s view of these matters may change in the future.
In the
last several years, we were involved in the following legal
proceedings..
26
SOMA
Arbitration
In
January, 2003, Toucan Capital initiated contact with the Company through a
letter expressing interest in investing. The Company’s then business managers
(who left the Company that year) did not engage with Toucan. In the
spring and summer of 2003, Toucan hired a former employee of the Company, and
Toucan retained external advisers who conducted due diligence on the Company. In
January, 2004, Toucan pursued investment discussions with the Company at an
investment conference. Those discussions led to initial investment by
Toucan a few weeks later, in February 2004, followed by further investment in
March and culminating in a recapitalization of the Company pursuant to an
agreement completed in April, 2004.
On
October 15, 2003, the Company engaged Soma Partners, LLC (Soma), a New
Jersey-based investment bank, to help raise funding for the
Company. Although Toucan had initiated contact with the Company ten
months earlier and had been conducting due diligence on the Company both
internally and externally over the course of those ten months, and although Soma
was not present at the January 2004 discussions and did not know such
discussions were taking place, thereafter Soma sought to receive investment
banking fees on all investment made by Toucan into the Company, despite the
chronology of events.
The
Company sought to reach a negotiated settlement. Soma declined to
reduce the amount of its claims, and filed an arbitration case to pursue the
claims. Soma also expanded its claims to include not only the
investments made by Toucan in 2004, but also all future financings which might
be made pursuant to the recapitalization plans that Toucan and the Company had
developed for up to $40 million of future financings. In its
arbitration case at various points, Soma sought growing amounts of cash fees and
in excess of 10 million shares of stock or warrants.
The
arbitration case turned on whether Soma had “first introduced” Toucan to the
Company. The Company vigorously disputed Soma’s claims and defended
itself. The arbitration was held in March and May 2005, and all
claims were decided in the Company’s favor.
Soma then
filed a series of appeals during 2005. In the first appeal, the court
rejected all of Soma’s claims and confirmed the decision reached in the
arbitration. Soma then filed another appeal in 2006. In
that appeal, the court found an issue with the selection of the arbitrator, and
remanded the case for a new arbitration. Sometime during this period,
Soma went out of business, but its former principals still continue to pursue
the claims against the Company.
The new
arbitration was conducted in May and June of 2009, by a three-arbitrator
panel. Once again, all claims were decided in the Company’s
favor. Soma’s former principals did not file further appeals after
that decision, and the case is now finally closed.
27
Lonza
Patent Infringement Claim
In
late June 2007, the Company received a favorable ruling from a Swiss regulatory
agency (the B.A.G.), which was expected at the time to enable the Company to
begin providing its DCVax
®
dendritic cell vaccines to patients commercially through designated medical
centers in Switzerland. Within weeks after this decision was
announced, on July 27, 2007, Lonza Group AG (“Lonza”), a large Swiss based
corporation, filed a lawsuit against us in the U.S., alleging infringement of
some eight different patents, relating to recombinant DNA methods, sequences,
vectors and other technology relating to gene modifications of cells, cell lines
and host cells.
None
of the Company’s DCVax
®
products
involve, or have ever involved, any gene modifications of any of the
cells. The lawsuit was groundless and we defended ourselves
vigorously, including making clear that we would seek court sanctions under the
Federal Rules of Civil Procedure against Lonza and its counsel for filing a
complaint without any reasonable basis. Within five months after filing its
extensive complaint, Lonza unilaterally withdrew nearly all of the claims in it
– all claims except certain claims relating to our DCVax
®
-Prostate
product.
Regarding
the DCVax
®
-Prostate
product, Lonza sought to still pursue its claims on the basis that although the
Company itself had never used any gene expression or gene modification
technology, instead Medarex – who had served as the contract manufacturer of the
PSMA antigen (biomarker) in DCVax
®
-Prostate
and supplied the finished PSMA antigen to us – had potentially used Lonza’s gene
expression system. Although the Company had had no involvement in
(and no knowledge of) Medarex’s choice of manufacturing method, and had simply
contracted with Medarex for delivery of a quantity of finished PSMA, Lonza
sought to hold the Company liable for this because Lonza had reached a business
deal with Medarex several years earlier which precluded Lonza pursuing claims
against Medarex.
We
continued to dispute and defend ourselves vigorously against Lonza’s remaining
claims concerning DCVax
®
-Prostate. During
the course of the case, Lonza proposed several times for us to take a license to
their gene expression technology. Since we had no use for their
technology, we declined.
Within
another four months after Lonza’s unilateral withdrawal of all other claims in
its complaint, in April 2008 we and Lonza entered into a settlement to dispose
of the last of Lonza’s claims. Under this settlement, we refused to
pay make any monetary payment of any kind, refused to take a license to Lonza’s
technology, and agreed to only one thing: to destroy our remaining inventory of
PSMA which had been produced by Medarex, and which had been sitting in our
freezers for nearly ten years. Under this settlement, the last of
Lonza’s claims were dismissed with prejudice (meaning they cannot be re-filed),
thus ending the case.
28
Stockholder
Class Action
In
February 2007, the Company applied to the Bundesamt für Gesundheit (B.A.G.) in
Switzerland for an Authorization for Use, so that the Company could make
DCVax
®
available to patients commercially at designated medical centers in
Switzerland. At that time, the B.A.G. had jurisdiction over
transplants, and a separate agency, Swissmedic, had jurisdiction over drugs and
other medical products. Our DCVax
®
dendritic cell vaccine was classified as a standardized
transplant. The B.A.G. had jurisdiction to issue Authorizations for
Use, which were a form of limited regulatory approval for which there is no
counterpart or similar form of approval in the U.S. Swissmedic had
jurisdiction to issue Marketing Authorizations, which are full commercial
approvals without limitations, and which are similar to product approvals that
are issued by the Food and Drug Administration (FDA) in the U.S.
In
June 2007, the Company received a favorable decision from the B.A.G. granting
the Authorization for Use for which the Company had applied. As this
was a material event, the Company issued a press release announcing and
describing it. A tremendous amount of activity in our stock followed
the announcement, and the stock price rose quite substantially. There
was also a large amount of confusion about what the Company had
received. Various parties thought the Company had received a
Marketing Authorization from Swissmedic. No one was familiar with an
Authorization for Use from the B.A.G. After growing controversy in
the days following our public announcement of the Authorization for Use, the
Company issued a second public announcement clarifying that the Company had
neither applied for nor received a Marketing Authorization from
Swissmedic. The Company also sought to clarify in the second
announcement what the Authorization for Use was, and what it
provided.
Following
our second public announcement, our stock price dropped
sharply. Within the next weeks and months, six class action lawsuits
were filed by parties who bought stock between our first public announcement and
our second one, seeking damages on the basis that our public announcements had
not been clear enough and had been misleading.
The
Company disputed the claims and strongly defended ourselves. In
January, 2009, the Company reached a settlement which disposed of all six class
action cases, in their entirety, for a single payment of $1
million. The Company entered this settlement because the amount to be
paid was a small fraction of what it would have cost to proceed with litigation
of the cases. The settlement also removed the diversion of management
time and attention, which was needed on the Company’s operations. The
entire $1 million settlement payment and all of our defense costs were paid by
our Directors’ and Officers’ liability insurance. The settlement
executed in January of 2009 was approved by the applicable court in June 2009,
and all of the cases were dismissed with prejudice (meaning they cannot be
re-filed), thus ending these cases. Our Directors’ and Officers’
liability insurer has renewed and continued our coverage throughout the time
since these cases were brought, unaffected by these cases.
29
In
Switzerland, subsequent to the B.A.G’s favorable decision to us in June 2007,
the B.A.G and Swissmedic underwent a reorganization, and the B.A.G’s
jurisdiction was transferred to Swissmedic. Following that
reorganization, each party who had received a B.A.G decision, such as NWBT had
received, was requested to file a Marketing Authorization Application (MAA) with
Swissmedic for full product approval. NWBT did so at year end
2007. During the two-plus years since then, Swissmedic has conducted
inspections, and has been reviewing and evaluating the Company’s
MAA.
On
August 13, 2007, the Company was notified that the SEC had initiated a
non-public informal inquiry regarding the events surrounding our application for
and receipt of the Authorization for Use from the B.A.G., and our related press
releases dated July 9, 2007 and July 16, 2007. On March 3, 2008
the Company was notified that the SEC had initiated a formal investigation
regarding this matter. The Compnay cooperated with the SEC in connection
with the inquiry, and after a thorough investigation, the SEC notified us that
they had found no basis for any action and had closed the
investigation.
30
Market
Information and Price Range of Common Stock
Our
common stock is quoted on the OTCBB under the symbol “NWBO.OB” The following
table summarizes our common stock’s high and low sales prices for the periods
indicated as reported by the OTCBB. Quotations on the OTCBB reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
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2008
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2009
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High
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Low
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High
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Low
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4th
Quarter
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$ | 1.10 | $ | 0.15 | $ | 1.79 | $ | 0.65 | ||||||||
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3rd
Quarter
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2.00 | 0.60 | 1.00 | 0.55 | ||||||||||||
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2nd
Quarter
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2.44 | 1.85 | 1.69 | 0.45 | ||||||||||||
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1st
Quarter
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2.59 | 1.85 | 0.85 | 0.32 | ||||||||||||
As of
April 12, 2010, there were approximately 231 holders of record of our common
stock. Such holders include any broker or clearing agencies as holders of record
but exclude the individual stockholders whose shares are held by brokers or
clearing agencies.
Dividend
Policy
We have
never declared or paid cash dividends on our capital stock. We currently intend
to retain future earnings, if any, to fund the development and growth of our
business and do not currently anticipate paying any cash dividends in the
foreseeable future. The payment of future dividends, if any, will be determined
by our Board.
Recent
Sales of Unregistered Securities
On June
22, 2007, we placed 15,789,473 shares of our common stock with foreign
institutional investors at a price of £0.95 per share. The gross proceeds from
the placement were approximately £15.0 million, or $29.9 million, while net
proceeds from the offering, after deducting commissions and expenses, were
approximately £13.0 million, or $25.9 million.
On May 9,
2008 the Company entered into a loan agreement with Al Rajhi Holdings, under
which the Company received $4.0 million in return for an unsecured promissory
note in the principal amount of US$4,240,000 (reflecting an original issue
discount of six percent, or US$240,000) for a period of six (6)
months.
On August
19, 2008, the Company entered into a loan agreement with Toucan Partners, under
which the Company received $1.0 million in return for an unsecured promissory
note in the principal amount of $1,060,000 (reflecting an original issue
discount of six percent, or $60,000) for a period of six months.
On
October 1, 2008 we entered into a loan agreement with SDS Capital for $1.0
million for a term of six (6) months at 12%. In connection with the loan the
Company issued SDS warrants to purchase shares of the Company’s common
stock. The warrants have a term of five years from the issuance
date.
On
October 22, 2008 we entered into a loan agreement with a group of private
investors and SDS Capital for $1.65 million for a term of six (6) months at 12%.
In connection with the loan the Company issued the private investors and SDS
warrants to purchase shares of the Company’s common stock. The
warrants have a term of five years from the issuance date.
On
December 22 2008, we entered into a loan agreement with Toucan Partners for
$500,000 with a term of six months at 12% interest. In connection with the loan
the Company issued Toucan Partners warrants to purchase shares of the Company’s
common stock. The warrants have a term of five years from the
issuance date.
On
January 16, 2009 we entered into a securities purchase agreement for $700,000
with Al Rajhi Holdings who purchased 1,000,000 shares of our common stock at
$0.70 per share.
31
During
March 2009, we entered into loan agreements with a group of private lenders for
$760,000 for a term of two years at 6% per annum.
On March
27, 2009, we sold approximately 1.4 million shares of common stock at a purchase
price of $0.53 per share and raised aggregate gross proceeds of approximately
$0.7 million in a closed equity financing with unrelated investors.
In July
2009 we entered into a loan agreement with Toucan Partners for $1,300,000 with a
term of two years at 6% interest.
In August
and September 2009 we entered into a series of small loan agreements with a
group of Private Investors for an aggregate of $580,000 with a term of two years
at 6% interest.
In
October through December 2009 we entered into a series of small loan agreements
with a group of private investors for an aggregate of $720,000 with a term of
two years at 6% interest.
|
|
Not
required for smaller reporting
companies
|
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with Item 8. “Financial Statements
and Supplementary Data” included below in this Annual Report on Form 10-K.
Operating results are not necessarily indicative of results that may occur in
future periods.
This
discussion and analysis contains forward-looking statements that involve a
number of risks, uncertainties and assumptions. Actual events or results may
differ materially from our expectations. Important factors that could cause
actual results to differ materially from those stated or implied by our
forward-looking statements include, but are not limited to, those set forth in
Item 1A. “Risk Factors” in this Annual Report. All forward-looking
statements included in this Annual Report are based on information available to
us on the date of this Annual Report and, except as required by law, we
undertake no obligation to update publicly or revise any forward-looking
statements.
Overview
We are a
development stage biotechnology company focused on discovering, developing and
commercializing immunotherapy products that generate and enhance immune system
responses to treat cancer. Data from our clinical trials suggest that our cancer
therapies significantly extend both time to recurrence and survival, while
providing a superior quality of life with no debilitating side effects when
compared with current therapies. For additional information regarding our
business, product candidates and the status of our clinical trials, see
Item 1. “Business” in this Annual Report on Form 10-K.
Our
financing activities are described below under “— Liquidity and Capital
Resources”. We will need to raise additional capital to fund our operations,
including our Phase II DCVax
®
-Brain
clinical trial. Depending on the trial results, we plan to seek product approval
for DCVax
®
-Brain,
our leading product candidate, in both the U.S. and E.U.
We have
experienced recurring losses from operations and have a deficit accumulated
during the development stage of $189.9 million at December 31, 2009.
In addition, our independent registered public accounting firm has indicated in
its report on our financial statements included in this Annual Report on
Form 10-K that there is substantial doubt about our ability to continue as
a going concern.
Going
Concern
Our
financial statements for the year ended December 31, 2009 have been
prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities in the normal course of business.
Nevertheless, we have experienced recurring losses from operations and have a
deficit accumulated during the development stage of $189.9 million that
raises substantial doubt about our ability to continue as a going concern and
our auditors have issued an opinion, for the year ended December 31, 2009,
which states that there is substantial doubt about our ability to continue as a
going concern.
If we are
unable to continue as a going concern, we would consider all opportunities for
creating value in the Company, including investigating ways to advance our
dendritic cell-based product and monoclonal antibody candidates, including
pursuing potential corporate partnerships for our monoclonal antibody
candidates, and other alternatives, including the possible sale of some or all
of our assets.
32
Expenses
From our
inception through December 31, 2009, we incurred costs of approximately
$67.0 million associated with our research and development activities.
Because our technologies are unproven, we are unable to estimate with any
certainty the costs we will incur in the continued development of our product
candidates for commercialization.
General
and administrative expenses include salary and benefit expenses related to
administrative personnel, cost of facilities, insurance, legal support, as well
as amortization costs of stock options granted to employees and warrants issued
to consultants for their professional services.
To date,
our revenues have primarily been derived from the manufacture and sale of
research materials, contract research and development services and research
grants from the federal government.
Critical
Accounting Policies and Estimates
Our
consolidated financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America. In
preparing these financial statements, we make assumptions, judgments and
estimates that can have a significant impact on amounts reported in our
financial statements. We base our assumptions, judgments and
estimates on historical experience and various other factors that we believe to
be reasonable under the circumstances. Actual results could differ
materially from these estimates under different assumptions or
conditions. On a regular basis we evaluate our assumptions, judgments
and estimates and make changes accordingly. We believe that, of the
significant accounting policies discussed in Note 3 to our consolidated
financial statements, the following accounting policies require our most
difficult, subjective or complex judgments:
Stock-Based
Compensation
Compensation
expense for all stock-based awards is measured at the grant date based on the
fair value of the award and is recognized as an expense, on a straight-line
basis, over the employee's requisite service period (generally the vesting
period of the equity award). The fair value of each option award is
estimated on the date of grant using a Black-Scholes option valuation
model. Stock-based compensation expense is recognized only for those
awards that are expected to vest using an estimated forfeiture
rate. Estimates of pre-vesting forfeiture are periodically revised in
subsequent periods if actual forfeitures differ from those
estimates. To the extent that actual results differ from our
estimates, such amounts will be recorded as cumulative adjustments in the period
the estimates are revised.
Operating
costs:
Operating
costs and expenses consist primarily of research and development expenses,
including clinical trial expenses which increase when we are actively
participating in clinical trials, and general and administrative
expenses.
Research
and development:
Discovery
and preclinical research and development expenses include scientific personnel
related salary and benefit expenses, costs of laboratory supplies used in our
internal research and development projects, travel, regulatory compliance, and
expenditures for preclinical and clinical trial operation and management when we
are actively engaged in clinical trials.
Because
we are a development stage company, we do not allocate research and development
costs on a project basis. We adopted this policy, in part, due to the
unreasonable cost burden associated with accounting at such a level of detail
and our limited number of financial and personnel resources.
33
General
and administrative:
General
and administrative expenses include administrative personnel related salary and
benefit expenses, cost of facilities, insurance, travel, legal support, property
and equipment depreciation, amortization of stock options and
warrants.
Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2009
We
recognized a loss from operations of $15.8 million for the year ended December
31, 2009 compared to a loss from operations of $21.6 million for the year ended
December 31, 2008.
Research and Development
Expense.
Research and development expense decreased from $12.7 million
for the year ended December 31, 2008 to $9.6 million for the year ended December
31, 2009. This decrease was primarily due to reduced clinical trial
operations.
General and Administrative
Expense.
General and administrative expense decreased from $8.9 million
for the year ended December 31, 2008 to $5.8 million for the year ended December
31, 2009. This decrease was directly the result of scaling administrative
expenses to the current activity level .
Depreciation and
Amortization.
Depreciation and amortization decreased from $22,000 during
the year ended December 31, 2008 to $7,000 for the year ended December 31, 2009
as a result of all assets being fully depreciated
Asset Impairment Loss.
In
July 2009 the Company’s contract manufacturer, Cognate Bioservices, Inc.,
consolidated its operations in its newer Memphis, Tennessee
manufacturing facilities and closed the Sunnyvale facility housing the Company’s
clean room. As the California clean room cannot be relocated the
Company provided an impairment allowance of $389,000 reducing the carrying value
of the clean room to $0.
Interest Expense, Net.
Interest expense net increased from $0.8 million for the year ended December 31,
2008 to approximately $3.9 million for the year ended December 31,
2009. Interest expense in 2008 and 2009 was related to notes payable
from both related and non related parties and included both interest and debt
discount expense. During 2009 the Company incurred interest costs related to the
debt burden assumed in 2008 and an increase in the debt burden from $8.1 million
at December 31, 2008 to $10.0 million at December 31, 2009.
Liquidity
and Capital Resources
At
December 31, 2009, cash totaled $65,000, compared to $16,000 at
December 31, 2008. Working capital was a deficit of
$19.3 million at December 31, 2009, compared to a deficit of
$12.7 million at December 31, 2008. Working capital
decreased as of December 31, 2009 primarily due to an increase in current
liabilities arising from note payable obligations compared to December 31,
2008. Cash balances increased during 2009 due primarily to the
financing transactions discussed below that were executed in 2009.
The
change in cash for the years ended December 31, 2009 and 2008 was comprised
of the following (in thousands):
|
For the Years Ended
December 31,
|
||||||||||||
|
2008
|
2009
|
Change
|
||||||||||
|
Net
cash provided by (used in):
|
||||||||||||
|
Operating
activities
|
$ | (15,587 | ) | $ | (4,677 | ) | $ | 10,910 | ||||
|
Investing
activities
|
(389 | ) | (2 | ) | 387 | |||||||
|
Financing
activities
|
8,151 | 4,753 | (3,398 | ) | ||||||||
|
Effect
of exchange rates on cash
|
(20 | ) | (25 | ) | (5 | ) | ||||||
|
(Decrease)
increase in cash
|
$ | (7,845 | ) | $ | 49 | $ | 7,894 | |||||
Operating
Activities
We used
$4.7 million in cash for operating activities during the year ended
December 31, 2009, compared to $15.6 million for the year ended
December 31, 2008. The decrease in cash used in operating
activities was a result of the reductions in staff and clinical trial research
and development activity due to cash constraints.
34
Investing
Activities
We used
$2,000 in cash for investing activities during the year ended December 31,
2009 compared to $389,000 used for investing activities during the year ended
December 31, 2008. The cash used during the year ended
December 31, 2008 was related to construction of additional clean room
facilities at our contract manufacturer and the cash used during the year ended
December 31, 2009 consisted of purchases of property and
equipment.
Financing
Activities
During
2009, our financing activities consisted of proceeds from notes payable
amounting to $3.4 million and proceeds from the issuance of common stock
amounting to $1.4 million. The 2009 financing transactions consisted
of:
On
January 16, 2009 we entered into a securities purchase agreement for $700,000
with Al Rajhi Holdings who purchased 1,000,000 shares of our common stock at
$0.70 per share.
On March
27, 2009, we completed a private placement of 1.4 million shares of our common
stock and received $0.7 million.
During
March 2009, the Company received $760,000 upon issuing unsecured 6% convertible
loan agreements and promissory notes due in March 2011 to a group of private
lenders (“Private Lenders”).
Toucan
Partners loaned the Company a total of $1,300,000 on July 2, 2009 and July 17,
2009 under unsecured 6% convertible promissory notes due July 1, 2011 and July
16, 2011.
On dates
between August 13, 2009 and September 24, 2009, the Company received an
aggregate of $580,000 upon issuing a series of small unsecured 6% convertible
loan agreements and promissory notes due in August and September 2011 to a group
of Private Lenders.
On dates
between October 6, 2009 and December 31, 2009, the Company received $720,000
upon issuing unsecured 6% convertible loan agreements and promissory notes due
in August and September 2011 to a group of Private Lenders.
During
2008, our financing activities consisted of proceeds from notes payable
amounting to $8.2 million. The 2008 financing transactions consisted
of:
Al Rajhi
loaned the Company $4.0 million on May 12, 2008 under the terms of an unsecured
promissory note with a principal amount of $4,240,000 (reflecting an original
issue discount of $240,000).
Toucan
Partners loaned the Company $1.0 million on August 19, 2008 under the terms of
an unsecured promissory note (the “Toucan Partners August Loan”) with a
principal amount of $1,060,000 (reflecting an original issue discount of
$60,000).
On
October 1, 2008, the Company entered into a $1 million unsecured 12% Loan
Agreement with SDS (the “SDS Loan”).
On dates
between October 21, 2008 and November 6, 2008, the Company entered into
unsecured 12% Loan Agreements (the “Private Investor Loans”) and Promissory
Notes (the “Private Investor Promissory Notes”) with SDS and a group of private
investors (the “Private Investors”). Under the Private Investor
Promissory Notes, SDS loaned the Company $1 million and the Private Investors
loaned the Company $650,000 for a total of $1.65 million.
Toucan
Partners loaned the Company $500,000 on December 22, 2008 under the terms of an
unsecured 12% promissory note (the “Toucan Partners December
Loan”).
As of
April 12, 2010, we had approximately $215,000 of cash on hand. We will need to
raise additional capital in the near future to fund our clinical trials and
other operating activities. We are in discussions with multiple parties
regarding potential funding transactions. However, these parties are not
obligated to provide such financing.
During
2009, the Company and Cognate BioServices ("Cognate") agreed that most of the
accounts payable owed by the Company to Cognate, will be converted into shares
of common stock instead of paid in cash. The conversion price will be no
less favorable than the conversion price applied to any other creditor of the
Company. The impact of the conversion will result in a reduction of
liabilities for the amount converted. In addition, the Company will
recognize the value of common stock issued in excess of the amount of accounts
payable converted, if any, as a charge to operations when the conversion takes
place. Finalization of these arrangements is in process.
Also
during 2009, the Company agreed with Toucan Capital, Toucan Partners and Linda
Powers that a portion of the accrued expenses owed by the Company to these
parties for certain expense reimbursements will be converted into shares of
common stock instead of paid in cash. Toucan Capital, Toucan Partners and
Linda Powers have paid certain expenses on behalf of the Company. The
parties agreed that these accrued expenses will be converted into common stock
(at a conversion rate of $0.20 per share). The parties are in the process
of determining the amounts of unbilled accrued expenses. The impact of the
conversion will result in a reduction of liabilities for the amount
converted. In addition, the Company will recognize the value of common
stock issued in excess of the amount of the accrued expenses converted, if any,
as a charge to operations when the conversion takes place. Finalization of
these arrangements is in process.
We
estimate that our current funding is sufficient to enable us to proceed with our
current (reduced) activities under our DCVax
®
-Brain
program. Our ongoing funding requirements will depend on many
factors, including the number of staff we employ, the pace of patient enrollment
in our brain cancer trial, the cost of establishing clinical studies and
compassionate use/named patient programs in other countries, and unanticipated
developments, including potential adverse developments in pending litigation
and/or regulatory matters. Without additional capital, we will not be
able to proceed with significant enrollment in our DCVax
®
-Brain clinical trial or
move forward with compassionate use/named patients programs or with any of our
other product candidates for which investigational new drug applications have
been cleared by the FDA. We will also be constrained in developing our second
generation manufacturing processes, which offer the potential for significant
reduction in product costs.
35
Additional
funding will be required in the near future and there can be no assurance that
our efforts to seek such funding will be successful. If our capital raising
efforts are unsuccessful, our inability to obtain additional cash as needed
could have a material adverse effect on our financial position, results of
operations and our ability to continue our existence. Our independent registered
public accounting firm has indicated in its report on our financial statements
included in the Annual Report on Form 10-K for the year ended
December 31, 2009 that there is substantial doubt about our ability to
continue as a going concern. We may seek additional funds through the issuance
of additional common stock or other securities (equity or debt) convertible into
shares of common stock, which could dilute the ownership interest of our
stockholders. We may seek funding from Toucan Capital or Toucan Partners or
their affiliates or other third parties. Such parties are under no obligation to
provide us any additional funds, and any such funding may be dilutive to
stockholders and may contain restrictive covenants that could limit our ability
to take certain actions.
Contractual
Obligations
The
Company has numerous contractual obligations including Cognate,
Synteract, Media Marketing Communications, Dr. David Filer, and
others
Recent
Accounting Pronouncements
Refer to
Note 3 to the Consolidated Financial Statements
Not
required for smaller reporting companies
Financial
Statements
Our
financial statements required by this item are submitted as a separate section
of this Annual Report on Form 10-K. See Item 15(a)(1) for a listing of
financial statements provided in the section titled “Financial
Statements”.
None
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive, financial and accounting officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended. Based on this evaluation, our principal executive, financial
and accounting officer concluded that, as of December 31, 2009, in light of the
material weaknesses described below, our disclosure controls and procedures were
not effective to ensure that the information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange Act of 1934 is
accumulated and communicated to management, including our chief executive
officer, financial and accounting officer, to allow timely decisions regarding
required disclosure, and that such information is recorded, processed,
summarized and reported within the time periods prescribed by the
SEC.
Management's
Report on Internal Controls Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
controls over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Under the supervision and with the participation of our
management, including our principal executive, financial and accounting officer,
we conducted an evaluation of the effectiveness of our internal controls over
financial reporting as of December 31, 2009. This evaluation was
based on the framework in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
("COSO").
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company's annual or interim financial
statements will not be prevented or detected on a timely basis.
36
Based on
management's evaluation as of December 31, 2009, our management identified the
material weaknesses set forth below in our internal control over financial
reporting:
|
(i)
|
The
Company's process for internally reporting material information in a
systematic manner to allow for timely filing of material information is
ineffective, due to its inherent limitations from being a small company,
and there exist material weaknesses in internal control over financial
reporting that contribute to the weaknesses in our disclosure controls and
procedures. These weaknesses include the lack
of:
|
|
|
·
|
appropriate
segregation of duties;
|
|
|
·
|
appropriate
oversight and review;
|
|
|
·
|
internal
accounting technical expertise;
|
|
|
·
|
preparation,
review and verification of internally developed
documentation;
|
|
|
·
|
controls
in place to insure that all material developments impacting the financial
statements are reflected; and
|
|
|
·
|
executed
agreements for significant
contracts.
|
|
(ii)
|
Lack
of a sufficient number of independent directors for our board and audit
committee. We currently only have one independent director on
our board, which is comprised of three directors, and on our audit
committee. Although we are considered a controlled company,
whereby a group holds more than 50% of the voting power, and as such are
not required to have a majority of our board of directors be
independent. It is our intention to have an majority of
independent directors in due
course.
|
|
(iii)
|
Lack
of a financial expert on our audit committee. We currently do
not have an audit committee financial expert, as defined by SEC
regulations on our audit committee as defined by the
SEC.
|
|
(iv)
|
Insufficient
corporate governance policies. Although we have a code of
ethics which provides broad guidelines for corporate governance, our
corporate governance activities and processes are not always formally
documented. Specifically, decisions made by the board to be
carried out by management should be documented and communicated on a
timely basis to reduce the likelihood of any misunderstandings regarding
key decisions affecting our operations and
management.
|
|
(v)
|
Inadequate
approval and control over transactions and commitments made on our behalf
by related parties. Specifically, during the year certain
related party transactions were not effectively communicated to all
internal personnel who needed to be involved to account for and report the
transaction in a timely manner. This resulted in material
adjustments during the quarterly reviews and annual audit, respectively,
that otherwise would have been avoided if effective communication and
approval processes had been
maintained.
|
Our
company's management concluded that in light of the material weaknesses
described above, our company did not maintain effective internal control over
financial reporting as of December 31, 2009 based on the criteria set forth in
Internal Control—Integrated Framework issued by the COSO.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our
public accounting firm pursuant to temporary rules of the SEC that permit us to
provide only management's report in this annual report.
Changes
in Internal Control over Financial Reporting
There has
been no change in our internal controls over financial reporting that occurred
during the fiscal quarter ended December 31, 2009 that has materially
affected, or is reasonably expected to materially affect, our internal controls
over financial reporting.
Inherent
Limitations
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
None.
Our
directors and their ages and positions, as of April 12, 2010, are included in
the table below. Ms. Powers’ and Mr. Farmer’s biographies
follows the table. Dr. Boynton’s biography is included under
“Executive Officers of Northwest Biotherapeutics, Inc.” in Part I of this
report.
37
|
Name
|
Age
|
Position
|
||
|
Alton
L. Boynton, Ph.D.
|
65
|
President,
Chief Executive Officer, Secretary and Director
|
||
|
Linda
F. Powers
|
54
|
Director,
Chairperson
|
||
|
Robert
A. Farmer
|
71
|
Director
|
Alton L. Boynton,
Ph.D.
Dr. Boynton co-founded the Company, has served as
Secretary since August 2001, has served as our Chief Scientific Officer and a
director since our inception in 1998, was appointed our Chief Operating Officer
in August 2001, was appointed President in May 2003 and was appointed Chief
Executive Officer in June 2007. Dr. Boynton has also served as Director of the
Department of Molecular Medicine of Northwest Hospital from 1995-2003 where he
coordinated the establishment of a program centered on carcinogenesis. Prior to
joining Northwest Hospital, Dr. Boynton was Associate Director of the Cancer
Research Center of Hawaii, The University of Hawaii, where he also held the
positions of Director of Molecular Oncology of the Cancer Research Center and
Professor of Genetics and Molecular Biology. Dr. Boynton received his Ph.D. in
Radiation Biology from the University of Iowa in 1972
Linda F. Powers.
Ms. Powers has served as the Chairperson of our Board of
Directors since her appointment on May 17, 2007. Ms. Powers has served
as managing director of Toucan Capital Corporation, a provider of venture
capital since 2001. She has over 15 years experience in corporate finance
and restructurings, mergers and acquisitions joint ventures and intellectual
property licensing. Ms. Powers is a board member of M2GEN
(an affiliate of Moffitt Cancer Center), the Trudeau Institute (well
known for its specialization in immunology), the Chinese Biopharmaceutical
Association, the Rosalind Franklin Society, the Genetics Policy Institute, and a
Task Force of the National Academy of Sciences . She was the Chair of
the Maryland Stem Cell Research Commission for the first two years of the
state’s stem cell funding program, and continues to serve on the Commission.
Ms. Powers has been appointed to three Governors’ commissions created to
determine how to build the respective states’ biotech and other high-tech
industries. For six years, Ms. Powers taught an annual internal
course at the National Institutes of Health for the bench scientists and
technology transfer personnel on the development and commercialization of
medical products. Ms. Powers serves on the boards of six private
biotechnology companies. Ms. Powers holds a B.A. from Princeton
University, where she graduated magna cum laude and Phi Beta Kappa. She also
earned a JD, magna cum laude, from Harvard Law
School. Ms. Powers is a member of the Company’s Audit Committee,
Compensation Committee and Nominations Committee.
Robert A.
Farmer.
Mr. Farmer was appointed to the Board of Directors in
December 2009. Mr. Farmer served as the national treasurer of four presidential
campaigns, including John Kerry, Bill Clinton, Michael Dukakis and John
Glenn. In these roles he led fund raising of over $800 million. He
served under Ron Brown as treasurer of the Democratic National Committee, and
served for eight years as treasurer of the Democratic Governor’s
Association. President Clinton appointed Farmer as the United States
Consul General to Bermuda where he served from 1994 to 1999. Mr. Farmer also had
a successful career as an entrepreneur including building his own publishing
company which he sold in 1983, Mr. Farmer currently serves on the
Boards of Directors of International Data Group, Dale Carnegie Associates, Sober
Steering Sensors, LLC, Charlesbridge Publishing, Haute Living Mr.
Farmer is a graduate of Dartmouth College and Harvard Law School.
For
information pertaining to our executive officers, refer to “Executive Officers
of Northwest Biotherapeutics, Inc.” included in Part I, Item 1 of this
Annual Report on Form 10-K.
Board
of Directors
Our Board
of Directors consists of one non-employee director, one director who is
currently employed by us and one independent director. The Board has established
the following committees:
Audit
Committee
The Audit
Committee has responsibility for recommending the appointment of our independent
accountants, supervising our finance function (which includes, among other
matters, our investment activities), reviewing our internal accounting control
policies and procedures, and providing the Board such additional information and
materials as it may deem necessary to make the Board aware of significant
financial matters which require the attention of the Board. The Audit Committee
provides the opportunity for direct contact between our independent registered
public accounting firm and the Board. The Board has adopted a written charter
for the Audit Committee and its current member, Linda F. Powers, is a
non-employee director.
Compensation
Committee
The
Compensation Committee is responsible for determining the overall compensation
levels of our executive officers and administering our stock option plans. The
Board has adopted a written charter for the Compensation Committee and its
current members is Linda F. Powers a non-employee.
38
The
Nominations Committee is responsible for identifying and nominating members of
the Board, recommending directors to be appointed to each committee of the Board
and the chair of such committees, and overseeing the evaluation of the Board.
The Board has adopted a written charter for the Nominations Committee. Linda F.
Powers and Robert A. Farmer are currently members of the committee. The
Nominations Committee will consider nominees recommended by stockholders
pursuant to the procedures outlined in the Company’s Bylaws and as set forth
herein. No Nominations Committee meetings were held during the year ended
December 31, 2009.
We have
adopted a code of ethics meeting the definition of “Code of Ethics” as defined
in Item 406 of Regulation S-K. Our Code of Ethics is applicable to the
chief executive officer, the chief financial officer, the principal accounting
officer or persons performing similar functions. Our code of ethics is posted on
our website and may be accessed at www.nwbio.com/about_code.php. We will post to
our website any amendments to our code of ethics and any waivers granted under
the code to any of our directors or executive officers.
None of
our directors meet the definition of an “audit committee financial expert” as
defined by the SEC. We intend to recruit one or more additional non-executive
directors in due course, including one person who qualifies as an audit
committee financial expert but may not be able to do so.
Compensation
Discussion and Analysis
Our
Process
Typically,
our executive compensation is comprehensively assessed and analyzed annually;
however, given our limited funding since 2002, our executives have received
infrequent increases in their compensation. During 2009, our executives also
received equity based incentives.
Normally,
the review process includes, but is not limited to, the following
steps:
|
|
·
|
The Compensation Committee
reviews the performance of the Chief Executive Officer and other senior
executives;
|
|
|
·
|
The current annual compensation
of senior management and long-term compensation grants made over the past
few years are reviewed;
|
|
|
·
|
The appropriate performance
metrics and attributes of annual and long-term programs for the next year
are considered and
discussed;
|
|
|
·
|
The entirety of our compensation
program is considered;
|
|
|
·
|
For our top officers, if peer
group compensation is available for their position, we use a blend of
survey and peer compensation for comparison, as we compete not only in our
own market, but nationally and across industries, for
talent;
|
|
|
·
|
The compensation practices of our
peer companies are reviewed, including their practices with respect to
equity and other grants, benefits and
perquisites;
|
|
|
·
|
The compensation of our
management team from the standpoint of internal equity, complexity of the
job, scope of responsibility and other factors is
assessed; and
|
|
|
·
|
Management’s stock ownership is
reviewed.
|
|
|
·
|
The Chief Executive Officer
recommends salaries, annual and long-term incentive targets, and plan
amendments and design before recommendations are submitted to the
Compensation Committee for
approval; and
|
|
|
·
|
The Chief Executive Officer is
involved in establishing and recommending to the Compensation Committee
financial goals for the incentive programs based on management’s
operational goals and strategic
plans.
|
Compensation
Goals
Our
philosophy regarding executive compensation is to attract and retain highly
qualified people by paying competitive salaries, and to link the financial
interests of our senior management to those of our stockholders by tying
compensation to the achievement of operational and financial objectives. Our
compensation package for our officers includes both short-term and long-term
features in the forms of base salary and equity-based incentives in the form of
stock options, which are granted periodically at the discretion of the
Compensation Committee.
39
Elements
of Executive Compensation
Base
Salaries
Base
salaries for all executive officers are reviewed annually. The Compensation
Committee reviews the compensation of the President and Chief Executive Officer.
The President and Chief Executive Officer reviews the compensation of the other
executive officers. The Compensation Committee also consults with the President
and Chief Executive Officer with respect to the compensation package for all
other executive officers. In evaluating salaries, each officer’s individual
performance during the prior year, as well as salary levels in the biotechnology
industry for comparable positions are considered. In determining how the
respective officer contributes to the Company, current corporate performance, as
well as the potential for future performance gains, is considered. No specific
weight is attributed to the foregoing for purposes of determining base
salaries.
Equity-Based
Incentives
We
provide our executive officers with long-term incentives through our 1998 Plan,
1999 Plan, 2001 Plan, Employee Plan and beginning in 2007, our 2007 Stock Option
Plan (each, as defined under “— Equity Plans” below), all described in more
detail below. On June 22, 2007, we amended the 1998 Plan, 1999 Plan, 2001
Plan and Employee Plan such that no further stock option grants may be made
under any of such plans. The primary objective of these plans is to provide an
incentive for employees, including our executive officers, to make decisions and
take actions that maximize long-term stockholder value. The plans are designed
to promote this long-term focus by using discretionary grants and long-term
vesting periods. Subject to the terms of the plans, the Compensation Committee
determines the terms and conditions of options granted under the plans,
including the exercise price, which is based on fair value of our stock on the
date of grant. For various motivation and retention considerations, option
awards granted subsequent to our initial public offering in December 2001
generally vest over four years. The Compensation Committee believes that stock
options provide an incentive for employees, allowing us to attract and retain
high quality management and staff. No stock options were issued to
our executives in 2008. Stock options were issued to two employees in
2009.
Employee
and Executive Benefits
Our
executives participate in many of the same employee benefit programs as our
other employees. The core employee benefit programs include a tax-qualified
retirement plan, medical coverage, dental coverage, life insurance, disability
coverage, and vacation. The tax qualified retirement plan is a 401(k) plan. We
made matching contributions to each employee’s 401(k) plan account of $0.50 for
each dollar contributed on the first $3,000 of compensation contributed to the
plan. Our matching contribution policy was terminated effective March 2006. All
of these matching contribution amounts to our Named Executive Officers are shown
in the
All Other
Compensation
footnote to the
Summary Compensation Table following this section.
Perquisites
Historically,
we have offered only a very limited number of perquisites to our executives as
an incremental benefit to recognize their position within the Company. No
perquisites of any kind were offered to executives in 2009.
In
assembling the compensation package for our President and Chief Executive
Officer, the Compensation Committee considers our annual and long-term
performance, the performance of the President and Chief Executive Officer, and
our cash resources and needs. Although the Committee’s overall goal is to set
the President and Chief Executive Officer’s salary at the median level for
competitors that are similar in industry size and performance, the actual level
approved by the Committee may be higher or lower based upon the Committee’s
subjective evaluation of the foregoing. Consistent with the foregoing, the
Compensation Committee set the base salary for the President and Chief Executive
Officer at $331,250 for fiscal 2009. The President and Chief Executive Officer
did not receive an increase in salary or a bonus for 2009. In connection with
our initial public offering on AIM, in December 2007, the Board of Directors
granted the President and Chief Executive Officer an option to purchase shares
of our common stock.
On
September 28, 2009 the Company entered into a retention agreement, with our
president and Chief Executive Officer Dr. Alton Boynton. Under
this agreement, Dr. Boynton received a convertible note in the amounts of
$75,000. The note is convertible at the discretion of Dr. Boynton
during the term of the note which expires on September 29, 2011. The
note for Dr. Boynton requires that he continues his employment at the Company as
either the Chief Executive Officer or the Chief Scientific Officer, until at
least September 30, 2010. Pursuant to the retention agreement, Drs.
Boynton must elect, on or before November 1, 2009, one of three alternative
structures for his convertible note: (a) payment in
cash; (b) payment in common stock of the Company at the same price
per share as the Private Lender Notes issued in August and September
2009 ($0.20 per share), with the taxes being paid by the recipient
and the amount of the common stock being equal to the full gross amount of the
retention bonus, or (c) payment in common stock of the Company at $0.20 per
share with the taxes being paid by the Company and the amount of the common
stock being equal to the net after-tax amount of the retention
bonus. Also pursuant to the retention agreements, the Company has
agreed with Dr. Boynton that he may elect to receive common stock in lieu of
salary for up to a maximum of six (6) pay periods during 2009, at the same price
per share as the New Funding being received by the Company ($0.20 per
share). On October 31, 2009 Dr. Boynton elected to structure his
convertible note to be paid in common stock of the Company at the same price per
share as the Private Lender Notes issued in August and September 2009 ($0.20 per
share), with the taxes being paid by the recipient and the amount of the common
stock being equal to the full gross amount of the retention bonus. In December
2009 Dr. Boynton also elected to receive common stock in lieu of salary for four
pay periods.
40
On August
21, 2009 Dr. Boynton was granted an option to purchase 1,430,486 shares of the
Company’s stock of which 1,132,464 shares vested immediately with the balance
vesting in five equal monthly installments between August 31 and December 31,
2009.
Summary
Compensation Table
The
following table sets forth certain information concerning compensation paid or
accrued to our named executive officers (the “Named Executive Officers”) during
the years ended December 31, 2009, 2008 and 2007
|
Name and Principal Position
|
Year
|
Salary
|
Bonus
|
Option
Awards(1)
|
All Other
Compensation(2)
|
Total
|
||||||||||||||||
|
Alton
L. Boynton, Ph.D. (3)
|
2009
|
$ | 538,281 | (4) | 75,000 | $ | 768,065 | $ | — | $ | 1,426,346 | |||||||||||
|
President,
Chief Executive
|
2008
|
$ | 331,250 | — | $ | — | $ | 504 | $ | 331,754 | ||||||||||||
|
Officer,
Chief Scientific Officer and Secretary
|
2007
|
$ | 331,250 | — | $ | 2,011,680 | $ | 1,828 | $ | 2,344,758 | ||||||||||||
|
Anthony
P. Deasey (5)
|
2009
|
$ | — | — | $ | — | $ | — | $ | — | ||||||||||||
|
Senior
Vice President and Chief Financial Officer
|
2008
|
$ | 215,331 | — | $ | — | $ | 378 | $ | 215,709 | ||||||||||||
|
2007
|
$ | 63,462 | — | $ | 115,268 | $ | — | $ | 178,730 | |||||||||||||
|
Jim
Johnston(6)
|
2009
|
$ | — | — | $ | — | $ | — | $ | — | ||||||||||||
|
Chief
Financial Officer and
|
2008
|
$ | — | — | $ | — | $ | — | $ | — | ||||||||||||
|
General
Counsel
|
2007
|
$ | 96,718 | — | $ | — | $ | — | $ | 96,718 | ||||||||||||
|
Marnix
L. Bosch, Ph.D., M.B.A.
|
2009
|
$ | 283,750 | 50,000 | $ | 731,892 | $ | — | $ | 1,065,642 | ||||||||||||
|
Chief
Technical Officer
|
2008
|
$ | 250,000 | — | $ | — | $ | 672 | $ | 250,672 | ||||||||||||
|
2007
|
$ | 224,980 | — | $ | 471,661 | $ | 482 | $ | 697,123 | |||||||||||||
|
(1)
|
Represents
the amount recognized for financial statement reporting purposes for 2009,
2008 and 2007 in respect of outstanding option awards at fair value,
excluding any impact of assumed forfeiture rates. The assumptions made in
valuing option awards reported in this column are discussed in Note 3,
Stock-Based Compensation to our consolidated financial statements for the
years ended December 31, 2009, 2008, included elsewhere in this Annual
Report on Form 10-K.
|
|
(2)
|
All
Other Compensation for the years ended December 31, 2009, 2008 and 2007
consisted of Company-paid premiums on term life insurance coverage up to
1.5 times the employee’s annual salary and earned but unpaid accrued
vacation payments.
|
|
(3)
|
Dr. Boynton was appointed as
our Chief Executive Officer in June 2007. Dr. Boynton served as our
Chief Operating Officer and our principal executive officer during
2006.
|
|
(4)
|
In conjunction with a retention
agreement between Dr. Boynton and the Company dated September 28, 2009 Dr.
Boynton elected to have six weeks of salary paid in shares of the
Company’s common stock. The salary payment was converted into
stock at a price of $0.20 per share. The shares issued to Dr.
Boynton had a market value at the issue date
of $262,239.
|
|
(5)
|
Effective October 1, 2007,
Anthony P. Deasey was named as our Chief Financial Officer. Mr.
Deasey resigned from this position effective August 12,
2008.
|
|
(6)
|
Effective
March 1, 2007, Jim Johnston was named as our Chief Financial Officer
and General Counsel. Mr. Johnston resigned from these positions
effective August 28, 2007.
|
Given our
financial status, there are no regularly scheduled increases in
compensation.
41
Grants
of Plan-Based Awards in 2009
The
following table provides information about equity awards granted to the Named
Executive Officers during the year ended December 31, 2009. We did not
grant any stock options, stock appreciation rights or restricted stock to Named
Executive Officers during the fiscal year ended December 31,
2008.
|
Name
|
Grant Date
|
All other Option
Awards: Number of
Securities
Underlying Options
|
Exercise or Base
Price of Option
Awards
|
Grant Date Closing
Price of Common
Stock
|
Grant Date Value
of Option Awards
|
|||||||||||||
|
Dr.
Alton L. Boynton
|
08/21/09
|
1,430,486 | (1) | $ | 0.55 | $ | 0.55 | 786,055 | ||||||||||
|
Dr.
Marnix Bosch
|
06/23/09
|
850,000 | (2) | $ | 0.70 | $ | 0.70 | 594,516 | ||||||||||
|
Dr.
Marnix Bosch
|
08/21/09
|
250,000 | (3) | $ | 0.55 | $ | 0.55 | 137,376 | ||||||||||
|
(1)
|
This
option was granted under the 2007 Stock Option Plan. This
option grant vested over the balance of 2009 with 1,132,464 vesting on the
grant date and the remainder vesting in equal installments on August 31,
September 30, October 31, November 30 and December 31,
2009.
|
|
(2)
|
This
option was granted under the 2007 Stock Option Plan. This
option vests on the following
schedule;
|
|
Vesting Event
|
# of Shares
|
|||
|
June
23, 2009
|
125,000 | |||
|
May
31, 2010
|
125,000 | |||
|
May
31, 2011
|
100,000 | |||
|
May
31, 2012
|
99,996 | |||
|
May
31, 2013
|
99,996 | |||
|
Swiss
Approval
|
100,000 | |||
|
Full
Enrollment in Phase II Glioblastoma Multiforme Clinical
Study
|
100,000 | |||
|
FDA
Approval of NDA
|
100,000 | |||
|
(3)
|
This
option was granted under the 2007 Stock Option Plan. This
option grant vested over the balance of 2009 with 125,000 vesting on the
grant date and the remainder vesting on December 31,
2009.
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table shows outstanding stock option awards classified as exercisable
and un-exercisable as of December 31, 2009.
42
|
Option Awards
|
Stock Awards
|
||||||||||||||||||||||||||||
|
Name and Principal
Position
|
Number
of Securities
Underlying
Unexercised
Options
Exercisable
|
Number
of Securities
Underlying
Unexercised
Options
Un-exercisable
|
Option
Exercise Price
($)
|
Option
Expiration
Date
|
Number of
Shares or Units
of Stock that
Have Not
Vested
|
Market Value
of Shares or
Units of Stock
that Have not
Vested
|
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights that
Have Not
vested
|
Equity
Incentive
Plan
Awards:
Market or
Payout Value
of Unearned
Shares Units
or Other
rights that
Have Not
Vested
|
|||||||||||||||||||||
|
Alton
L. Boynton
|
5,286 | (1) | 18.75 |
04/18/11
|
0 | 0 | 0 | 0 | |||||||||||||||||||||
|
President
and Chief
|
6,666 | (1) | 1.35 |
02/18/13
|
|||||||||||||||||||||||||
|
Executive
Officer
|
125,142 | (2) | 750,852 | 0.60 |
12/31/11
|
||||||||||||||||||||||||
| 1,430,486 | (3) | 0.55 |
08/20/19
|
||||||||||||||||||||||||||
|
Jim
Johnston
|
1,667 | (4) | 0 | 3.15 |
3/18/15
|
0 | 0 | 0 | 0 | ||||||||||||||||||||
|
Chief Financial
|
|||||||||||||||||||||||||||||
|
Officer
and General
|
|||||||||||||||||||||||||||||
|
Counsel
|
|||||||||||||||||||||||||||||
|
Marnix
L. Bosch
|
1,000 | (5) | 12.75 |
5/16/10
|
0 | 0 | 0 | 0 | |||||||||||||||||||||
|
Chief
Technical
|
333 | (5) | 18.75 |
11/14/10
|
|||||||||||||||||||||||||
|
Officer
|
333 | (5) | 18.75 |
09/20//11
|
|||||||||||||||||||||||||
| 833 | (5) | 75.00 |
01/10/12
|
||||||||||||||||||||||||||
| 3,194 | (5) | 139 | 1.35 |
2/18/13
|
|||||||||||||||||||||||||
| 4,000 | (5) | 1,333 | 1.80 |
12/01/13
|
|||||||||||||||||||||||||
| 196,713 | (6) | 334,818 | 0.60 |
12/31/11
|
|||||||||||||||||||||||||
| 197,919 | (7) | 652,081 | 0.70 |
06/23/19
|
|||||||||||||||||||||||||
| 250,000 | (8) | 0.55 |
08/20/19
|
||||||||||||||||||||||||||
|
(1)
|
These options were granted under
the 1999 Plan, the 2001 Plan and under Dr. Boynton’s previous
employment agreement. Each of these option grants vests over a four year
period. One-fourth of each option grant vests on the first anniversary of
the grant date and the remaining three-fourths of each grant vests in
equal monthly installments over the remaining three year vesting
period.
|
|
(2)
|
This
option was granted under the 2007 Stock Option Plan. This option grant
vests over a three and one-half year period. Approximately 29% the option
grant was vested immediately upon grant with respect to prior service
performed. Approximately 17% vests on the first anniversary of the AIM
offering (June 22, 2008) and the remaining portion vests in
equal monthly installments over the remaining three year vesting period.
These options were granted in recognition of past service to the Company
and have an exercise price of $0.60 per share, which is equal to the
conversion price of warrants issued to Toucan Partners under the
Conversion Agreement. In accordance with Dr. Boynton’s option agreement as
options to 1,430,846 and 500,568 shares had not been exercised as of
December 31, 2008 and 2009 respectively such options were
forfeited.
|
|
(3)
|
This
option was granted under the 2007 Stock Option Plan. This
option grant vested over the balance of 2009 with 1,132,464 vesting on the
grant date and the remainder vesting in equal installments on August 31,
September 30, October 31, November 30 and December 31,
2009.
|
|
(4)
|
These
options were granted prior to Mr. Johnston’s employment with us and are
fully vested.
|
|
(5)
|
These options were granted under
the 1999 Plan and the 2001 Plan. Each of these option grants vests over a
four year period. One-fourth of each option grant vests on the first
anniversary of the grant date and the remaining three-fourths of each
grant vests in equal monthly installments over the remaining three year
vesting period.
|
|
(6)
|
This option was granted under the
2007 Stock Option Plan. This option grant vests over a three and one-half
year period. Approximately 19% of the option grant was vested immediately
upon grant with respect to prior service performed. Approximately 21%
vests on the first anniversary of the AIM offering (June 22,
2008) and the remaining portion vests in equal monthly installments
over the remaining three year vesting period. These options were granted
in recognition of past service to the Company and have an exercise price
of $0.60 per share, which is equal to the conversion price of warrants
issued to Toucan Partners under the Conversion Agreement. In accordance
with Dr. Bosch’s option agreement as options to purchase 250,000 and
300,000 shares had not been exercised as of December 31, 2008 and 2009
respectively such options were
forfeited.
|
|
(7)
|
This
option was granted under the 2007 Stock Option Plan. This
option vests on the following
schedule;
|
43
|
Vesting Event
|
# of Shares
|
|||
|
June
23, 2009
|
125,000 | |||
|
May
31, 2010
|
125,000 | |||
|
May
31, 2011
|
100,000 | |||
|
May
31, 2012
|
99,996 | |||
|
May
31, 2013
|
99,996 | |||
|
Swiss
Approval
|
100,000 | |||
|
Full
Enrollment in Phase II Glioblastoma Multiforme Clinical
Study
|
100,000 | |||
|
FDA
Approval of NDA
|
100,000 | |||
|
(8)
|
This
option was granted under the 2007 Stock Option Plan. This
option grant vested over the balance of 2009 with 125,000 vesting on the
grant date and the remainder vesting on December 31,
2009.
|
Option
Exercises and Stock Vested
No
options were exercised by and no stock awards vested for the Named Executive
Officers during 2008.
Pension
Plans, Deferred Compensation and Severance Agreements
We do not
currently offer any such plans or compensation or have any such agreements in
place.
Director
Compensation
The
following table sets forth certain information concerning compensation paid or
accrued to our non-executive directors during the year ended December 31,
2009.
|
Name
|
Year
|
Fees Earned
or Paid
in Cash
|
All Other
Compensation(1)
|
Total
|
||||||||||
|
Linda
F. Powers
|
2009
|
$
|
150,000
|
(1) |
$
|
—
|
$
|
150,000
|
||||||
|
Robert
A. Farmer
|
2009
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||||
(1) includes directors fees for half of 2008 (previously
unpaid) as well as full year 2009.
Only
non-employee directors receive director fees. Effective June 22, 2007,
we are required to pay Linda F. Powers, as Chairperson and a non-executive
member of the Board of Directors, approximately $100,000 per annum for her
services. Also effective December 10, 2009 we were required to issue Robert A.
Farmer, for his services as a non-executive member of the Board of Directors,
50,000 shares of the company’s common stock per annum.
Compensation
Committee Interlocks and Insider Participation
From
January 1, 2007 to June 22, 2007, Dr. Boynton was the sole member
of our Compensation Committee and served as our President, Chief Operating
Officer and Chief Scientific Officer. In addition, as discussed further under
“Transactions with Related Persons” below, in 2006, Dr. Boynton exercised
warrants and convertible loans covering 126,365 and 146,385 shares of our
common stock, respectively. In June 2007, Dr. Boynton was replaced by Linda
F. Powers and R. Steve Harris as members of the Compensation Committee. During
2008, none of our executive officers served as a member of the compensation
committee (or other committee serving an equivalent function) of any other
entity, one of whose executive officers served as a director on our Board or as
a member of our Compensation Committee. None of our executive officers served
during 2008 as a director of any other entity, one of whose executive officers
served as a director on our Board or as a member of our Compensation
Committee.
Equity
Plans
Stock
Option Plans
The
Company’s stock option plans are administered by the Board of Directors, which
determines the terms and conditions of the options granted, including exercise
price, number of options granted and vesting period of such
options.
Our
employees, directors and consultants previously participated in the 1998 Stock
Option Plan and the 1999 Executive Stock Option Plan. The 1998 Stock
Option Plan and the 1999 Executive Stock Option Plan were terminated during 2008
and 2009 and no further grants may be made under the plans.
44
Existing
stock option plans are as follows:
(a) 2001
Stock Option Plan
Under the
2001 Stock Option Plan (the “2001 Plan”), 120,000 shares of the Company’s
common stock have been reserved for grant of stock options to employees and
consultants. Additionally, on January 1 of each year, commencing
January 1, 2002, the number of shares reserved for grant under the 2001
Plan will increase by the lesser of (i) 15% of the aggregate number of
shares available for grant under the 2001 Plan or
(ii) 20,000 shares. Our Board of Directors has the
authority to amend or terminate this plan, but such action may not adversely
affect any outstanding option previously granted under the plan. If
this plan is not terminated earlier, no incentive stock options can be granted
under the plan on or after the later of June 2011 or the 10th anniversary
of the date when our Board of Directors adopted, subject to approval by our
stockholders, the most recent increase in the number of shares available for
grant under the plan.
As of
December 31, 2009, net of forfeitures, a total of 162,603 shares
remain available under this plan; however, effective June 22, 2007, the
Company amended the 2001 Stock Option Plan, such that no further option grants
may be made under the plan.
(b) 2001
Non-employee Director Stock Incentive Plan
Under the
2001 Non-employee Director Stock Incentive Plan (the “2001 Director Plan”),
13,333 shares of the Company’s common stock have been reserved for grant of
stock options to non-employee directors of the Company. As of
December 31, 2009, net of forfeitures, a total of 10,500 shares remain
available under this plan; however, no further grants may be made under this
plan.
(c) 2007
Stock Option Plan
The 2007
Stock Option Plan became effective on June 15, 2007 (the “2007 Stock Option
Plan”). In April 2008, the Company increased the number of shares
reserved for issuance under the 2007 Stock Option Plan by 519,132 shares of its
common stock for an aggregate of 6,000,000 shares of its common stock, par value
$0.001 per share, reserved for issue of options granted under the
plan. The plan provides for the grant to employees of the Company,
its parents and subsidiaries, including officers and employee directors, of
“incentive stock options,” as defined, and for the grant of non-statutory stock
options to the employees, officers, directors, including non-employee directors,
and consultants of the Company, its parents and subsidiaries. As of
December 31, 2009, net of forfeitures, a total of 849,454 shares
remain available for issuance under this plan.
Employee
Stock Purchase Plan
Our
Employee Stock Purchase Plan (the “Employees’ Plan”) was adopted by our Board of
Directors and approved by our stockholders in June 2001. A total of
33,333 shares of common stock have been reserved for issuance under this
plan and, as of December 31, 2009, 958 shares have been issued under
this plan.
This plan
is administered by the Compensation Committee of our Board of Directors and
provides a mechanism for eligible employees to purchase shares of our common
stock. To facilitate these purchases, eligible participants are assigned plan
accounts, to which they may contribute funds via payroll deduction. The
purchases are accomplished through the use of six-month offering periods.
Purchases pursuant to this plan are made at a price equal to the lower of
(i) 85% of the fair market value of our common stock on the last trading
day in the offering period; or (ii) 85% of the fair market value of our
common stock on the last trading day before the commencement of such offering
period. No participant may purchase more than 67 shares of our common stock
during any offering period. Additionally, purchases under the plan are limited
such that no participant may purchase under the plan, in any offering period
that commenced in that calendar year, shares with a fair market value in excess
of $25,000 minus the fair market value of any shares that the participant
previously purchased in that calendar year. In the case of shares purchased
during an offering period that commenced in the preceding calendar year, the
limitation is $50,000 minus the fair market value of any shares that the
participant purchased during the calendar year of the purchase and the calendar
year immediately preceding such purchase.
Our Board
of Directors has the authority to amend or terminate this plan at any time.
Amendments to the plan are subject to approval by our stockholders to the extent
required by applicable law.
45
The
following table presents information regarding the beneficial ownership of our
common stock as of April 13, 2009 by:
|
|
·
|
each person, or group of
affiliated persons, who is known by us to own beneficially 5% or more of
any class of our equity
securities;
|
|
|
·
|
our
directors;
|
|
|
·
|
each of our named executive
officers, as defined in Item 402(a)(3) of
Regulation S-K; and
|
|
|
·
|
our directors and executive
officers as a group.
|
The
applicable percentages of ownership are based on an aggregate
of 62,365,460 shares of common stock issued and outstanding on April
9, 2010. In computing the number of shares of common stock beneficially owned by
a person and the percentage ownership of that person, we deemed shares of common
stock subject to options, warrants, convertible preferred stock or convertible
notes held by that person that are currently exercisable or exercisable within
60 days of April 9, 2010.
We have
determined beneficial ownership in accordance with the rules of the SEC. Except
as indicated by the footnotes below, we believe, based on the information
furnished to us, that the persons and the entities named in the table have sole
voting and investment power with respect to all shares of common stock that they
beneficially own, subject to applicable community property laws.
Except as
otherwise noted, the address of the individuals in the following table below is
c/o Northwest Biotherapeutics, Inc., 4800 Montgomery Lane, Suite
800, Bethesda, MD 20814.
46
|
Name of Beneficial Owner
|
Number of Shares
Beneficially Owned
|
Percentage(1)
|
||||||
|
Officers
and Directors
|
||||||||
|
Alton
L. Boynton, Ph.D.(2)
|
3,714,468
|
5.9
|
||||||
|
Marnix
L. Bosch, Ph.D., M.B.A.(3)
|
1,396,282
|
2.3
|
||||||
|
Linda
F. Powers(4)
|
65,279,856
|
69.7
|
||||||
|
Robert
A. Farmer
|
602,667
|
1.0
|
||||||
|
All
executive officers and directors as a group
(5 persons)(5)
|
70,392,273
|
73.2
|
||||||
|
5%
Security Holders
|
||||||||
|
Toucan
Capital Fund II, L.P.(6)
|
41,334,675
|
49.6
|
||||||
|
7600
Wisconsin Avenue, Suite 700, Bethesda, MD 20814
|
||||||||
|
Toucan
Partners, LLC(7)
|
20,622,571
|
28.8
|
||||||
|
7600
Wisconsin Avenue, Suite 700, Bethesda, MD 20814
|
||||||||
|
Al
Rajhi Holdings
|
10,835,111
|
17.2
|
||||||
|
Rue
Maurice 3 1204 Geneve Switzerland
|
||||||||
|
IS
Partners Investment Solutions
|
||||||||
|
(1)
|
Percentage represents beneficial
ownership percentage of common stock calculated in accordance with SEC
rules and does not equate to voting
percentages.
|
|
(2)
|
Includes 1,776,150 shares of
common stock issuable upon exercise of options that are exercisable within
60 days of April 9,
2010.
|
|
(3)
|
Includes 726,492 shares of
common stock issuable upon exercise of options that are exercisable within
60 days of April 9,
2010.
|
|
(4)
|
Includes
(i) 19,299,486 shares of common stock held by Toucan Capital;
(ii) 22,035,089 shares of common stock currently issuable upon
exercise of warrants that are exercisable within 60 days of April 9,
2010 held by Toucan Capital; (iii) 10,301,334 shares of common
stock held by Toucan Partners and (iv) 10,321,257 shares of common
stock currently issuable upon exercise of warrants that are exercisable
within 60 days of April 9, 2010 held by Toucan Partners.
Ms. Powers is a managing member of Toucan Management, LLC, which is
the manager of Toucan Capital, and is a managing member of Toucan
Partners.
|
|
(5)
|
Includes 2,502,642 shares
issuable to officers and directors upon exercise of options that are
exercisable within 60 days of April 9, 2010. Excludes
32,356,346 shares of common stock as to which Ms. Powers
disclaims beneficial ownership. See Note 4
above.
|
|
(6)
|
Includes 22,035,089 shares
of common stock currently issuable upon exercise of warrants that are
exercisable within 60 days of April 9, 2010 held by Toucan
Capital.
|
|
(7)
|
Includes 10,321,257 shares
of common stock currently issuable upon exercise of warrants that are
exercisable within 60 days of April 9, 2010 held by Toucan
Partners.
|
Toucan
Capital and Toucan Partners
Toucan
Capital Fund II, L.P. (“Toucan Capital”) loaned the Company $6.75 million during
2004 and 2005. The Board’s Chairperson is the managing director of
Toucan Capital. In April 2006, the $6.75 million of notes payable plus all
accrued interest were converted into shares of Series A-1 cumulative convertible
Preferred Stock (the “Series A-1 Preferred Stock”). In connection with these
loans the Company issued Toucan Capital a warrant to purchase 8,166,667 shares
of Series A-1 Preferred Stock. The warrants to purchase Series A-1
Preferred Stock were later converted into warrants to purchase 17,256,888 shares
of common stock in connection with the Conversion Agreement, described
below.
On
January 26, 2005, Toucan Capital purchased 32.5 million shares of Series A
cumulative convertible preferred stock (the “Series A Preferred Stock”) at $0.04
per share, for a total of $1.276 million. In connection with the securities
purchase agreement, the Company issued Toucan Capital a warrant to purchase
2,166,667 million shares of Series A Preferred Stock. The warrants to
purchase Series A Preferred Stock were later converted into warrants to purchase
4,778,201 shares of common stock in connection with the Conversion Agreement,
described below.
47
From
November 14, 2005 through May 25, 2007, Toucan Partners, LLC (“Toucan Partners”)
loaned the Company $4.825 million under various promissory note
agreements. The Board’s Chairperson is the managing member of Toucan
Partners. The promissory note agreements were amended and restated
into the 2007 Convertible Notes. The 2007 Convertible Notes also
included warrants to purchase shares of Series A-1 Preferred Stock ("2007
Warrants"). The Company repaid $5.3 million of principal and accrued
interest due to Toucan Partners during 2007. The warrants to purchase
Series A-1 Preferred Stock were later converted into warrants to purchase
8,832,541 shares of common stock in connection with the Conversion Agreement,
described below.
Under the
June 22, 2007 Conversion Agreement, Toucan Capital and Toucan Partners agreed to
eliminate a number of rights, preferences and protections associated with the
Series A Preferred Stock and the Series A-1 Preferred Stock and Toucan Capital
received 4,287,851 shares of common stock and Toucan Partners received 2,572,710
shares of common stock. Also, Toucan Capital converted its preferred
shares into 15,011,635 shares of common stock. Additionally under the conversion
agreement the Company exchanged the warrants to purchase Series A-1 Preferred
Stock and Series A Preferred Stock (discussed above) for warrants to purchase
common stock. As a result of the conversion Toucan Capital received warrants to
purchase 14,150,732 shares of Common Stock at an exercise price of $0.60 per
share and warrants to purchase 7,884,357 shares of Common Stock at an exercise
price of $0.15 per share and Toucan Partners received warrants to purchase
8,832,541 shares of Common Stock at an exercise price of $0.60 per
share.
Toucan
Partners loaned the Company $1.0 million on August 19, 2008 under the terms of
an unsecured promissory note (the “Toucan Partners August Loan”) with a
principal amount of $1,060,000 (reflecting an original issue discount of
$60,000). On September 28, 2009, the note principal and accrued
interest (including a default penalty of 0.25% per month) amounting to
$1,156,718 was converted to 5,783,589 shares of common stock at a conversion
rate of $0.20. In connection with the conversion, the Company issued
Toucan Partners a warrant to purchase 690,000 shares of common stock at an
exercise price of $0.20 per share.
Toucan
Partners loaned the Company $500,000 on December 22, 2008 under the terms of an
unsecured 12% promissory note (the “Toucan Partners December
Loan”). In connection with the promissory note, the Company issued to
Toucan Partners a warrant to purchase 132,500 shares of common stock at an
exercise price of $0.40 per share and a term of 5 years. On September
28, 2009, the note principal and accrued interest (including a default penalty
of 0.25% per month) amounting to $552,738 was converted to 2,763,691 shares of
common stock at a conversion rate of $0.20. As consideration for the
extension of the maturity date, the Company issued Toucan Partners a warrant to
purchase 513,841 shares of common stock at an exercise price of $0.40 per
share. In connection with the conversion, the Company issued Toucan
Partners a warrant to purchase 152,375 shares of common stock at an exercise
price of $0.20 per share.
Toucan
Partners and the Company's Chairperson also received a total of 2,504,034
shares of common stock as compensation for services rendered during September
2009.
Toucan
Partners loaned the Company a total of $1,300,000 on June 30, 2009, July 2, 2009
and July 17, 2009 under unsecured 6% convertible promissory notes due June 29,
2009, July 1, 2011 and July 16, 2011. The conversion feature of the
notes allows Toucan Partners to receive shares of common stock only, and not
cash or other consideration, at a conversion price of $0.20.
As a
result of the financings described above, as of December 31, 2009 Toucan Capital
held:
|
|
•
|
an aggregate of 19,299,486 shares
of Common Stock;
|
|
|
•
|
warrants to purchase 14,150,732
shares of Common Stock at an exercise price of $0.60 per share;
and
|
|
|
•
|
warrants to purchase 7,884,357
shares of Common Stock at an exercise price of $0.15 per
share.
|
As a
result of the financings described above, as of December 31, 2009, Toucan
Partners and its managing member Ms. Linda Powers held:
|
|
•
|
an aggregate of 13,624,024 shares
of Common Stock;
|
|
|
•
|
warrants
to purchase 8,832,541 shares of Common Stock at an exercise price of $0.60
per share;
|
48
|
|
•
|
warrants to purchase
513,841 shares of common stock at an exercise price of
$0.41;
|
|
|
•
|
warrants
to purchase 132,500 shares of common stock at an exercise price of
$0.40; and
|
|
|
•
|
warrants
to purchase 842,375 shares of common stock at an exercise price of
$0.20.
|
As of
December 31, 2009, Toucan Capital, including the holdings of Toucan Partners,
held 32,923,510 shares of common stock, representing approximately 55.8% of the
common stock outstanding. Further, as of December 31, 2009, Toucan
Capital, including the holdings of Toucan Partners, beneficially owned
(including unexercised warrants) 65,279,856 shares of common stock, representing
a beneficial ownership interest of approximately 69.9%.
On
March 21, 2008, the Company executed a Sublease Agreement (the “Sublease
Agreement”) with Toucan Capital Corporation for the space the Company uses as
its headquarters at 7600 Wisconsin Avenue, Suite 750, Bethesda, Maryland.
The Sublease Agreement is effective as of July 1, 2007 and expires on
October 31, 2016, unless sooner terminated according to its terms.
Previously, the Company had been occupying its Bethesda headquarters under an
oral arrangement with Toucan Capital Corporation, whereby the Company was
required to pay base rent of $32,949.10 per month through December 31,
2007. Under the Sublease Agreement, the Company was required to pay base rent of
$34,000 per month during the year 2008, which monthly amount was to increase by
$1,000 on an annual basis, to a maximum of $42,000 per month during 2016, the
last year of the lease term. In addition to monthly base rent, the Company was
and remains obligated to pay operating expenses allocable to the subleased
premises under Toucan Capital Corporation’s master lease. Effective
November 30, 2009, the Sublease was terminated in connection with termination
and buyout of the overall lease of this space. (The overall lease and
the Company’s Sublease had 7 years left to run at that time). The
termination and buyout did not require any lump sum exit
payment. Instead, it requires a partial payout over several
years. The obligation for the Company will be less than $5,000
per month during 2010 and 2011.
Cognate
On
July 30, 2004, the Company entered into a service agreement with Cognate
Therapeutics, Inc. (now known as Cognate BioServices, Inc., or Cognate), a
contract manufacturing and services organization in which Toucan Capital has a
majority interest. In addition, two of the principals of Toucan Capital are
members of Cognate’s board of directors and, on May 17, 2007, the managing
director of Toucan Capital was appointed to serve as a director of the Company
and to serve as the non-executive Chairperson of the Company’s Board of
Directors. Under the service agreement, the Company agreed to utilize Cognate’s
services for an initial two-year period, related primarily to manufacturing
DCVax
®
product
candidates, regulatory advice, research and development preclinical activities
and managing clinical trials. The agreement expired on July 30, 2006;
however, the Company continued to utilize Cognate’s services under the same
terms as set forth in the expired agreement. On May 17, 2007, the Company
entered into a new service agreement with Cognate pursuant to which Cognate will
provide certain consulting and, when needed, manufacturing services to the
Company for its DCVax
®
-Brain
Phase II clinical trial. Under the terms of the new contract, the Company
paid a non-refundable contract initiation fee of $250,000 and committed to pay
budgeted monthly service fees of $400,000, subject to quarterly true-ups, and
monthly facility fees of $150,000. Under the terms of the contract unless the
contract is terminated earlier the contract will expire at the earlier of (i)
the submission of an FDA biological license application/new drug application on
the Company’s brain cancer clinical trial or (ii) July 1, 2010. The Company
may terminate this agreement with 180 days notice and payment of all
reasonable wind-up costs and Cognate may terminate the contract in the event
that the brain cancer clinical trial fails to complete enrollment by
July 1, 2009. However, if such termination by the Company occurs at any
time prior to the earlier of the submission of an FDA biological license
application/new drug application on the Company’s brain cancer clinical trial or
July 1, 2010 or, such termination by Cognate results from failure of the
brain cancer clinical trial to complete patient enrollment by July 1, 2009,
the Company is obligated to make an additional termination fee payment to
Cognate equal to $2 million. Although the Company failed to
complete enrollment the brain cancer clinical trial by July 1, 2009 Cognate
has elected not to terminate the agreement and as such the $2 million
termination penalty had not been triggered as of December 31,
2009. Since July 1, 2009 with the mutual agreement of Cognate and the
Company the agreement has continued on a month to month basis on the same terms
as included in the original agreement.
Cognate
has moved its operations from Sunnyvale Califormia to Memphis Tennessee where it
has purchased an existing cGMP (clean room manufacturing under current
Good Manufacturing Practices) facility that is fully functional. The
capacity in Memphis is approximately 600 patients per year, which we believe
will be sufficient for our Phase II clinical trial for DCVax
®
-Brain.
We have a plan with Cognate to accommodate an increase in production capacity
based on demand and have detailed plans and cost analysis for additional
modular expansions which should increase the capacity of the current facilities
from approximately 600 patients to over 9,000 patients per year. We
believe that Cognate’s current facilities are sufficient to cover additional
agreements for our initial commercialization efforts in Switzerland, and
potentially in the United States and/or Europe, as well as to meet demands of
clinical trial activity once commenced.
During
2009, the Company and Cognate BioServices ("Cognate") agreed that most of the
accounts payable owed by the Company to Cognate, will be converted into shares
of common stock instead of paid in cash. The conversion price will be no
less favorable than the conversion price applied to any other creditor of the
Company. The impact of the conversion will result in a reduction of
liabilities for the amount converted. In addition, the Company will
recognize the value of common stock issued in excess of the amount of accounts
payable converted, if any, as a charge to operations when the conversion takes
place. Finalization of these arrangements is in process.
Also
during 2009, the Company agreed with Toucan Capital, Toucan Partners and Linda
Powers that a portion of the accrued expenses owed by the Company to these
parties for certain expense reimbursements will be converted into shares of
common stock instead of paid in cash. Toucan Capital, Toucan Partners and
Linda Powers have paid certain expenses on behalf of the Company. The
parties agreed that these accrued expenses will be converted into common stock
(at a conversion rate of $0.20 per share). The parties are in the process
of determining the amounts of unbilled accrued expenses. The impact of the
conversion will result in a reduction of liabilities for the amount
converted. In addition, the Company will recognize the value of common
stock issued in excess of the amount of the accrued expenses converted, if any,
as a charge to operations when the conversion takes place. Finalization of
these arrangements is in process.
49
During
the years ending December 31, 2008 and 2009, respectively, we recognized
approximately $7.8 million and $7.3 million of research and
development costs related to this service agreement. As of December 31,
2008 and 2009, the Company owed Cognate approximately $1.1 million and $5.9
million, respectively.
Director
Independence
We have
one independent director on our Board of Directors and will insure that all
transactions are on terms at least as favorable to the Company as we would
negotiate with unrelated third parties
The
following table represents aggregate fees billed to us for the fiscal years
ended December 31, 2009 and 2008 by Peterson Sullivan, our principal
independent registered public accounting firm.
|
Fiscal Year Ended December 31:
|
2009
|
2008
|
||||||
|
Audit
Fees
|
$
|
123,244
|
$
|
152,979
|
||||
|
Tax
Fees
|
4,701
|
5,930
|
||||||
|
Total
|
$
|
127,945
|
$
|
158,909
|
||||
Audit
fees primarily include services for auditing our financial statements along with
reviews of our interim financial information included in our Forms 10-K and
10-Q. Peterson Sullivan’s work on these two audits was performed by full time,
regular employees and partners of Peterson Sullivan. Tax fees, which includes
tax consulting and tax compliance fees, in both the current year and prior year
relate to the preparation of our Federal income tax return. All fees described
above were approved by our Audit Committee, and the Audit Committee considers
the provision of the services rendered in respect of those fees compatible with
maintaining the auditor’s independence.
(a)(1)
Index to Consolidated Financial Statements and Independent Auditors
Report.
The
financial statements required by this item are submitted in a separate section
as indicated below.
|
Page
|
||
|
Report
of Peterson Sullivan, LLP, Independent Registered Public Accounting
Firm
|
48
|
|
|
Consolidated
Balance Sheets
|
49
|
|
|
Consolidated
Statements of Operations
|
50
|
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit) and Comprehensive
Loss
|
51
|
|
|
Consolidated
Statements of Cash Flows
|
52
|
|
|
Notes
to Consolidated Financial Statements
|
|
53
|
(2) Index
to Financial Statement Schedules
All
financial statement schedules are omitted since the required information is not
applicable, not required or the required information is included in the
financial statements or notes thereto.
(3) Exhibits
See
Exhibit Index on page 102.
50
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Northwest
Biotherapeutics, Inc.
Bethesda,
Maryland
We have
audited the accompanying consolidated balance sheets of Northwest
Biotherapeutics, Inc. and Subsidiary (a development stage company) ("the
Company") as of December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
years then ended, and for the period from March 18, 1996 (date of
inception) to December 31, 2009. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company has determined that it is not required to have, nor were we engaged to
perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Northwest Biotherapeutics,
Inc. and Subsidiary (a development stage company) as of December 31, 2009
and 2008, and the results of their operations and their cash flows for the years
then ended, and for the period from March 18, 1996 (date of inception) to
December 31, 2009, in conformity with accounting principles generally
accepted in the United States.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2
to the consolidated financial statements, the Company has experienced recurring
losses from operations since inception, has a working capital deficit, and has a
deficit accumulated during the development stage. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans regarding these matters are also
described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/S/
PETERSON SULLIVAN LLP
Seattle,
Washington
April 15,
2010
51
NORTHWEST
BIOTHERAPEUTICS, INC.
(A
Development Stage Company)
|
December 31,
2008
|
December 31,
2009
|
|||||||
|
(In thousands)
|
||||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
|
$
|
16
|
$
|
65
|
||||
|
Accounts
receivable
|
1
|
—
|
||||||
|
Prepaid
expenses and other current assets
|
1,057
|
36
|
||||||
|
Total
current assets
|
1,074
|
101
|
||||||
|
Property
and equipment:
|
||||||||
|
Laboratory
equipment
|
29
|
29
|
||||||
|
Office
furniture and other equipment
|
82
|
82
|
||||||
|
Construction
in progress
|
387
|
—
|
||||||
|
498
|
111
|
|||||||
|
Less
accumulated depreciation and amortization
|
(104
|
)
|
(111
|
)
|
||||
|
Property
and equipment, net
|
394
|
—
|
||||||
|
Deposit
and other non-current assets
|
12
|
2
|
||||||
|
Total
assets
|
$
|
1,480
|
$
|
103
|
||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$
|
3,420
|
$
|
3,249
|
||||
|
Accounts
payable, related party
|
656
|
6,328
|
||||||
|
Accrued
expenses
|
1,298
|
1,874
|
||||||
|
Accrued
expense, related party
|
905
|
1,329
|
||||||
|
Notes payable, net of warrant related discount
|
2,047
|
2,650
|
||||||
|
Note
payable to related parties, net of warrant related
discount
|
5,454
|
4,000
|
||||||
|
Total
current liabilities
|
13,780
|
19,430
|
||||||
|
Long
term liabilities
|
||||||||
|
Convertible
notes payable, net of discount
|
—
|
1,061
|
||||||
|
Convertible
notes payable to related party, net of discount
|
—
|
298
|
||||||
|
Total long
term liabilities
|
—
|
1,359
|
||||||
|
Total
liabilities
|
13,780
|
20,789
|
||||||
|
Stockholders’
equity (deficit):
|
||||||||
|
Preferred
stock, $0.001 par value; 20,000,000 shares authorized and none issued and
outstanding
|
||||||||
|
Common
stock, $0.001 par value; 100,000,000 and 150,000,000 shares
authorized at December 31, 2008 and 2009, and 42,492,853 and
58,877,087 shares issued and outstanding at December 31, 2008 and
2009, respectively
|
42
|
58
|
||||||
|
Additional
paid-in capital
|
152,308
|
169,202
|
||||||
|
Deficit
accumulated during the development stage
|
(164,626
|
)
|
(189,897
|
)
|
||||
|
Cumulative
translation adjustment
|
(24
|
)
|
(49
|
)
|
||||
|
Total
stockholders’ equity (deficit)
|
(12,300
|
)
|
(20,686
|
)
|
||||
|
Total
liabilities and stockholders’ equity (deficit)
|
$
|
1,480
|
$
|
103
|
||||
See
accompanying notes to the consolidated financial statements
52
NORTHWEST
BIOTHERAPEUTICS, INC.
(A
Development Stage Company)
|
Year Ended December 31,
|
Period from
March 18, 1996
(Inception) to
December 31,
|
|||||||||||
|
2008
|
2009
|
2009
|
||||||||||
|
(In
thousands, except per share data)
|
||||||||||||
|
Revenues:
|
||||||||||||
|
Research
materials sales
|
$ | 10 | $ | 10 | $ | 560 | ||||||
|
Contract
research and development from related parties
|
— | — | 1,128 | |||||||||
|
Research
grants and other
|
— | — | 1,061 | |||||||||
|
Total
revenues
|
10 | 10 | 2,749 | |||||||||
|
Operating
costs and expenses:
|
||||||||||||
|
Cost
of research material sales
|
— | — | 382 | |||||||||
|
Research
and development
|
12,703 | 9,588 | 66,913 | |||||||||
|
General
and administrative
|
8,906 | 5,799 | 54,843 | |||||||||
|
Depreciation
and amortization
|
22 | 7 | 2,351 | |||||||||
|
Loss
on facility sublease
|
— | — | 895 | |||||||||
|
Asset
impairment loss and other loss
|
— | 389 | 2,445 | |||||||||
|
Total
operating costs and expenses
|
21,631 | 15,783 | 127,829 | |||||||||
|
Loss
from operations
|
(21,621 | ) | (15,773 | ) | (125,080 | ) | ||||||
|
Other
income (expense):
|
||||||||||||
|
Warrant
valuation
|
— | — | 6,759 | |||||||||
|
Loan
conversion inducement
|
— | (5,617 | ) | (5,617 | ) | |||||||
|
Gain
on sale of intellectual property and property and
equipment
|
8 | — | 3,664 | |||||||||
|
Interest
expense
|
(821 | ) | (3,881 | ) | (26,032 | ) | ||||||
|
Interest
income and other
|
103 | — | 1,218 | |||||||||
|
Net
loss
|
(22,331 | ) | (25,271 | ) | (145,088 | ) | ||||||
|
Issuance
of common stock in connection with elimination of Series A and
Series A-1 preferred stock preferences
|
— | — | (12,349 | ) | ||||||||
|
Modification
of Series A preferred stock warrants
|
— | — | (2,306 | ) | ||||||||
|
Modification
of Series A-1 preferred stock warrants
|
— | — | (16,393 | ) | ||||||||
|
Series A
preferred stock dividends
|
— | — | (334 | ) | ||||||||
|
Series A-1
preferred stock dividends
|
— | — | (917 | ) | ||||||||
|
Warrants
issued on Series A and Series A-1 preferred stock
dividends
|
— | — | (4,664 | ) | ||||||||
|
Accretion
of Series A preferred stock mandatory redemption
obligation
|
— | — | (1,872 | ) | ||||||||
|
Series A
preferred stock redemption fee
|
— | — | (1,700 | ) | ||||||||
|
Beneficial
conversion feature of Series D preferred stock
|
— | — | (4,274 | ) | ||||||||
|
Net
loss applicable to common stockholders
|
$ | (22,331 | ) | $ | (25,271 | ) | $ | (189,897 | ) | |||
|
Net
loss per share applicable to common stockholders — basic and
diluted
|
$ | (0.53 | ) | $ | (0.53 | ) | ||||||
|
Weighted
average shares used in computing basic and diluted loss per
Share
|
42,425 | 47,961 | ||||||||||
See
accompanying notes to the consolidated financial statements.
53
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
|
Deficit
|
||||||||||||||||||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||||||||||||||||||
|
Preferred Stock
|
Preferred Stock
|
Additional
|
During the
|
Cumulative
|
Total
|
|||||||||||||||||||||||||||||||||||||||
|
Common Stock
|
Series A
|
Series A-1
|
Paid-In
|
Deferred
|
Development
|
Translation
|
Stockholders’
|
|||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Compensation
|
Stage
|
Adjustment
|
Equity (Deficit)
|
||||||||||||||||||||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||||||||||||||||||||||||||
|
Balances
at March 18, 1996
|
—
|
$
|
—
|
—
|
$
|
—
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||||||||||||||||||||||
|
Accretion
of membership units mandatory redemption obligation
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(106
|
)
|
—
|
(106
|
)
|
|||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1,233
|
)
|
—
|
(1,233
|
)
|
||||||||||||||||||||||||||||||||
|
Balances
at December 31, 1996
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1,339
|
)
|
—
|
(1,339
|
)
|
|||||||||||||||||||||||||||||||
|
Accretion
of membership units mandatory redemption obligation
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(275
|
)
|
—
|
(275
|
)
|
|||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(2,560
|
)
|
—
|
(2,560
|
)
|
|||||||||||||||||||||||||||||||
|
Balances
at December 31, 1997
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(4,174
|
)
|
—
|
(4,174
|
)
|
|||||||||||||||||||||||||||||||
|
Conversion
of membership units to common stock
|
2,203
|
2
|
—
|
—
|
—
|
—
|
—
|
—
|
(2
|
)
|
—
|
—
|
||||||||||||||||||||||||||||||||
|
Accretion
of Series A preferred stock mandatory redemption
obligation
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(329
|
)
|
—
|
(329
|
)
|
|||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(4,719
|
)
|
—
|
(4,719
|
)
|
|||||||||||||||||||||||||||||||
|
Balances
at December 31, 1998
|
2,203
|
2
|
—
|
—
|
—
|
—
|
—
|
—
|
(9,224
|
)
|
—
|
(9,222
|
)
|
|||||||||||||||||||||||||||||||
|
Issuance
of Series C preferred stock warrants for services related to sale of
Series C preferred shares
|
—
|
—
|
—
|
—
|
—
|
—
|
394
|
—
|
—
|
—
|
394
|
|||||||||||||||||||||||||||||||||
|
Accretion
of Series A preferred stock mandatory redemption
obligation
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(354
|
)
|
—
|
(354
|
)
|
|||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(5,609
|
)
|
—
|
(5,609
|
)
|
|||||||||||||||||||||||||||||||
|
Balances
at December 31, 1999
|
2,203
|
2
|
—
|
—
|
—
|
—
|
394
|
—
|
(15,187
|
)
|
—
|
(14,791
|
)
|
|||||||||||||||||||||||||||||||
|
Issuance
of Series C preferred stock warrants in connection with lease
agreement
|
—
|
—
|
—
|
—
|
—
|
—
|
43
|
—
|
—
|
—
|
43
|
|||||||||||||||||||||||||||||||||
|
Exercise
of stock options for cash
|
2
|
—
|
—
|
—
|
—
|
—
|
1
|
—
|
—
|
—
|
1
|
|||||||||||||||||||||||||||||||||
|
Issuance
of common stock at $0.85 per share for license rights
|
5
|
—
|
—
|
—
|
—
|
—
|
4
|
—
|
—
|
—
|
4
|
|||||||||||||||||||||||||||||||||
|
Issuance
of Series D preferred stock warrants in convertible promissory note
offering
|
—
|
—
|
—
|
—
|
—
|
—
|
4,039
|
—
|
—
|
—
|
4,039
|
|||||||||||||||||||||||||||||||||
|
Beneficial
conversion feature of convertible promissory notes
|
—
|
—
|
—
|
—
|
—
|
—
|
1,026
|
—
|
—
|
—
|
1,026
|
|||||||||||||||||||||||||||||||||
|
Issuance
of Series D preferred stock warrants for services related to sale of
Series D preferred shares
|
—
|
—
|
—
|
—
|
—
|
—
|
368
|
—
|
—
|
—
|
368
|
|||||||||||||||||||||||||||||||||
|
Issuance
of common stock warrants in conjunction with issuance of promissory
note
|
—
|
—
|
—
|
—
|
—
|
—
|
3
|
—
|
—
|
—
|
3
|
|||||||||||||||||||||||||||||||||
|
Cancellation
of common stock
|
(275
|
)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||||||||||
|
Accretion
of Series A preferred stock mandatory redemption
obligation
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(430
|
)
|
—
|
(430
|
)
|
|||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(12,779
|
)
|
—
|
(12,779
|
)
|
||||||||||||||||||||||||||||||||
|
Balances
at December 31, 2000
|
1,935
|
2
|
—
|
—
|
—
|
—
|
5,878
|
—
|
(28,396
|
)
|
—
|
(22,516
|
)
|
|||||||||||||||||||||||||||||||
|
Issuance
of Series D preferred stock warrants in conjunction with refinancing of
note payable to stockholder
|
—
|
—
|
—
|
—
|
—
|
—
|
225
|
—
|
—
|
—
|
225
|
|||||||||||||||||||||||||||||||||
|
Beneficial
conversion feature of convertible promissory note
|
—
|
—
|
—
|
—
|
—
|
—
|
456
|
—
|
—
|
—
|
456
|
|||||||||||||||||||||||||||||||||
|
Beneficial
conversion feature of Series D preferred stock
|
—
|
—
|
—
|
—
|
—
|
—
|
4,274
|
—
|
(4,274
|
)
|
—
|
—
|
||||||||||||||||||||||||||||||||
|
Issuance
of Series D preferred stock warrants for services related to the sale of
Series D preferred shares
|
—
|
—
|
—
|
—
|
—
|
—
|
2,287
|
—
|
—
|
—
|
2,287
|
|||||||||||||||||||||||||||||||||
|
Exercises
of stock options and warrants for cash
|
1,158
|
1
|
—
|
—
|
—
|
—
|
407
|
—
|
—
|
—
|
408
|
|||||||||||||||||||||||||||||||||
|
Issuance
of common stock in initial public offering for cash, net of offering costs
of $2,845
|
4,000
|
4
|
—
|
—
|
—
|
—
|
17,151
|
—
|
—
|
—
|
17,155
|
|||||||||||||||||||||||||||||||||
|
Conversion
of preferred stock into common stock
|
9,776
|
10
|
—
|
—
|
—
|
—
|
31,569
|
—
|
—
|
—
|
31,579
|
|||||||||||||||||||||||||||||||||
|
Series
A preferred stock redemption fee
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1,700
|
)
|
—
|
(1,700
|
)
|
|||||||||||||||||||||||||||||||
|
Issuance
of stock options to nonemployees for services
|
—
|
—
|
—
|
—
|
—
|
—
|
45
|
—
|
—
|
—
|
45
|
|||||||||||||||||||||||||||||||||
|
Deferred
compensation related to employee stock options
|
—
|
—
|
—
|
—
|
—
|
—
|
1,330
|
(1,330
|
)
|
—
|
—
|
—
|
||||||||||||||||||||||||||||||||
|
Amortization
of deferred compensation
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
314
|
—
|
—
|
314
|
|||||||||||||||||||||||||||||||||
|
Accretion
of Series A preferred stock mandatory redemption
obligation
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(379
|
)
|
—
|
(379
|
)
|
|||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(10,940
|
)
|
—
|
(10,940
|
)
|
|||||||||||||||||||||||||||||||
|
Balances
at December 31, 2001
|
16,869
|
17
|
—
|
—
|
—
|
—
|
63,622
|
(1,016
|
)
|
(45,689
|
)
|
—
|
16,934
|
|||||||||||||||||||||||||||||||
|
Issuance
of unregistered common stock
|
1,000
|
1
|
—
|
—
|
—
|
—
|
199
|
—
|
—
|
—
|
200
|
|||||||||||||||||||||||||||||||||
|
Issuance
of common stock, Employee Stock Purchase Plan
|
9
|
—
|
—
|
—
|
—
|
—
|
6
|
—
|
—
|
—
|
6
|
|||||||||||||||||||||||||||||||||
|
Issuance
of common stock warrants to Medarex
|
—
|
—
|
—
|
—
|
—
|
—
|
80
|
—
|
—
|
—
|
80
|
|||||||||||||||||||||||||||||||||
|
Issuance
of restricted stock to nonemployees
|
8
|
—
|
—
|
—
|
—
|
—
|
34
|
—
|
—
|
—
|
34
|
|||||||||||||||||||||||||||||||||
|
Issuance
of stock options to nonemployees for service
|
—
|
—
|
—
|
—
|
—
|
—
|
57
|
—
|
—
|
—
|
57
|
|||||||||||||||||||||||||||||||||
|
Issuance
of stock options to employees
|
—
|
—
|
—
|
—
|
—
|
—
|
22
|
(22
|
)
|
—
|
—
|
—
|
||||||||||||||||||||||||||||||||
|
Cancellation
of employee stock options
|
—
|
—
|
—
|
—
|
—
|
—
|
(301
|
)
|
301
|
—
|
—
|
—
|
||||||||||||||||||||||||||||||||
|
Exercise
of stock options and warrants for cash
|
32
|
—
|
—
|
—
|
—
|
—
|
18
|
—
|
—
|
—
|
18
|
|||||||||||||||||||||||||||||||||
|
Deferred
compensation related to employee restricted stock option
|
99
|
—
|
—
|
—
|
—
|
—
|
449
|
(449
|
)
|
—
|
—
|
—
|
||||||||||||||||||||||||||||||||
|
Cancellation
of employee restricted stock grants
|
(87
|
)
|
—
|
—
|
—
|
—
|
—
|
(392
|
)
|
392
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||||
|
Amortization
of deferred compensation, net
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
350
|
—
|
—
|
350
|
|||||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(12,804
|
)
|
—
|
(12,804
|
)
|
|||||||||||||||||||||||||||||||
|
Balances
at December 31, 2002
|
17,930
|
18
|
—
|
—
|
—
|
—
|
63,794
|
(444
|
)
|
(58,493
|
)
|
—
|
4,875
|
|||||||||||||||||||||||||||||||
|
Issuance
of unregistered common stock to Medarex
|
1,000
|
1
|
—
|
—
|
—
|
—
|
199
|
—
|
—
|
—
|
200
|
|||||||||||||||||||||||||||||||||
|
Issuance
of unregistered common stock to Nexus
|
90
|
—
|
—
|
—
|
—
|
—
|
35
|
—
|
—
|
—
|
35
|
|||||||||||||||||||||||||||||||||
|
Issuance
of common stock warrants to Medarex
|
—
|
—
|
—
|
—
|
—
|
—
|
80
|
—
|
—
|
—
|
80
|
|||||||||||||||||||||||||||||||||
|
Issuance
of warrants with convertible promissory note
|
—
|
—
|
—
|
—
|
—
|
—
|
221
|
—
|
—
|
—
|
221
|
|||||||||||||||||||||||||||||||||
|
Beneficial
conversion feature of convertible promissory note
|
—
|
—
|
—
|
—
|
—
|
—
|
114
|
—
|
—
|
—
|
114
|
|||||||||||||||||||||||||||||||||
|
Issuance
of common stock, Employee Stock Purchase Plan
|
4
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||||||
|
Exercise
of stock options and warrants for cash
|
8
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||||||
|
Cancellation
of employee restricted stock grants
|
(4
|
)
|
—
|
—
|
—
|
—
|
—
|
(20
|
)
|
20
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||||
|
Cancellation
of employee stock options
|
—
|
—
|
—
|
—
|
—
|
—
|
(131
|
)
|
131
|
—
|
—
|
—
|
||||||||||||||||||||||||||||||||
|
Amortization
of deferred compensation, net
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
240
|
—
|
—
|
240
|
|||||||||||||||||||||||||||||||||
|
Non-employee
stock compensation
|
—
|
—
|
—
|
—
|
—
|
—
|
2
|
—
|
—
|
—
|
2
|
|||||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(5,752
|
)
|
—
|
(5,752
|
)
|
|||||||||||||||||||||||||||||||
|
Balances
at December 31, 2003
|
19,028
|
19
|
—
|
—
|
—
|
—
|
64,294
|
(53
|
)
|
(64,245
|
)
|
—
|
15
|
|||||||||||||||||||||||||||||||
|
Issuance
of warrants with convertible promissory note
|
—
|
—
|
—
|
—
|
—
|
—
|
1,711
|
—
|
—
|
—
|
1,711
|
|||||||||||||||||||||||||||||||||
|
Beneficial
conversion feature of convertible promissory note
|
—
|
—
|
—
|
—
|
—
|
—
|
1,156
|
—
|
—
|
—
|
1,156
|
|||||||||||||||||||||||||||||||||
|
Issuance
of common stock, Employee Stock Purchase Plan
|
1
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||||||
|
Cancellation
of employee stock options
|
—
|
—
|
—
|
—
|
—
|
—
|
(5
|
)
|
5
|
—
|
—
|
—
|
||||||||||||||||||||||||||||||||
|
Amortization
of deferred compensation, net
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
41
|
—
|
—
|
41
|
|||||||||||||||||||||||||||||||||
|
Warrant
valuation
|
—
|
—
|
—
|
—
|
368
|
—
|
—
|
—
|
368
|
|||||||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(8,508
|
)
|
—
|
(8,508
|
)
|
|||||||||||||||||||||||||||||||
|
Balances
at December 31, 2004
|
19,029
|
19
|
—
|
—
|
—
|
—
|
67,524
|
(7
|
)
|
(72,753
|
)
|
—
|
(5,217
|
)
|
||||||||||||||||||||||||||||||
|
Issuance
of unregistered common stock and preferred stock to Toucan
Capital
|
—
|
—
|
32,500
|
33
|
—
|
—
|
1,243
|
—
|
—
|
—
|
1,276
|
|||||||||||||||||||||||||||||||||
|
Issuance
of stock options to non-employees for services
|
—
|
—
|
—
|
—
|
—
|
—
|
3
|
—
|
—
|
—
|
3
|
|||||||||||||||||||||||||||||||||
|
Issuance
of warrants with convertible promissory note
|
—
|
—
|
—
|
—
|
—
|
—
|
1,878
|
—
|
—
|
—
|
1,878
|
|||||||||||||||||||||||||||||||||
|
Exercise
of stock options and warrants for cash
|
49
|
—
|
—
|
—
|
—
|
—
|
4
|
—
|
—
|
—
|
4
|
|||||||||||||||||||||||||||||||||
|
Amortization
of deferred compensation, net
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
7
|
—
|
—
|
7
|
|||||||||||||||||||||||||||||||||
|
Beneficial
conversion feature of convertible promissory note
|
—
|
—
|
—
|
—
|
—
|
—
|
1,172
|
—
|
—
|
—
|
1,172
|
|||||||||||||||||||||||||||||||||
|
Common
Stock warrant liability
|
—
|
—
|
—
|
—
|
—
|
—
|
(604
|
)
|
—
|
—
|
—
|
(604
|
)
|
|||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(9,937
|
)
|
—
|
(9,937
|
)
|
|||||||||||||||||||||||||||||||
|
Balances
at December 31, 2005
|
19,078
|
19
|
32,500
|
33
|
—
|
—
|
71,220
|
—
|
(82,690
|
)
|
—
|
(11,418
|
)
|
|||||||||||||||||||||||||||||||
|
Issuance
of common stock to PIPE Investors for cash, net of cash and non-cash
offering costs of $837
|
39,468
|
39
|
—
|
—
|
—
|
—
|
4,649
|
—
|
—
|
—
|
4,688
|
|||||||||||||||||||||||||||||||||
|
Issuance
of warrants to PIPE investment bankers
|
—
|
—
|
—
|
—
|
—
|
—
|
395
|
—
|
—
|
—
|
395
|
|||||||||||||||||||||||||||||||||
|
Conversion
of notes payable due to Toucan Capital to Series A-1 preferred
stock
|
—
|
—
|
—
|
—
|
4,817
|
5
|
7,702
|
—
|
—
|
—
|
7,707
|
|||||||||||||||||||||||||||||||||
|
Conversion
of notes payable due to management to common stock
|
2,688
|
3
|
—
|
—
|
—
|
—
|
266
|
—
|
—
|
—
|
269
|
|||||||||||||||||||||||||||||||||
|
Issuance
of warrants with convertible promissory notes
|
—
|
—
|
—
|
—
|
—
|
—
|
236
|
—
|
—
|
—
|
236
|
|||||||||||||||||||||||||||||||||
|
Exercise
of stock options and warrants for cash
|
66
|
—
|
—
|
—
|
—
|
—
|
9
|
—
|
—
|
—
|
9
|
|||||||||||||||||||||||||||||||||
|
Exercise
of stock options and warrants — cashless
|
3,942
|
4
|
—
|
—
|
—
|
—
|
(4
|
)
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||||||||||||
|
Stock
compensation expense
|
—
|
—
|
—
|
—
|
—
|
—
|
19
|
—
|
—
|
—
|
19
|
|||||||||||||||||||||||||||||||||
|
Beneficial
conversion feature of convertible promissory note
|
—
|
—
|
—
|
—
|
—
|
—
|
64
|
—
|
—
|
—
|
64
|
|||||||||||||||||||||||||||||||||
|
Common
Stock warrant liability
|
—
|
—
|
—
|
—
|
—
|
—
|
(6,523
|
)
|
—
|
—
|
—
|
(6,523
|
)
|
|||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1,395
|
)
|
—
|
(1,395
|
)
|
|||||||||||||||||||||||||||||||
|
Balances
at December 31, 2006
|
65,241
|
65
|
32,500
|
33
|
4,817
|
5
|
$
|
78,033
|
—
|
(84,085
|
)
|
$
|
—
|
(5,949
|
)
|
|||||||||||||||||||||||||||||
|
Conversion
of common stock at par related to the reverse stock split
|
(60,892
|
)
|
(61
|
)
|
—
|
—
|
—
|
—
|
61
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||||
|
Conversion
of Series A and A-1 preferred stock into common stock
|
15,012
|
15
|
(32,500
|
)
|
(33
|
)
|
(4,817
|
)
|
(5
|
)
|
23
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||
|
Issuance
of common stock in connection with elimination of Series A and Series A-1
preferred stock preferences
|
6,861
|
7
|
—
|
—
|
—
|
—
|
12,342
|
—
|
(12,349
|
)
|
—
|
—
|
||||||||||||||||||||||||||||||||
|
Modification
of preferred stock Series A and Series A-1 warrants
|
—
|
—
|
—
|
—
|
—
|
—
|
18,699
|
—
|
(18,699
|
)
|
—
|
—
|
||||||||||||||||||||||||||||||||
|
Series
A and Series A-1 preferred stock dividend payment
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(1,251
|
)
|
—
|
(1,251
|
)
|
|||||||||||||||||||||||||||||||
|
Warrants
issued on Series A and Series A-1 preferred stock
dividends
|
—
|
—
|
—
|
—
|
—
|
—
|
4,664
|
—
|
(4,664
|
)
|
—
|
—
|
||||||||||||||||||||||||||||||||
|
Issuance
of common stock in initial public offering on the AIM London market for
cash, net of offering costs of $3,965
|
15,789
|
16
|
—
|
—
|
—
|
—
|
25,870
|
—
|
—
|
—
|
25,886
|
|||||||||||||||||||||||||||||||||
|
Remeasurement
of warrants issued in connection with convertible promissory
notes
|
—
|
—
|
—
|
—
|
—
|
—
|
4,495
|
—
|
—
|
—
|
4,495
|
|||||||||||||||||||||||||||||||||
|
Remeasurement
of beneficial conversion feature related to convertible promissory
notes
|
—
|
—
|
—
|
—
|
—
|
—
|
1,198
|
—
|
—
|
—
|
1,198
|
|||||||||||||||||||||||||||||||||
|
Exercise
of warrants — cashless
|
335
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||||||
|
Stock
compensation expense
|
—
|
—
|
—
|
—
|
—
|
—
|
2,679
|
—
|
—
|
—
|
2,679
|
|||||||||||||||||||||||||||||||||
|
Cumulative
translation adjustment
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(4
|
)
|
(4
|
)
|
|||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(21,247
|
)
|
—
|
(21,247
|
)
|
|||||||||||||||||||||||||||||||
|
Total
comprehensive loss
|
(21,251
|
)
|
||||||||||||||||||||||||||||||||||||||||||
|
Balances
at December 31, 2007
|
42,346
|
42
|
—
|
—
|
—
|
—
|
148,064
|
—
|
(142,295
|
)
|
(4
|
)
|
5,807
|
|||||||||||||||||||||||||||||||
|
Stock
issuance in exchange for license option
|
122
|
—
|
—
|
—
|
—
|
—
|
225
|
—
|
—
|
—
|
225
|
|||||||||||||||||||||||||||||||||
|
Exercise
of stock options — cashless
|
25
|
—
|
—
|
—
|
—
|
—
|
1
|
—
|
—
|
—
|
1
|
|||||||||||||||||||||||||||||||||
|
Stock
compensation expense
|
—
|
—
|
—
|
—
|
—
|
—
|
3,001
|
—
|
—
|
—
|
3,001
|
|||||||||||||||||||||||||||||||||
|
—
|
||||||||||||||||||||||||||||||||||||||||||||
|
Issuance
of warrants with promissory notes
|
—
|
—
|
—
|
—
|
—
|
—
|
1,017
|
—
|
—
|
—
|
1,017
|
|||||||||||||||||||||||||||||||||
|
Cumulative
translation adjustment
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(20
|
)
|
(20
|
)
|
|||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(22,331
|
)
|
—
|
(22,331
|
)
|
|||||||||||||||||||||||||||||||
|
Total
comprehensive loss
|
(22,351)
|
|||||||||||||||||||||||||||||||||||||||||||
|
Balances
at December 31, 2008
|
42,493
|
42
|
—
|
—
|
—
|
—
|
152,308
|
—
|
(164,626
|
)
|
(24
|
)
|
(12,300)
|
|||||||||||||||||||||||||||||||
|
Exercise
of stock options — cashless
|
20
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||||||
|
Exercise
of warrants — cashless
|
1,214
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||||||||||||||
|
Issuance
of common stock in private placements
|
2,378
|
2
|
—
|
—
|
—
|
—
|
1,391
|
—
|
—
|
—
|
1,393
|
|||||||||||||||||||||||||||||||||
|
Stock
compensation expense
|
—
|
—
|
—
|
—
|
—
|
—
|
2,712
|
—
|
—
|
—
|
2,712
|
|||||||||||||||||||||||||||||||||
|
Debt
Discount related to beneficial conversion
|
—
|
—
|
—
|
—
|
—
|
—
|
2,578
|
—
|
—
|
—
|
2,578
|
|||||||||||||||||||||||||||||||||
|
Warrants
issued for services
|
—
|
—
|
—
|
—
|
—
|
—
|
1,645
|
—
|
—
|
—
|
1,645
|
|||||||||||||||||||||||||||||||||
|
Stock
and warrants issued for services
|
3,662
|
3
|
—
|
—
|
—
|
—
|
1,136
|
—
|
—
|
—
|
1,139
|
|||||||||||||||||||||||||||||||||
|
Loan
conversion
|
563
|
1
|
—
|
—
|
—
|
—
|
111
|
—
|
—
|
—
|
112
|
|||||||||||||||||||||||||||||||||
|
Loan
conversion and conversion inducement
|
8,547
|
10
|
—
|
—
|
—
|
—
|
7,321
|
—
|
—
|
—
|
7,331
|
|||||||||||||||||||||||||||||||||
|
Cumulative
translation adjustment
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(25
|
)
|
(25
|
)
|
|||||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
(25,271
|
)
|
—
|
(25,271
|
)
|
|||||||||||||||||||||||||||||||
|
Total
comprehensive loss
|
(25,296)
|
|||||||||||||||||||||||||||||||||||||||||||
|
Balances
at December 31, 2009
|
58,877
|
$
|
58
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
169,202
|
$
|
—
|
$
|
(189,897
|
)
|
$
|
(49
|
)
|
$
|
(20,686)
|
|||||||||||||||||||||
See
accompanying notes to the consolidated financial statements.
54
NORTHWEST
BIOTHERAPEUTICS, INC.
(A
Development Stage Company)
|
Year Ended December 31,
|
Period from March
18, 1996 (Inception) to
December 31,
|
|||||||||||
|
2008
|
2009
|
2009
|
||||||||||
|
(In thousands)
|
||||||||||||
|
Cash
Flows from Operating Activities:
|
||||||||||||
|
Net
Loss
|
$ | (22,331 | ) | $ | (25,271 | ) | $ | (145,088 | ) | |||
|
Reconciliation
of net loss to net cash used in operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
22 | 7 | 2,351 | |||||||||
|
Amortization
of deferred financing costs
|
— | — | 320 | |||||||||
|
Amortization
of debt discount
|
368 | 1,337 | 19,701 | |||||||||
|
Accrued
interest converted to preferred stock
|
— | — | 260 | |||||||||
|
Accreted
interest on convertible promissory note
|
— | — | 1,484 | |||||||||
|
Stock-based
compensation costs
|
3,001 | 2,712 | 9,504 | |||||||||
|
Stock
and warrants issued for services and financing costs
|
— | 2,999 | 2,999 | |||||||||
|
Loan
conversion inducement
|
— | 5,617 | 5,617 | |||||||||
|
Warrant
valuation
|
— | — | (6,759 | ) | ||||||||
|
Asset
impairment loss and loss (gain) on sale of properties
|
(8 | ) | 389 | (936 | ) | |||||||
|
Loss
on facility sublease
|
— | — | 895 | |||||||||
|
Increase
(decrease) in cash resulting from changes in assets and
liabilities:
|
||||||||||||
|
Accounts
receivable
|
(1 | ) | 1 | — | ||||||||
|
Prepaid
expenses and other current assets
|
(18 | ) | 1,031 | 688 | ||||||||
|
Accounts
payable and accrued expenses
|
2,866 | 405 | 5,045 | |||||||||
|
Related
party accounts payable and accrued expenses
|
514 | 6,096 | 7,657 | |||||||||
|
Accrued
loss on sublease
|
— | — | (265 | ) | ||||||||
|
Deferred
rent
|
— | — | 410 | |||||||||
|
Net
Cash used in Operating Activities
|
(15,587 | ) | (4,677 | ) | (96,117 | ) | ||||||
|
Cash
Flows from Investing Activities:
|
||||||||||||
|
Purchase
of property and equipment, net
|
(397 | ) | (2 | ) | (5,003 | ) | ||||||
|
Proceeds
from sale of property and equipment
|
8 | — | 258 | |||||||||
|
Proceeds
from sale of intellectual property
|
— | — | 1,816 | |||||||||
|
Proceeds
from sale of marketable securities
|
— | — | 2,000 | |||||||||
|
Refund
of security deposit
|
— | — | (3 | ) | ||||||||
|
Transfer
of restricted cash
|
— | — | (1,035 | ) | ||||||||
|
Net
Cash used in Investing Activities
|
(389 | ) | (2 | ) | (1,967 | ) | ||||||
|
Cash
Flows from Financing Activities:
|
||||||||||||
|
Proceeds
from issuance of notes payable
|
2,650 | 2,060 | 4,710 | |||||||||
|
Proceeds
of issuance of convertible note payable to related parties
|
— | 1,300 | 1,300 | |||||||||
|
Proceeds
from issuance of notes payable to related parties
|
5,500 | — | 11,250 | |||||||||
|
Repayment
of note payable to related party
|
— | — | (6,700 | ) | ||||||||
|
Proceeds
from issuance of convertible promissory note and warrants, net of issuance
costs
|
— | — | 13,099 | |||||||||
|
Repayment
of convertible promissory note
|
— | — | (119 | ) | ||||||||
|
Borrowing
under line of credit, Northwest Hospital
|
— | — | 2,834 | |||||||||
|
Repayment
of line of credit to Northwest Hospital
|
— | — | (2,834 | ) | ||||||||
|
Payment
on capital lease obligations
|
— | — | (323 | ) | ||||||||
|
Payment
on note payable
|
— | — | (420 | ) | ||||||||
|
Proceeds
from issuance of preferred stock, net
|
— | — | 28,708 | |||||||||
|
Proceeds
from exercise of stock options and warrants
|
1 | — | 228 | |||||||||
|
Proceeds
from issuance of common stock, net
|
— | 1,393 | 49,736 | |||||||||
|
Payment
of preferred stock dividends
|
— | — | (1,251 | ) | ||||||||
|
Series
A preferred stock redemption fee
|
— | — | (1,700 | ) | ||||||||
|
Deferred
financing costs
|
— | — | (320 | ) | ||||||||
|
Net
Cash provided by Financing Activities
|
8,151 | 4,753 | 98,198 | |||||||||
|
Effect
of exchange rates on cash
|
(20 | ) | (25 | ) | (49 | ) | ||||||
|
Net
increase (decrease) in cash
|
(7,845 | ) | 49 | 65 | ||||||||
|
Cash
at beginning of period
|
7,861 | 16 | — | |||||||||
|
Cash
at end of period
|
$ | 16 | $ | 65 | $ | 65 | ||||||
|
Supplemental
disclosure of cash flow information
|
||||||||||||
|
Cash
paid during the period for interest
|
$ | 8 | $ | — | $ | 1,879 | ||||||
| Supplemental schedule of non-cash financing activities | ||||||||||||
|
Equipment
acquired through capital leases
|
$ | — | $ | — | $ | 285 | ||||||
|
Issuance
of common stock in connection with elimination of Series A and Series A-1
preferred stock preferences
|
— | — | 12,349 | |||||||||
|
Issuance
of common stock in connection with conversion of related party notes
payable and accrued interest and convertible promissory notes and accrued
interest
|
— | 1,500 | 1,500 | |||||||||
|
Modification
of Series A preferred stock warrants
|
— | — | 2,306 | |||||||||
|
Modification
of Series A-1 preferred stock warrants
|
— | — | 16,393 | |||||||||
|
Warrants
issued on Series A and Series A-1 preferred stock
dividends
|
— | — | 4,664 | |||||||||
|
Common
stock warrant liability
|
— | — | 11,841 | |||||||||
|
Accretion
of Series A preferred stock mandatory redemption
obligation
|
— | — | 1,872 | |||||||||
|
Debt
discount on promissory notes
|
1,017 | 2,578 | 10,837 | |||||||||
|
Conversion
of convertible promissory notes and accrued interest to Series D preferred
stock
|
— | — | 5,324 | |||||||||
|
Conversion
of convertible promissory notes and accrued interest to Series A-1
preferred stock
|
— | — | 7,707 | |||||||||
|
Conversion
of convertible promissory notes and accrued interest to common
stock
|
— | — | 269 | |||||||||
|
Issuance
of Series C preferred stock warrants in connection with lease
agreement
|
— | — | 43 | |||||||||
|
Issuance
of common stock for license rights
|
— | — | 4 | |||||||||
|
Liability
for and issuance of common stock and warrants to Medarex
|
— | — | 840 | |||||||||
|
Issuance
of common stock to landlord
|
— | — | 35 | |||||||||
|
Deferred
compensation on issuance of stock options and restricted stock
grants
|
— | — | 759 | |||||||||
|
Cancellation
of options and restricted stock grant
|
— | — | 849 | |||||||||
|
Financing
of prepaid insurance through note payable
|
— | — | 491 | |||||||||
|
Stock
subscription receivable
|
— | — | 480 | |||||||||
See
accompanying notes to the consolidated financial statements.
55
(A
Development Stage Company)
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization
and Description of Business
Northwest
Biotherapeutics, Inc. and its majority owned subsidiary (collectively, the
“Company”, “we”, “us” and “our”) was organized to discover and develop
innovative diagnostics and immunotherapies for prostate and brain cancer. During
1998, the Company incorporated as a Delaware corporation. Prior to 1998, the
Company was a limited liability company, which was formed on March 18,
1996. The Company is a development stage company, has yet to generate
significant revenues from its intended business purpose and has no assurance of
future revenues. While in the development stage, the Company’s principal
activities have included defining and conducting research programs, conducting
clinical trials, raising capital and recruiting scientific and management
personnel.
(2) Operations
and Financing
Liquidity
The
Company has experienced recurring losses from operations, and, as of December
31, 2009, had a working capital deficit of $19.3 million and a deficit
accumulated during the development stage of $189.9 million. Of this $189.9
million deficit, $96.1 million (about half) reflects cash used in operations,
and the remaining $93.8 million reflects non-cash accounting
measures.
Between
2004 and 2009, the Company has undergone a significant recapitalization through
the transactions described below.
Toucan
Capital and Toucan Partners
Toucan
Capital Fund II, L.P. (“Toucan Capital”) loaned the Company $6.75 million during
2004 and 2005. The Board’s Chairperson is the managing director of
Toucan Capital. In April 2006, the $6.75 million of notes payable plus all
accrued interest were converted into shares of Series A-1 cumulative convertible
Preferred Stock (the “Series A-1 Preferred Stock”). In connection with these
loans the Company issued Toucan Capital a warrant to purchase 8,166,667 shares
of Series A-1 Preferred Stock. The warrants to purchase Series A-1
Preferred Stock were later converted into warrants to purchase 17,256,888 shares
of common stock in connection with the Conversion Agreement, described
below.
On
January 26, 2005, Toucan Capital purchased 32.5 million shares of Series A
cumulative convertible preferred stock (the “Series A Preferred Stock”) at $0.04
per share, for a total of $1.276 million. In connection with the securities
purchase agreement, the Company issued Toucan Capital a warrant to purchase
2,166,667 million shares of Series A Preferred Stock. The warrants to
purchase Series A Preferred Stock were later converted into warrants to purchase
4,778,201 shares of common stock in connection with the Conversion Agreement,
described below.
From
November 14, 2005 through May 25, 2007, Toucan Partners, LLC (“Toucan Partners”)
loaned the Company $4.825 million under various promissory note
agreements. The Board’s Chairperson is the managing member of Toucan
Partners. The promissory note agreements were amended and restated
into the 2007 Convertible Notes. The 2007 Convertible Notes also
included warrants to purchase shares of Series A-1 Preferred Stock ("2007
Warrants"). The Company repaid $5.3 million of principal and accrued
interest due to Toucan Partners during 2007. The warrants to purchase
Series A-1 Preferred Stock were later converted into warrants to purchase
8,832,541 shares of common stock in connection with the Conversion Agreement,
described below.
Under the
June 22, 2007 Conversion Agreement, Toucan Capital and Toucan Partners agreed to
eliminate a number of rights, preferences and protections associated with the
Series A Preferred Stock and the Series A-1 Preferred Stock and Toucan Capital
received 4,287,851 shares of common stock and Toucan Partners received 2,572,710
shares of common stock. Also, Toucan Capital converted its preferred
shares into 15,011,635 shares of common stock. Additionally under the conversion
agreement the Company exchanged the warrants to purchase Series A-1 Preferred
Stock and Series A Preferred Stock (discussed above) for warrants to purchase
common stock. As a result of the conversion Toucan Capital received warrants to
purchase 14,150,732 shares of Common Stock at an exercise price of $0.60 per
share and warrants to purchase 7,884,357 shares of Common Stock at an exercise
price of $0.15 per share and Toucan Partners received warrants to purchase
8,832,541 shares of Common Stock at an exercise price of $0.60 per
share.
Toucan
Partners loaned the Company $1.0 million on August 19, 2008 under the terms of
an unsecured promissory note (the “Toucan Partners August Loan”) with a
principal amount of $1,060,000 (reflecting an original issue discount of
$60,000). On September 28, 2009, the note principal and accrued
interest (including a default penalty of 0.25% per month) amounting to
$1,156,718 was converted to 5,783,589 shares of common stock at a
conversion price of $0.20. In connection with the conversion,
the Company issued Toucan Partners a warrant to purchase 690,000 shares of
common stock at an exercise price of $0.20 per share.
56
Toucan
Partners loaned the Company $500,000 on December 22, 2008 under the terms of an
unsecured 12% promissory note (the “Toucan Partners December
Loan”). In connection with the promissory note, the Company issued to
Toucan Partners a warrant to purchase 132,500 shares of common stock at an
exercise price of $0.40 per share and a term of 5 years. On September
28, 2009, the note principal and accrued interest (including a default penalty
of 0.25% per month) amounting to $552,738 was converted to 2,763,691 shares of
common stock at a conversion rate of $0.20. To bring the December
Loan into conformity with the SDS and Private Lender notes issued in
October and November 2008, as agreed by the parties at the time of the
Toucan Partners December Loan, the Company issued Toucan Partners a warrant to
purchase 513,841 shares of common stock at an exercise price of $0.41 per
share. In connection with the conversion, the Company issued Toucan
Partners a warrant to purchase 152,375 shares of common stock at an exercise
price of $0.20 per share.
Toucan
Partners and the Company's chairperson also received a total of 2,504,034 shares
of common stock as compensation for services rendered during September
2009.
Toucan
Partners loaned the Company a total of $1,300,000 on June 30, 2009, July 2, 2009
and July 17, 2009 under unsecured 6% convertible promissory notes due June 29,
2009, July 1, 2011 and July 16, 2011. The conversion feature of the
notes allows Toucan Partners to convert the loan into accumulated
securities into shares of common stock at a conversion price of
$0.20 (the same price per share as in the new financing recieved by the
Company from other investors during the period).
As a
result of the financings described above, as of December 31, 2009 Toucan Capital
held:
|
|
•
|
an aggregate of 19,299,486 shares
of Common Stock;
|
|
|
•
|
warrants to purchase 14,150,732
shares of Common Stock at an exercise price of $0.60 per share;
and
|
|
|
•
|
warrants to purchase 7,884,357
shares of Common Stock at an exercise price of $0.15 per
share.
|
As a
result of the financings described above, as of December 31, 2009, Toucan
Partners and its managing member Ms. Linda Powers held:
|
|
•
|
an aggregate of 13,624,024 shares
of Common Stock;
|
|
|
•
|
warrants
to purchase 8,832,541 shares of Common Stock at an exercise price of $0.60
per share;
|
|
|
•
|
warrants to purchase
513,841 shares of common stock at an exercise price of
$0.41;
|
|
|
•
|
warrants
to purchase 132,500 shares of common stock at an exercise price of
$0.40; and
|
|
|
•
|
warrants
to purchase 842,375 shares of common stock at an exercise price of
$0.20.
|
As of
December 31, 2009, Toucan Capital, including the holdings of Toucan Partners,
held 32,923,510 shares of common stock , representing approximately 55.8% of the
common stock outstanding. Further, as of December 31, 2009, Toucan
Capital, including the holdings of Toucan Partners, beneficially owned
(including unexercised warrants) 65,279,856 shares of common stock, representing
a beneficial ownership interest of approximately 69.9%.
Other
Financings
In April
2006, the Company completed the PIPE Financing and raised approximately
$5.5 million from the issuance of 2.6 million shares of common
stock.
On
June 22, 2007, we placed 15,789,473 shares of common stock with
foreign institutional investors at a price of £0.95 per share. The gross
proceeds from the placement were approximately £15.0 million, or
$29.9 million, while net proceeds from the offering, after deducting
commissions and expenses, were approximately £13.0 million, or
$25.9 million.
On
January 16, 2009 we entered into a securities purchase agreement for $700,000
with Al Rajhi Holdings who purchased 1,000,000 shares of our common stock at
$0.70 per share.
On March
27, 2009, we completed a private placement of 1.4 million shares of our common
stock and received $0.7 million.
Shareholder
Loan
Al Rajhi
loaned the Company $4.0 million on May 12, 2008 under the terms of an unsecured
promissory note with a principal amount of $4,240,000 (reflecting an original
issue discount of $240,000). The note was initially due on November
12, 2008. Al Rajhi agreed to extend the term of the note of the loan
until December 31, 2009. On February 22, 2010, Al Rajhi agreed to
extend the term of the note to December 31, 2010.
57
Other
Loans
On
October 1, 2008, the Company entered into a $1 million unsecured 12% Loan
Agreement with SDS (the “SDS Loan”). The SDS Loan was initially due
April 1, 2009, and SDS agreed to extend the maturity on terms that are currently
being negotiated.
On dates
between October 21, 2008 and November 6, 2008, the Company entered into
unsecured 12% Loan Agreements (the “Private Investor Loans”) and Promissory
Notes (the “Private Investor Promissory Notes”) with SDS and a group of private
investors (the “Private Investors”). Under the Private Investor
Promissory Notes, SDS loaned the Company $1 million and the Private Investors
loaned the Company $650,000 for a total of $1.65 million. The Private Investor
Promissory Notes were initially due in April 2009, and the Private Investors
(excluding SDS) agreed to extend the maturity date to June 2010. SDS
agreed to extend the maturity on terms that are currently being
negotiated.
During
March 2009, the Company received $650,000 upon issuing unsecured 6% convertible
loan agreements and promissory notes due in March 2011 to a group of private
lenders (“Private Lenders”).
During
March 2009, the Company received $110,000 upon issuing a unsecured 6%
convertible loan agreement and promissory note due in March 2011 to a private
lender (“Private Lender”).
On dates
between August 13, 2009 and September 24, 2009, the Company received $580,000
upon issuing unsecured 6% convertible loan agreements and promissory notes due
in August and September 2011 to a group of Private Lenders.
On dates
between October 6, 2009 and December 31, 2009, the Company received $720,000
upon issuing unsecured 6% convertible loan agreements and promissory notes due
in August and September 2011 to a group of Private Lenders.
Going
Concern
The
Company has raised an aggregate of approximately $2.1 million in a series of
small loans and stock purchases since December 31, 2009. We need to
raise additional capital to fund our clinical trials and other operating
activities and repay various note payable and loan agreements. The
amount of additional funding required will depend on many factors, including the
speed with which we are able to identify and hire people to fill key positions,
the speed of patient enrollment in our DCVax®-Brain cancer trial, and
unanticipated developments, including any litigation matters. However, without
additional capital, we will not be able to complete our DCVax®-Brain clinical
trial or move forward with any of our other product candidates for which
investigational new drug applications have been cleared by the U.S. Food and
Drug Administration, or FDA. We will also not be to develop our second
generation manufacturing processes, which offer substantial product cost
reductions.
During
2009, the Company and Cognate BioServices ("Cognate") agreed that most of the
accounts payable owed by the Company to Cognate, will be converted into shares
of common stock instead of paid in cash. The conversion price will be no
less favorable than the conversion price applied to any other creditor of the
Company. The impact of the conversion will result in a reduction of
liabilities for the amount converted. In addition, the Company will
recognize the value of common stock issued in excess of the amount of accounts
payable converted, if any, as a charge to operations when the conversion takes
place. Finalization of these arrangements is in process.
Also
during 2009, the Company agreed with Toucan Capital, Toucan Partners and Linda
Powers that a portion of the accrued expenses owed by the Company to these
parties for certain expense reimbursements will be converted into shares of
common stock instead of paid in cash. Toucan Capital, Toucan Partners and
Linda Powers have paid certain expenses on behalf of the Company. The
parties agreed that these accrued expenses will be converted into common stock
(at a conversion rate of $0.20 per share). The parties are in the process
of determining the amounts of unbilled accrued expenses. The impact of the
conversion will result in a reduction of liabilities for the amount
converted. In addition, the Company will recognize the value of common
stock issued in excess of the amount of the accrued expenses converted, if any,
as a charge to operations when the conversion takes place. Finalization of
these arrangements is in process.
We will
require additional funding before we achieve profitability. We are in late stage
discussions with several parties in regard to additional financing transactions,
which we hope to complete later in the year. There can be no assurance that our
efforts to seek such funding will be successful. We may raise additional funds
by issuing additional common stock or securities (equity or debt) convertible
into shares of Common Stock, in which case, the ownership interest of our
stockholders will be diluted. Any debt financing, if available, is likely to
include restrictive covenants that could limit our ability to take certain
actions. Further, we may seek funding from Toucan Capital or Toucan Partners or
their affiliates or other third parties. Such parties are under no obligation to
provide us any additional funds, and any such funding may be dilutive to
stockholders and may contain restrictive covenants. We currently are exploring
additional financings with several other parties; however, there can be no
assurance that we will be able to complete any such financings or that the terms
of such financings will be attractive to us. If our capital raising efforts are
unsuccessful, our inability to obtain additional cash as needed could have a
material adverse effect on our financial position, results of operations and our
ability to continue our existence. Our independent registered public accounting
firm has indicated in its report on our consolidated financial statements
included in the Annual Report on Form 10-K for the year ended December 31, 2009
that there is substantial doubt about our ability to continue as a going
concern.
(a) References
to Authoritative Accounting Literature
In June
2009, the Financial Accounting Standards Board ("FASB") issued the Accounting
Standards Codification ("ASC") as the single source of authoritative U.S. GAAP
recognized by the FASB to be applied by non-governmental entities in preparation
of financial statements in conformity with U.S. GAAP, except for additional
authoritative rules and interpretative releases issued by the
SEC. While the adoption of the ASC changes how we reference
accounting standards, the adoption did not have an impact on our consolidated
financial statements.
(b) Principles
of Consolidation and Basis of Presentation
The
accompanying consolidated financial statements of the Company were prepared in
accordance with U.S. GAAP and include the assets, liabilities, revenues and
expenses of the Company’s majority-owned subsidiary over which the Company
exercises control. Intercompany transactions and balances are eliminated in
consolidation. The subsidiary was established in Switzerland during third
quarter 2007. The Company contributed 95% of the initial share capital in this
new subsidiary and Cognate, a related party to the Company, contributed the
remaining 5%.
58
(c) Foreign
Currency Translation
For
operations outside the U.S. that prepare financial statements in currencies
other than U.S. dollars, we translate the financial statements into
U.S. dollars. Results of operations and cash flows are translated at
average exchange rates during the period, and assets and liabilities are
translated at end of period exchange rates, except for equity transactions and
advances not expected to be repaid in the foreseeable future, which are
translated at historical cost. The effects of exchange rate fluctuations on
translating foreign currency assets and liabilities into U.S. dollars are
accumulated as a separate component in other comprehensive income
(loss).
(d) Use
of Estimates in Preparation of Financial Statements
The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(e) Fair
Value
We
measure fair value as an exit price, representing the amount that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a market-based
measurement that is determined based on assumptions that market participants
would use in pricing an asset or liability. We utilize a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value as
follows:
|
|
·
|
Level
1: Observable market inputs such as quoted prices in active
markets;
|
|
|
·
|
Level
2: Observable market inputs, other than the quoted prices in active
markets, that are observable either directly or indirectly;
and
|
|
|
·
|
Level
3: Unobservable inputs where there is little or no market data, which
require the reporting entity to develop its own
assumptions.
|
As of
December 31, 2009 and 2008, the Company did not hold any assets and liabilities
which were required to be measured at fair value.
(f) Fair
Value of Financial Instruments
The fair
value of financial instruments other than liabilities payable to related parties
approximate the recorded value based on the short term nature of these financial
instruments. The fair value of liabilities payable to related parties is
presently undeterminable due to the related party nature of the
obligations.
(g) Cash
Cash
consists of checking and money market accounts. While cash held by financial
institutions may at times exceed federally insured limits, management believes
that no material credit or market risk exposure exists due to the high quality
of the institutions. The Company has not experienced any losses on such
accounts.
(h) Property
and Equipment
Property
and equipment are stated at cost, as adjusted for any prior impairments.
Property and equipment are depreciated on a straight-line basis over the
estimated useful lives which range from between three and seven
years.
Expenditures
for maintenance and repairs are expensed as incurred. Gains and losses from
disposal representing the difference between any proceeds received from the sale
of property and equipment and the recorded values of the asset disposed are
recorded in total operating costs and expenses.
(i) Impairment
of long-lived assets
Long-lived
assets including property and equipment are reviewed for possible impairment
whenever significant events or changes in circumstances, including changes in
our business strategy and plans, indicate that an impairment may have occurred.
An impairment is indicated when the sum of the expected future undiscounted net
cash flows identifiable to that asset or asset group is less than its carrying
value. Long-lived assets to be held and used, including assets to be disposed of
other than by sale, for which the carrying amount is not recoverable are
adjusted to their estimated fair value at the date an impairment is indicated,
which establishes a new basis for the assets for depreciation purposes.
Long-lived assets to be disposed of by sale are reported at the lower of
carrying amount or fair value less cost to sell. Impairment losses are
determined from actual or estimated fair values, which are based on market
values, net realizable values or projections of discounted net cash flows, as
appropriate.
59
(j) Operating
Leases
The
Company recognizes lease expense on a straight-line basis over the initial lease
term. For leases that contain rent holidays or escalation clauses, the Company
recognizes rent expense on a straight-line basis and records the difference
between the rent expense and rental amount payable as deferred rent. As of
December 31, 2009 and 2008, we did not have any deferred rent.
(k) Revenue
Recognition
The
Company has earned revenues through sale of research materials, providing
research services to third parties and through research grants in the past.
Revenues from sale of research materials are to multiple customers with whom
there is no other contractual relationship and are recognized when shipped to
the customer and title has passed.
Research
contracts and grants require the Company to perform research activities as
specified in each respective contract or grant on a best efforts basis, and the
Company is paid based on the fees stipulated in the respective contracts and
grants which approximate the costs incurred by the Company in performing such
activities. The Company recognizes revenue under the research contracts and
grants based on completion of performance under the respective contracts and
grants where no ongoing obligation on the part of the Company exists. Direct
costs related to these contracts and grants are reported as research and
development expenses.
(l) Research
and Development Expenses
Research
and development costs are expensed as incurred. These costs include, but are not
limited to, contract manufacturing costs, personnel costs, lab supplies,
depreciation, amortization and other indirect costs directly related to the
Company’s research and development activities.
(m) Income
Taxes
We
recognize income taxes on an accrual basis based on tax position taken or
expected to be taken in our tax returns. A tax position is defined as a position
in a previously filed tax return or a position expected to be taken in a future
tax filing that is reflected in measuring current or deferred income tax assets
and liabilities. Tax positions are recognized only when it is more likely than
not (i.e., likelihood of greater than 50%), based on technical merits, that
the position would be sustained upon examination by taxing authorities. Tax
positions that meet the more likely than not threshold are measured using a
probability-weighted approach as the largest amount of tax benefit that is
greater than 50% likely of being realized upon settlement. Income taxes are
accounted for using an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in our financial statements or
tax returns. A valuation allowance is established to reduce deferred tax assets
if all, or some portion, of such assets will more than likely not be realized.
Should they occur, our policy is to classify interest and penalties related to
tax positions as income tax expense. Since our inception, no such interest or
penalties have been incurred, however. Prior to 1998, the Company was a limited
liability company and the Company’s tax losses and credits generally flowed
directly to the members.
(n) Stock-Based
Compensation
Compensation
expense for all stock-based awards is measured at the grant date based on the
fair value of the award and is recognized as an expense, on a straight-line
basis, over the employee's requisite service period (generally the vesting
period of the equity award). The fair value of each option award is estimated on
the date of grant using a Black-Scholes option valuation model. Stock-based
compensation expense is recognized only for those awards that are expected to
vest using an estimated forfeiture rate. We estimate pre-vesting option
forfeitures at the time of grant and reflect the impact of estimated pre-vesting
option forfeitures in compensation expense recognized.
For options and warrants
issued to non-employees, the Company recognizes stock compensation costs
utilizing the fair value methodology over the related period of
benefit.
Stock-based
compensation expense was as follows ($ in thousands):
|
2008
|
2009
|
|||||||
|
Research
and development
|
$ | 490 | $ | 770 | ||||
|
General
and administrative expenses
|
2,511 | 1,942 | ||||||
|
Total
stock- based compensation expense
|
$ | 3,001 | $ | 2,712 | ||||
The
assumptions used to estimate the fair value of awards granted for the periods
presented are noted in the table below. Expected volatility is based on the
separate historical volatility of the market prices of our common stock over the
most recent period commensurate with the estimated expected life of the award.
The risk-free rate for the expected term of the option is based on the U.S.
Treasury yield curve in effect at the time of grant.
60
|
2008
|
2009
|
|||||||
|
Risk
free interest rate
|
3.81 | % | 3.60 | % | ||||
|
Volatility
|
196 | % | 208 | % | ||||
|
Expected
term
|
4
years
|
10
years
|
||||||
|
Expected
dividends
|
0 | % | 0 | % | ||||
(o) Loss
per Share
Basic
loss per share is computed on the basis of the weighted average number of shares
outstanding for the reporting period. Diluted loss per share is computed on the
basis of the weighted average number of common shares plus dilutive potential
common shares outstanding using the treasury stock method. Any potentially
dilutive securities are antidilutive due to the Company’s net losses. For the
years presented, there is no difference between the basic and diluted net loss
per share.
Effective
June 19, 2007, all shares of the Company’s common stock issued and
outstanding were combined and reclassified on a one-for-fifteen basis. The
effect of this reverse stock split has been retroactively applied to all periods
presented.
(p) Operating
Segments
The
Company is principally engaged in the discovery and development of innovative
immunotherapies for cancer and has a single operating segment as management
reviews all financial information together for the purposes of making decisions
and assessing the financial performance of the Company.
Operating
costs:
Operating
costs and expenses consist primarily of research and development expenses,
including clinical trial expenses which arise when we are actively participating
in clinical trials, and general and administrative expenses.
Research
and development:
Discovery
and preclinical research and development expenses include scientific personnel
related salary and benefit expenses, costs of laboratory supplies used in our
internal research and development projects, travel, regulatory compliance, and
expenditures for preclinical and clinical trial operation and management when we
are actively engaged in clinical trials.
Because
the Company is a development stage company, it does not allocate research and
development costs on a project basis. The Company adopted this policy, in part,
due to the unreasonable cost burden associated with accounting at such a level
of detail and its limited number of financial and personnel resources. The
Company’s business judgment continues to be that there is little value
associated with evaluating expenditures at the project level since the Company
is focusing primarily on its lead clinical trial programs as most of the
Company’s expenditures relate to those programs.
For the
year ended December 31, 2009, of the Company’s operating expenses of
approximately $15.8 million, approximately 60.7% of its expended resources
were apportioned to its two DCVax
®
clinical
trial programs. From its inception through December 31, 2009, the Company
incurred costs of approximately $66.9 million associated with its research and
development activities. Because its technologies are novel and unproven, the
Company is unable to estimate with any certainty the costs it will incur in the
continued development of its product candidates for
commercialization.
General
and administrative:
General
and administrative expenses include administrative personnel related salary and
benefit expenses, cost of facilities, insurance, travel, legal support, property
and equipment depreciation, stock-based compensation, and amortization of debt
discounts and beneficial conversion costs associated with the Company’s debt
financing.
(q) Reclassifications
Certain
reclassifications have been made to prior period financial statements and
footnotes in order to conform to the current period's presentation.
61
(r) Recent
and Adopted Accounting Pronouncements
In
January 2010, the FASB issued new authoritative guidance regarding the
disclosure of fair value measurements, which clarifies certain existing
disclosure requirements as well as requiring new disclosures related to
significant transfers between each fair value level as well as requiring
additional information about Level 3 activity. This guidance begins phasing
in during the first fiscal period after December 15, 2009. We do not expect
the implementation of this guidance to have a material impact on our
consolidated financial statements.
In June
2009, the FASB issued new authoritative guidance to eliminate the quantitative
approach previously required for determining the primary beneficiary of a
variable interest entity and requires ongoing qualitative reassessments of
whether an enterprise is the primary beneficiary of a variable interest entity.
We adopted the guidance in 2009 without material impact on our consolidated
financial statements.
In May
2009, the FASB issued new authoritative guidance for the accounting for and
disclosures of subsequent events that occur after the balance sheet date but
before financial statements are issued or are available to be issued. The
guidance was effective for interim or annual financial periods ending after
June 15, 2009. This guidance applies to both interim financial statements
and annual financial statements. In February 2010, the FASB issued additional
guidance that clarifies certain existing evaluation and disclosure requirements
related to subsequent events. We adopted the initial and revised guidance
without material impact on our consolidated financial statements.
In April
2009, the FASB issued additional authoritative guidance on the fair value of
financial instruments, which provides: (i) further provisions on estimating
fair value when the markets become inactive and quoted prices reflect distressed
transactions; (ii) extended disclosure requirements for interim financial
statements regarding the fair value of financial instruments; and (iii) new
criteria for recording impairment charges on investments in debt instruments. We
adopted the guidance on a prospective basis in 2009 without material impact to
our consolidated financial statements.
In June
2008, the FASB issued new authoritative guidance addressing the accounting for
certain instruments (or embedded features) determined to be indexed to an
entity's own stock. This guidance provides that an entity should use a two-step
approach to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including evaluating the instrument's
contingent exercise and settlement provisions. We adopted this guidance on a
prospective basis in 2009 without material impact to our consolidated financial
statements..
(4)
Stock-Based Compensation Plans
Stock
Option Plans
The
Company’s stock option plans are administered by the Board of Directors, which
determines the terms and conditions of the options granted, including exercise
price, number of options granted and vesting period of such
options.
Our
employees, directors and consultants previously participated in the 1998 Stock
Option Plan and the 1999 Executive Stock Option Plan. The 1998 Stock
Option Plan and the 1999 Executive Stock Option Plan were terminated during 2008
and 2009 and no further grants may be made under the plans.
Existing
stock option plans are as follows:
(a) 2001
Stock Option Plan
Under the
2001 Stock Option Plan (the “2001 Plan”), 120,000 shares of the Company’s
common stock have been reserved for grant of stock options to employees and
consultants. Additionally, on January 1 of each year, commencing
January 1, 2002, the number of shares reserved for grant under the 2001
Plan will increase by the lesser of (i) 15% of the aggregate number of
shares available for grant under the 2001 Plan or
(ii) 20,000 shares. Our Board of Directors has the
authority to amend or terminate this plan, but such action may not adversely
affect any outstanding option previously granted under the plan. If
this plan is not terminated earlier, no incentive stock options can be granted
under the plan on or after the later of June 2011 or the 10th anniversary
of the date when our Board of Directors adopted, subject to approval by our
stockholders, the most recent increase in the number of shares available for
grant under the plan.
As of
December 31, 2009, net of forfeitures, a total of 162,603 shares
remain available under this plan; however, effective June 22, 2007, the
Company amended the 2001 Stock Option Plan, such that no further option grants
may be made under the plan.
(b) 2001
Non-employee Director Stock Incentive Plan
Under the
2001 Non-employee Director Stock Incentive Plan (the “2001 Director Plan”),
13,333 shares of the Company’s common stock have been reserved for grant of
stock options to non-employee directors of the Company. As of
December 31, 2009, net of forfeitures, a total of 10,500 shares remain
available under this plan; however, no further grants may be made under this
plan.
62
(c) 2007
Stock Option Plan
The 2007
Stock Option Plan became effective on June 15, 2007 (the “2007 Stock Option
Plan”). In April 2008, the Company increased the number of shares
reserved for issuance under the 2007 Stock Option Plan by 519,132 shares of its
common stock for an aggregate of 6,000,000 shares of its common stock, par value
$0.001 per share, reserved for issue of options granted under the
plan. The plan provides for the grant to employees of the Company,
its parents and subsidiaries, including officers and employee directors, of
“incentive stock options,” as defined, and for the grant of non-statutory stock
options to the employees, officers, directors, including non-employee directors,
and consultants of the Company, its parents and subsidiaries. As of
December 31, 2009, net of forfeitures, a total of 849,454 shares
remain available for issuance under this plan.
Stock
Option Activity
A summary
of activity relating to our stock options is as follows (options in
thousands):
|
Options
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term (Years)
|
Aggregate
Intrinsic
Value
|
||||||||||||
|
Outstanding
as of December 31, 2008
|
3,159
|
$
|
1.16
|
||||||||||||
|
Granted
|
2,581
|
$
|
0.60
|
||||||||||||
|
Exercised
|
(70
|
)
|
$
|
0.64
|
|||||||||||
|
Expired
|
(11
|
)
|
$
|
12.85
|
|||||||||||
|
Forfeited
|
(1,551
|
)
|
$
|
1.37
|
|||||||||||
|
Outstanding
as of December 31, 2009
|
4,108
|
$
|
0.69
|
6.15
|
|||||||||||
|
Exercisable
as of December 31, 2009
|
2,292
|
$
|
1.18
|
8.42
|
$ |
—
|
|||||||||
A summary
of the Company’s unvested stock option grants and changes during 2009 was as
follows (options in thousands):
|
Weighted-
|
||||||
|
Average
|
||||||
|
Grant
Date
|
||||||
|
Options
|
Fair
Value
|
|||||
|
Outstanding
at December 31, 2008
|
2,675
|
$ |
1.11
|
|||
|
Granted
during 2009
|
2,581
|
0.60
|
||||
|
Expired/Forfeited
during 2009
|
(750
|
)
|
2.19
|
|||
|
Vested
during 2009
|
(2,690
|
)
|
0.60
|
|||
|
Outstanding
at December 31, 2009
|
1,816
|
0.68
|
||||
Additional
information regarding stock options outstanding and exercisable at
December 31, 2009 is as follows, in thousands, except option price and
weighted average exercise price.
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||||||
|
Weighted-
|
|||||||||||||||||||||
|
Average
|
Weighted-
|
Weighted-
|
|||||||||||||||||||
|
Remaining
|
Average
|
Average
|
|||||||||||||||||||
|
Number
|
Contractual
|
Exercise
|
Number
|
Exercise
|
|||||||||||||||||
|
Range
of Exercise Prices
|
Outstanding
|
Life
(Years)
|
Price
|
Exercisable
|
Price
|
||||||||||||||||
|
(In
thousands except weighted average)
|
|||||||||||||||||||||
| $ 0.55 - 0.60 |
3,088
|
5.99
|
$
|
0.57
|
2,004
|
$
|
0.56
|
||||||||||||||
| $ 0.61 - 2.40 |
1,010
|
9.24
|
$
|
0.88
|
279
|
$
|
1.06
|
||||||||||||||
| $ 2.41 - 75.00 |
10
|
1.96
|
$
|
20.33
|
9
|
$
|
21.22
|
||||||||||||||
| Total |
4,108
|
6.78
|
$
|
0.69
|
2,292
|
$
|
0.70
|
||||||||||||||
Options
granted under the plans are generally priced at or above the estimated fair
market value of the Company’s common stock on the date of grant and generally
vest over between four and nine years. Compensation expense, if any,
is charged over the period of vesting. All options, if not previously
exercised or canceled, expire ten years from the date of grant, or the
expiration date specified in the individual option agreement, if
earlier.
During
2008 and 2009, the Company granted options to purchase 870,000 and 2,581,000,
respectively, shares of common stock to employees. The weighted
average exercise price of options granted in 2008 and 2009 was $2.20 and $0.60,
respectively. Stock compensation expense amounted to $3,001,000 and
$2,712,000 during 2008 and 2009, respectively.
63
The
aggregate intrinsic value of options exercised during 2008 and 2009 was $53,334
and $64,025, respectively. Our policy is to issue new shares to
fulfill the requirements for options that are exercised.
The
aggregate fair value of options vested during 2008 and 2009 was $2,716,212 and
$2,919,671, respectively.
As of
December 31, 2009, the total unrecognized compensation expense related to
unvested stock option awards was $3,700,000, which is expected to be recognized
over a weighted average term of approximately 9 years.
(5) Stockholders’
Equity (Deficit)
(a) Stock
Purchase Warrants
Toucan
Capital and Toucan Partners Warrants
The
Company issued Toucan Capital warrants to purchase 14,150,732 shares of common
stock at an exercise price of $0.60 per share and warrants to purchase 7,884,357
shares of common stock at an exercise price of $0.15 per share under the terms
of the Conversion Agreement described in Note 2.
The
Company issued Toucan Partners warrants to purchase 8,832,541 shares of common
stock at an exercise price of $0.60 per share under the terms of the Conversion
Agreement described in Note 2.
The
Company issued Toucan Partners warrants to purchase 132,500 shares of common
stock at an exercise price of $0.40 per share in connection with the Toucan
Partners December 2008 Loan amounting to $500,000.
The
Company issued Toucan Partners warrants to purchase 842,375 shares of common
stock at an exercise price of $0.20 per share and warrants to purchase 513,841
shares of common stock at an exercise price of $0.41 per share in connection
with conversion of the Toucan Partners' August 2008 and December 2008 Loans of
$1.0 million and $500,000, respectively. The conversion took place on
September 28, 2009.
Private
Placement Warrants
On
April 4, 2006, the Company completed the PIPE Financing and sold
2.6 million shares of common stock at a price of $2.10 per share and issued
warrants to purchase 1.3 million shares of common stock at an exercise
price of $2.10 per share. As of December 31, 2009, approximately
677,000 of these warrants remained outstanding.
On
October 1, 2008, the Company issued SDS warrants to purchase 697,775 shares of
common stock at an exercise price of $0.53 per share and a term of five years,
in connection with the SDS Loan.
During
October and November 2008, the Company issued warrants to purchase 2,132,927
shares of common stock at an exercise price of $0.41 per share and a term of
three years, in connection with the Private Investor Notes.
On
September 28, 2009, the Company issued warrants to purchase 1,743,111 shares of
the Company's common stock at an exercise price of $0.63 to Al Rajhi as
consideration for the extension of the maturity date for the loan made by Al
Rajhi in May 2008.
On
September 28, 2009, the Company issued warrants to purchase 861,250 shares of
the Company's common stock at an exercise price of $0.20 to certain Private
Investors as consideration for the extension of the maturity date for various
loans made by the Private Investors during October 2008.
A summary
of the warrants outstanding at December 31, 2009 is as
follows:
|
Date
of Issue
|
Warrants
Outstanding
as
of
December 31,
2009
|
Exercise
Price
|
Expiration
|
||||
|
June
1, 2007
|
7,884,357
|
$0.15
|
May
31,2015
|
||||
|
September
30, 2009
|
1,703,625
|
$0.20
|
September
29, 2012
|
||||
|
December
23, 2008
|
132,500
|
$0.40
|
December
22, 2016
|
||||
|
November
6, 2008
|
1,354,083
|
$0.41
|
November
5, 2012
|
||||
|
June
1, 2007
|
22,983,272
|
$0.60
|
May
31, 2015
|
||||
|
September
28, 2009
|
1,743,111
|
$0.63
|
September
27, 2012
|
||||
|
February
9, 2003
|
13,333
|
$1.53
|
February
8, 2013
|
||||
|
March
30, 2006
|
745,168
|
$2.10
|
March
29, 2011
|
||||
|
January
8, 2003
|
13,333
|
$2.66
|
January
7, 2013
|
||||
|
December
26, 2002
|
26,666
|
$3.24
|
December
25, 2012
|
||||
|
36,599,448
|
64
(b) Common
Stock Equivalents
The
following common stock equivalents on an as-converted basis were excluded from
the calculation of diluted net loss per share, as the effect would be
antidilutive (in thousands):
|
December 31,
|
||||||||
|
2008
|
2009
|
|||||||
|
Common
stock options
|
445 | 4,108 | ||||||
|
Common
stock warrants
|
34,628 | 36,599 | ||||||
|
Common
stock issuable on conversion of notes payable
|
— | 14,177 | ||||||
(
c ) Common Stock Issuances
On
January 16, 2009, we entered into a securities purchase agreement for $700,000
with Al Rajhi Holdings who purchased 1,000,000 shares of our common stock at
$0.70 per share.
On March
27, 2009, we completed a private placement of 1.4 million shares of our common
stock and received $0.7 million.
In
January 2009, we issued 199,661 shares of common stock to a consultant for the
commission earned on debt financing. The common stock was recorded at
a fair value of $93,000 based on the price of our common stock in recent
financing transactions.
In
September 2009, the Toucan December Loan principal and accrued interest
(including a default penalty of 0.25% per month) amounting to $552,738 was
converted into 2,763,691 shares of common stock at a conversion rate of $0.20
per share.
In
September 2009, the Toucan August Loan principal and accrued interest (including
a default penalty of 0.25% per month) amounting to $1,156,718 was converted into
5,783,589 shares of common stock at a conversion rate of $0.20 per
share.
In
September 2009, we issued 2,504,034 shares of common stock to Toucan Partners
and the Company's Chairperson as consideration for services
rendered. The common stock was recorded at a fair value of $502,500
based on the price of our common stock in recent financing
transactions.
In
September 2009, we issued 398,000 shares of common stock for consulting
services. The common stock was recorded at a fair value of $80,000
based on the price of our common stock in recent financing
transactions.
In
September 2009, the principal balance of two convertible notes amounting to
$125,000 was converted into 562,500 shares of common stock at a conversion rate
of $0.20 per share.
During
2009, we issued 147,000 shares of common stock for consulting
services. The common stock was recorded at a fair value of $77,000
based on the price of our common stock in recent financing
transactions.
During
2009, we issued 1,236,000 shares of common stock from the cashless exercise of
common stock warrants and options.
During
2009, we issued 413,000 shares of common stock valued at $383,000 based on the
closing market price on the date of issuance of the shares to employees in lieu
of cash payment of salaries.
During
2008, we issued 25,000 shares of common stock for stock option
exercises.
During
2008, we issued 122,000 shares of common stock for services valued at $225,000
based on the closing market price on the date of issuance of the
shares.
(d) Employee
Stock Purchase Plan
In June
2001, the Company adopted an employee stock purchase plan and reserved
500,000 shares of common stock for issuance under this
plan. Under the plan, employees may purchase up to 1,000 shares
of common stock during each six-month offering period commencing on April 1 and
October 1 of each year. The purchase price of the common stock is equal to the
lower of 85% of the market price on the first and last day of each offering
period. As of December 31, 2009, a total of 14,374 shares have been
issued under the plan.
65
(e) Employee
401(k) Plan
On
August 19, 1999, the Company adopted a 401(k) Plan for certain eligible
employees. Under the plan, an eligible employee may elect to
contribute to the plan. In addition, the Company may elect to
contribute matching contributions. Effective March 1, 2006, the
Company no longer matches employee contributions.
(f) Stockholder
Rights Agreement
On
March 6, 2002, the Company adopted a Stockholder Rights Agreement, under
which each common stockholder received a dividend of one right per share of
common stock held. Each right entitles the holder to purchase one share of
common stock at a price equal to $19.25 per share, subject to certain
anti-dilution provisions, and is exercisable only in the event that a third
party acquires beneficial ownership of, or announces a tender or exchange offer
for, at least 15% of the Company’s outstanding common stock and such acquisition
or offer is determined by the Board of Directors to not be in the best interests
of the stockholders. If the acquisition or offer were determined by the Board of
Directors to be in the best interests of the stockholders, the rights may be
redeemed by the Company for $0.0001 per right. The rights will expire on
February 25, 2012, unless earlier terminated in accordance with the rights
agreement. The Board of Directors and Mellon Investor Services LLC,
its Rights Agent, on April 26, 2004, amended the Stockholder Rights
Agreement. The definition of an “Acquiring Person” was amended to exclude Toucan
Capital Fund II, L.P. and other investors selected by Toucan from the
definition of “Acquiring Person” for those shares of the Company’s capital stock
they acquire, or are deemed to beneficially own, in connection with the
Recapitalization Agreement.
Medarex
During
December 2002, the Company entered into an agreement with Medarex wherein the
company sold intellectual property for consideration including $3.0 million in
cash and stock and debt forgiveness in the amount of $400,000. In
addition, the Company issued 133,000 unregistered shares of common stock and
warrants to purchase 53,333 shares of unregistered common stock to
Madarex. The warrants have exercise prices ranging from between $1.53
and $3.24 per share and expire between December 25, 2012 and February 9,
2013. The fair value of the 53,333 warrant was $159,678, which was
determined using the Black-Scholes option pricing model with the following
assumptions: expected dividend yield 0%, risk-free interest rate of 4.17%,
volatility of 191%, and an expected life of 10-years. The net gain
recognized on this sale in 2002 was $2.8 million, made up of the receipt of
$3.0 million of cash and stock from Medarex and forgiveness of the $400,000
payable to Medarex, offset by the issuance of 133,000 shares of
unregistered common stock and warrants to purchase 53,333 shares of common
stock valued at approximately $560,000.
(6) Related
Party Transactions
(a) Notes
Payable to Related Parties
Convertible
promissory notes have been issued to Toucan Capital and Toucan Partners, an
affiliate of Toucan Capital, the Company’s controlling shareholder. As of
December 31, 2009 all of the notes issued prior to August 19, 2008 have
either been converted or repaid.
On August
19, 2008, the Company entered into a loan agreement with Toucan Partners, under
which the Company received $1.0 million in return for an unsecured promissory
note in the principal amount of $1,060,000 (reflecting an original issue
discount of six percent, or $60,000) for a period of six months. This loan was
converted into common stock on September 28, 2009.
On
December 22, 2008, we entered into a loan agreement with Toucan
Partners for $500,000 with a term of six months at 12% interest. In
connection with the loan the Company issued Toucan Partners warrants to
purchase shares of the Company’s common stock. The warrants have a
term of five years from the issuance date. This loan was converted
into common stock on September 28, 2009.
In June
and July 2009 we entered into a Loan Agreement and Promissory Notes with Toucan
Partners for an aggregate of $1,300,000 with a term of two years at 6%
interest.
Notes
payable to related parties are more fully described in Notes (2) and
(9).
66
(b) Cognate
Agreement
On
July 30, 2004, the Company entered into a service agreement with Cognate
Therapeutics, Inc. (now known as Cognate BioServices, Inc., or Cognate), a
contract manufacturing and services organization in which Toucan Capital has a
majority interest. In addition, two of the principals of Toucan Capital are
members of Cognate’s board of directors and, on May 17, 2007, the managing
director of Toucan Capital was appointed to serve as a director of the Company
and to serve as the non-executive Chairperson of the Company’s Board of
Directors. Under the service agreement, the Company agreed to utilize Cognate’s
services for an initial two-year period, related primarily to manufacturing
DCVax
®
product
candidates, regulatory advice, research and development preclinical activities
and managing clinical trials. The agreement expired on July 30, 2006;
however, the Company continued to utilize Cognate’s services under the same
terms as set forth in the expired agreement. On May 17, 2007, the Company
entered into a new service agreement with Cognate pursuant to which Cognate will
provide certain consulting and, when needed, manufacturing services to the
Company for its DCVax
®
-Brain
Phase II clinical trial. Under the terms of the new contract, the Company
paid a non-refundable contract initiation fee of $250,000 and committed to pay
budgeted monthly service fees of $400,000, subject to quarterly true-ups, and
monthly facility fees of $150,000. Under the terms of the contract unless the
contract is terminated earlier the contract will expire at the earlier of (i)
the submission of an FDA biological license application/new drug application on
the Company’s brain cancer clinical trial or (ii) July 1, 2010. The Company
may terminate this agreement with 180 days notice and payment of all
reasonable wind-up costs and Cognate may terminate the contract in the event
that the brain cancer clinical trial fails to complete enrollment by
July 1, 2009. However, if such termination by the Company occurs at any
time prior to the earlier of the submission of an FDA biological license
application/new drug application on the Company’s brain cancer clinical trial or
July 1, 2010 or, such termination by Cognate results from failure of the
brain cancer clinical trial to complete patient enrollment by July 1, 2009,
the Company is obligated to make an additional termination fee payment to
Cognate equal to $2 million. Although the Company failed to
complete enrollment the brain cancer clinical trial by July 1, 2009 Cognate
has elected not to terminate the agreement and as such the $2 million
termination penalty had not been triggered as of December 31,
2009. Since July 1, 2009 with the mutual agreement of Cognate and the
Company the agreement has continued on a month to month basis on the same terms
as included in the original agreement.
Cognate
has moved its operations from Sunnyvale, Califormia to its newer facility
in Memphis, Tennessee. The capacity in Memphis is approximately 600
patients per year, which we believe will be sufficient for our Phase II
clinical trial for DCVax
®
-Brain.
We have a plan with Cognate to accommodate an increase in production capacity
based on demand and have detailed plans and cost analysis for additional
modular expansions which should increase the capacity of the current facilities
from approximately 600 patients to over 9,000 patients per
year.
During
the years ending December 31, 2008 and 2009, respectively, the Company
recognized approximately $7.8 million and $7.3 million of research and
development costs related to these service agreements. As of December 31,
2009 and 2008, the Company owed Cognate approximately $5.9 and $1.1 million,
respectively.
During
2009, the Company and Cognate BioServices ("Cognate") agreed that most of the
accounts payable owed by the Company to Cognate, will be converted into shares
of common stock instead of paid in cash. The conversion price will be no
less favorable than the conversion price applied to any other creditor of the
Company. The impact of the conversion will result in a reduction of
liabilities for the amount converted. In addition, the Company will
recognize the value of common stock issued in excess of the amount of accounts
payable converted, if any, as a charge to operations when the conversion takes
place. Finalization of these arrangements is in
process.
(c) Toucan
Capital Management
In
accordance with a recapitalization agreement dated April 26, 2004 between
the Company and Toucan Capital, as amended and restated on July 30, 2004
and further amended ten times between October 22, 2004 and
November 14, 2005, pursuant to which Toucan Capital agreed to recapitalize
the Company by making loans to the Company, the Company accrued and paid certain
legal and other administrative costs on Toucan Capital’s behalf. Pursuant to the
terms of the Conversion Agreement discussed above, the recapitalization
agreement was terminated on June 22, 2007. Subsequent to the termination of
the recapitalization agreement, Toucan Capital continues to incur costs on
behalf of the Company. These costs primarily relate to consulting costs and
travel expenses incurred in support of the Company’s international expansion
efforts. In addition, since July 1, 2007 the Company has accrued and
recorded rent expense due to Toucan Capital Corp. an affiliate of Toucan Capital
for its office space in Bethesda, Maryland.
During
the years ending December 31, 2009 and 2008, respectively, the Company
recognized approximately $0.7 million and $0.6 million of general and
administrative costs related to this recapitalization agreement, rent expense,
as well as legal, travel and other costs incurred by Toucan Capital on the
Company’s behalf. At December 31, 2009 and 2008, accrued expenses payable
to Toucan Capital management amounted to $0.5 million and
$0.4 million, respectively, and are included in the accompanying
consolidated balance sheets.
Also
during 2009, the Company agreed with Toucan Capital, Toucan Partners and Linda
Powers that a portion of the accrued expenses owed by the Company to these
parties for certain expense reimbursements will be converted into shares of
common stock instead of paid in cash. Toucan Capital, Toucan Partners and
Linda Powers have paid certain expenses on behalf of the Company. The
parties agreed that these accrued expenses will be converted into common stock
(at a conversion rate of $0.20 per share). The parties are in the process
of determining the amounts of unbilled accrued expenses. The impact of the
conversion will result in a reduction of liabilities for the amount
converted. In addition, the Company will recognize the value of common
stock issued in excess of the amount of the accrued expenses converted, if any,
as a charge to operations when the conversion takes place. Finalization of
these arrangements is in process.
On
March 21, 2008, the Company executed a Sublease Agreement (the “Sublease
Agreement”) with Toucan Capital for the space the Company uses as its
headquarters at 7600 Wisconsin Avenue, Suite 750, Bethesda, Maryland. The
Sublease Agreement is effective as of July 1, 2007 and expires on
October 31, 2016, unless sooner terminated according to its terms.
Previously, the Company had been occupying its Bethesda headquarters under an
oral arrangement with Toucan Capital Corporation, whereby the Company was
required to pay base rent of $32,949.10 per month through December 31,
2007. Under the Sublease Agreement, the Company was required to pay base rent of
$34,000 per month during the year 2008, which monthly amount was to increase by
$1,000 on an annual basis, to a maximum of $42,000 per month during 2016, the
last year of the lease term. In addition to monthly base rent, the Company was
and remains obligated to pay operating expenses allocable to the subleased
premises under Toucan Capital master lease. Effective November 30,
2009, the Sublease was terminated in connection with termination and buyout of
the overall lease of this space. (The overall lease and the Company’s
Sublease had 7 years left to run at that time). The termination and
buyout did not require any lump sum exit payment. Instead, it
requires a partial payout over several years. The obligation for
the Company will be less than $5,000 per month during 2010 and
2011.
67
(7) Income
Taxes
There was
no income tax benefit attributable to net losses for 2008 and 2009. The
difference between taxes computed by applying the U.S. federal corporate
rate of 34% and the actual income tax provisions in 2008 and 2009 is primarily
the result of establishing a valuation allowance on the Company’s deferred tax
assets arising primarily from tax loss carry forwards.
The tax
effects of temporary differences and tax loss and credit carry forwards that
give rise to significant portions of deferred tax assets and liabilities at
December 31 are comprised of the following (in thousands):
|
2008
|
2009
|
|||||||
|
Net
operating loss carry forwards
|
$ | 32,229 | $ | 36,666 | ||||
|
Research
and development credit carry forwards
|
2,229 | 2,549 | ||||||
|
Other
|
(102 | ) | 165 | |||||
|
Gross
deferred tax assets
|
34,356 | 39,380 | ||||||
|
Less
valuation allowance
|
(34,356 | ) | (39,380 | ) | ||||
|
Net
deferred tax assets
|
$ | — | $ | — | ||||
The
increase in the valuation allowance for deferred tax assets for 2008 and 2009 of
$6.6 million and $5.0 million, respectively, was due to the inability
to utilize net operating losses and research and development
credits.
At
December 31, 2009, the Company had net operating loss carry forwards for
income tax purposes of approximately $107.8 million and unused research and
development tax credits of approximately $2.5 million available to offset
future taxable income and income taxes, respectively, expiring beginning 2019
through 2029. The Company’s ability to utilize net operating loss and credit
carry forwards is limited pursuant to the Tax Reform Act of 1986, due to
cumulative changes in stock ownership in excess of 50% such that some net
operating losses may never be utilized. The tax years 2006 through 2009
remain open to examination by federal agencies and other jurisdictions in which
the Company operates.
68
(8) Commitments
and Contingencies
(a) Lease
Obligations
The
Company terminated its lease with Toucan Capital Corporation on December 31,
2009. The Company is currently negotiating to lease a new headquarters facility
from a third party. The Company is obligated to pay monthly payments of
approximately $5,000 per month during 2010 and 2011 under the terminated
lease.
Rent
expense was approximately $447,000 and $431,000 in 2008 and 2009,
respectively.
(b) Purchase
Commitments
As of
December 31, 2009, the Company has no contractual obligations other than
the month to month agreement with Cognate.
(c) Legal
Matters
SOMA
Arbitration
In
January, 2003, Toucan Capital initiated contact with the Company through a
letter expressing interest in investing. The Company’s then business managers
(who left the Company that year) did not engage with Toucan. In the
spring and summer of 2003, Toucan hired a former employee of the Company, and
Toucan retained external advisers who conducted due diligence on the Company. In
January, 2004, Toucan pursued investment discussions with the Company at an
investment conference. Those discussions led to initial investment by
Toucan a few weeks later, in February 2004, followed by further investment in
March and culminating in a recapitalization of the Company pursuant to an
agreement completed in April, 2004.
On
October 15, 2003, the Company engaged Soma Partners, LLC (Soma), a New
Jersey-based investment bank, to help raise funding for the
Company. Although Toucan had initiated contact with the Company ten
months earlier and had been conducting due diligence on the Company both
internally and externally over the course of those ten months, and although Soma
was not present at the January 2004 discussions and did not know such
discussions were taking place, thereafter Soma sought to receive investment
banking fees on all investment made by Toucan into the Company, despite the
chronology of events.
The
Company sought to reach a negotiated settlement. Soma declined to
reduce the amount of its claims, and filed an arbitration case to pursue the
claims. Soma also expanded its claims to include not only the
investments made by Toucan in 2004, but also all future financings which might
be made pursuant to the recapitalization plans that Toucan and the Company had
developed for up to $40 million of future financings. In its
arbitration case at various points, Soma sought growing amounts of cash fees and
in excess of 10 million shares of stock or warrants.
The
arbitration case turned on whether Soma had “first introduced” Toucan to the
Company. The Company vigorously disputed Soma’s claims and defended
itself. The arbitration was held in March and May 2005, and all
claims were decided in the Company’s favor.
Soma then
filed a series of appeals during 2005. In the first appeal, the court
rejected all of Soma’s claims and confirmed the decision reached in the
arbitration. Soma then filed another appeal in 2006. In
that appeal, the court found an issue with the selection of the arbitrator, and
remanded the case for a new arbitration. Sometime during this period,
Soma went out of business, but its former principals still continue to pursue
the claims against the Company.
The new
arbitration was conducted in May and June of 2009, by a three-arbitrator
panel. Once again, all claims were decided in the Company’s
favor. Soma’s former principals did not file further appeals after
that decision, and the case is now finally closed.
69
Lonza
Patent Infringement Claim
In
late June 2007, the Company received a favorable ruling from a Swiss regulatory
agency (the B.A.G.), which was expected at the time to enable the Company to
begin providing its DCVax
®
dendritic cell vaccines to patients commercially through designated medical
centers in Switzerland. Within weeks after this decision was
announced, on July 27, 2007, Lonza Group AG (“Lonza”), a large Swiss based
corporation, filed a lawsuit against us in the U.S., alleging infringement of
some eight different patents, relating to recombinant DNA methods, sequences,
vectors and other technology relating to gene modifications of cells, cell lines
and host cells.
None
of the Company’s DCVax
®
products
involve, or have ever involved, any gene modifications of any of the
cells. The lawsuit was groundless and we defended ourselves
vigorously, including making clear that we would seek court sanctions under the
Federal Rules of Civil Procedure against Lonza and its counsel for filing a
complaint without any reasonable basis. Within five months after filing its
extensive complaint, Lonza unilaterally withdrew nearly all of the claims in it
– all claims except certain claims relating to our DCVax
®
-Prostate
product.
Regarding
the DCVax
®
-Prostate
product, Lonza sought to still pursue its claims on the basis that although the
Company itself had never used any gene expression or gene modification
technology, instead Medarex – who had served as the contract manufacturer of the
PSMA antigen (biomarker) in DCVax
®
-Prostate
and supplied the finished PSMA antigen to us – had potentially used Lonza’s gene
expression system. Although the Company had had no involvement in
(and no knowledge of) Medarex’s choice of manufacturing method, and had simply
contracted with Medarex for delivery of a quantity of finished PSMA, Lonza
sought to hold the Company liable for this because Lonza had reached a business
deal with Medarex several years earlier which precluded Lonza pursuing claims
against Medarex.
We
continued to dispute and defend ourselves vigorously against Lonza’s remaining
claims concerning DCVax
®
-Prostate. During
the course of the case, Lonza proposed several times for us to take a license to
their gene expression technology. Since we had no use for their
technology, we declined.
Within
another four months after Lonza’s unilateral withdrawal of all other claims in
its complaint, in April 2008 we and Lonza entered into a settlement to dispose
of the last of Lonza’s claims. Under this settlement, we refused to
pay make any monetary payment of any kind, refused to take a license to Lonza’s
technology, and agreed to only one thing: to destroy our remaining inventory of
PSMA which had been produced by Medarex, and which had been sitting in our
freezers for nearly ten years. Under this settlement, the last of
Lonza’s claims were dismissed with prejudice (meaning they cannot be re-filed),
thus ending the case.
70
Stockholder
Class Action
In
February 2007, the Company applied to the Bundesamt für Gesundheit (B.A.G.) in
Switzerland for an Authorization for Use, so that the Company could make
DCVax
®
available to patients commercially at designated medical centers in
Switzerland. At that time, the B.A.G. had jurisdiction over
transplants, and a separate agency, Swissmedic, had jurisdiction over drugs and
other medical products. Our DCVax
®
dendritic cell vaccine was classified as a standardized
transplant. The B.A.G. had jurisdiction to issue Authorizations for
Use, which were a form of limited regulatory approval for which there is no
counterpart or similar form of approval in the U.S. Swissmedic had
jurisdiction to issue Marketing Authorizations, which are full commercial
approvals without limitations, and which are similar to product approvals that
are issued by the Food and Drug Administration (FDA) in the U.S.
In
June 2007, the Company received a favorable decision from the B.A.G. granting
the Authorization for Use for which the Company had applied. As this
was a material event, the Company issued a press release announcing and
describing it. A tremendous amount of activity in our stock followed
the announcement, and the stock price rose quite substantially. There
was also a large amount of confusion about what the Company had
received. Various parties thought the Company had received a
Marketing Authorization from Swissmedic. No one was familiar with an
Authorization for Use from the B.A.G. After growing controversy in
the days following our public announcement of the Authorization for Use, the
Company issued a second public announcement clarifying that the Company had
neither applied for nor received a Marketing Authorization from
Swissmedic. The Company also sought to clarify in the second
announcement what the Authorization for Use was, and what it
provided.
Following
our second public announcement, our stock price dropped
sharply. Within the next weeks and months, six class action lawsuits
were filed by parties who bought stock between our first public announcement and
our second one, seeking damages on the basis that our public announcements had
not been clear enough and had been misleading.
The
Company disputed the claims and strongly defended ourselves. In
January, 2009, the Company reached a settlement which disposed of all six class
action cases, in their entirety, for a single payment of $1
million. The Company entered this settlement because the amount to be
paid was a small fraction of what it would have cost to proceed with litigation
of the cases. The settlement also removed the diversion of management
time and attention, which was needed on the Company’s operations. The
entire $1 million settlement payment and all of our defense costs were paid by
our Directors’ and Officers’ liability insurance. The settlement
executed in January of 2009 was approved by the applicable court in June 2009,
and all of the cases were dismissed with prejudice (meaning they cannot be
re-filed), thus ending these cases. Our Directors’ and Officers’
liability insurer has renewed and continued our coverage throughout the time
since these cases were brought, unaffected by these cases.
71
In
Switzerland, subsequent to the B.A.G’s favorable decision to us in June 2007,
the B.A.G and Swissmedic underwent a reorganization, and the B.A.G’s
jurisdiction was transferred to Swissmedic. Following that
reorganization, each party who had received a B.A.G decision, such as NWBT had
received, was requested to file a Marketing Authorization Application (MAA) with
Swissmedic for full product approval. NWBT did so at year end
2007. During the two-plus years since then, Swissmedic has conducted
inspections, and has been reviewing and evaluating the Company’s
MAA.
On
August 13, 2007, the Company was notified that the SEC had initiated a
non-public informal inquiry regarding the events surrounding our application for
and receipt of the Authorization for Use from the B.A.G., and our related press
releases dated July 9, 2007 and July 16, 2007. On March 3, 2008
the Company was notified that the SEC had initiated a formal investigation
regarding this matter. The Compnay cooperated with the SEC in connection
with the inquiry, and after a thorough investigation, the SEC notified us that
they had found no basis for any action and had closed the
investigation.
We have
no other legal proceedings pending at this time.
(9) Notes
Payable
Toucan
Capital Loans
From
February 1, 2004 through September 7, 2005, the Company issued 13
promissory notes to Toucan Capital when Toucan Capital loaned the Company
$6.75 million representing bridge loan financing.
Toucan
Partners Loans
From
November 14, 2005 through May 25, 2007, the Company issued 15
promissory notes to Toucan Partners when Toucan Partners loaned the Company
$4.825 million. The promissory note agreements were amended and
restated into the 2007 Convertible Notes. The 2007 Convertible Notes
also included warrants to purchase shares of Series A-1 Preferred Stock ("2007
Warrants"). The Company repaid $5.3 million of principal and accrued
interest due to Toucan Partners during 2007. Toucan Partners holds
warrants related to these notes which are convertible into 8,832,541 shares
of Common Stock at $0.60 per share.
Under the
terms of the June 22, 2007 Conversion Agreement discussed in Note 2
above, Toucan Partners agreed to eliminate all of its existing rights to receive
Series A-1 Preferred Stock in connection with the 2007 Convertible Notes
and 2007 Warrants (and thereafter to receive shares of Common Stock at $0.60 per
share rather than shares of Series A-1 Preferred Stock at $1.60 per share),
and the rights, preferences and protections associated with the Series A-1
Preferred Stock, including the liquidation preference that would entitle Toucan
Partners to certain substantial cash payments, in return for the issuance by the
Company of 2,572,710 shares of Common Stock.
Toucan
Partners loaned the Company $1.0 million on August 19, 2008 (the “Toucan
Partners August Loan”) under the terms of an unsecured promissory note with a
principal amount of $1,060,000 (reflecting an original issue discount of
$60,000). The note was initially due on February 19,
2009. Toucan Partners agreed to extend the maturity of the note until
September 28, 2009, when the note principal and accrued interest (including a
default penalty of 0.25% per month) amounting to $1,156,718 was converted to
5,783,589 shares of common stock at a conversion rate of $0.20. In
connection with the conversion, the Company issued Toucan Partners a warrant to
purchase 690,000 shares of common stock at an exercise price of $0.20 per
share. The fair value of the warrant, $474,840, was recorded as an
inducement cost in 2009. The fair value of the warrant was determined using
the Black Scholes model, assuming a term of three years, volatility of 156%, no
dividends, and a risk-free interest rate of 1.47%.
Toucan
Partners loaned the Company $500,000 on December 22, 2008 under the terms of an
unsecured 12% promissory note (the “Toucan Partners December
Loan”). The note was initially due on June 22, 2009. In
connection with the promissory note, the Company issued to Toucan Partners a
warrant to purchase 132,500 shares of common stock at an exercise price of $0.40
per share and a term of 5 years. The Company recognized the notes and
warrant based on their relative fair values of $453,000 and $47,000,
respectively. The relative fair value of the warrants was classified
as a component of additional paid-in capital with the corresponding amount
reflected as a debt discount. The fair value of the warrants was
determined using the Black Scholes model, assuming a term of five years,
volatility of 197%, no dividends, and a risk-free interest rate of 1.53%. Toucan
Partners agreed to extend the term of the note until September 28, 2009, when
the note principal and accrued interest (including a default penalty of 0.25%
per month) amounting to $552,738 was converted to 2,763,691 shares of common
stock at a conversion rate of $0.20 to bring the December Loan into
conformity with the SDS and Private Lender Notes issued in October
and November 2008, as agreed by the parties at the time of the Toucan
Partners December Loan. The Company issued Toucan Partners a
warrant to purchase 513,841 shares of common stock at an exercise
price of $0.41 per share. In connection with the conversion, the
Company issued Toucan Partners a warrant to purchase 152,375 shares of common
stock at an exercise price of $0.20 per share. The fair value of the
warrants, $337,015 and $104,861, was recorded as an inducement cost in
2009. The fair value of the warrants were determined using the Black
Scholes model, assuming a term of three years, volatility of 156%, no dividends,
and a risk-free interest rate of 1.47%.
72
Toucan
Partners loaned the Company a total of $1,300,000 on June 30, 2009, July 2, 2009
and July 17, 2009 under unsecured 6% convertible promissory notes due June 29,
2011, July 1, 2011 and July 16, 2011. The conversion feature of the
notes allows Toucan Partners to receive shares of common stock, at a conversion
price of $0.20. The intrinsic value of the convertible notes resulted
in a beneficial conversion feature amounting to $1,300,000 which was recorded as
a debt discount to be amortized over the term of the notes.
Other
Al Rajhi
loaned the Company $4.0 million on May 12, 2008 under the terms of an unsecured
promissory note with a principal amount of $4,240,000 (reflecting an original
issue discount of $240,000). Al Rajhi may elect to have the original
issue discount amount paid at maturity in shares of common stock, at a price per
share equal to the average closing price of the Company’s Common Stock on the
NASD OTCBB during the ten trading days prior to the execution of the agreement.
The intrinsic value of the note did not result in a beneficial conversion
feature. The note was initially due on November 12, 2008. Al Rajhi
agreed to extend the maturity date of the note until December 31, 2009, and as
consideration the Company issued Al Rajhi two warrants to purchase 673,016 and
1,070,095 shares of common stock at an exercise price of $0.63 per share. The
Company recognized the fair value of the warrants of $1,108,908, as a charge
against income in 2009. The fair value of the warrants was determined using the
Black Scholes model, assuming a term of three years, volatility of 159% and
152%, no dividends, and risk-free interest rates of 1.63 and
1.43%. On February 22, 2010, Al Rajhi agreed to extend the term of
the note to December 31, 2010.
On
October 1, 2008, the Company entered into a $1 million unsecured 12% Loan
Agreement with SDS (the “SDS Loan”). The SDS Loan was initially due
April 1, 2009, and SDS agreed to extend the maturity on terms that are currently
being negotiated. Under the SDS Loan the Company issued SDS a warrant to
purchase 299,046 shares of common stock at an exercise price of $0.53 per share
and a term of 5 years. The Company recognized the SDS Loan and
warrants based on their relative fair values of $625,000 and $375,000,
respectively. The relative fair value of the warrants was classified
as a component of additional paid-in capital with the corresponding amount
reflected as a debt discount. The fair value of the warrants was
determined using the Black Scholes model, assuming a term of five years,
volatility of 194%, no dividends, and a risk-free interest rate of
2.87%. In addition to the warrant issued to SDS under the SDS Loan,
the Company issued SDS an additional warrant as a placement fee to purchase
398,729 shares of common stock at an exercise price equal to $0.53
per share and a term of 5 years.
On dates
between October 21, 2008 and November 6, 2008, the Company entered into
unsecured 12% Loan Agreements (the “Private Investor Loans”) and Promissory
Notes (the “Private Investor Promissory Notes”) with SDS and a group of private
investors (the “Private Investors”). Under the Private Investor
Promissory Notes, SDS loaned the Company $1 million and the Private Investors
loaned the Company $650,000 for a total of $1.65 million. The Private Investor
Promissory Notes were initially due in April 2009, and the Private Investors
(excluding SDS) agreed to extend the maturity date to June 2010. SDS
agreed to extend the maturity on terms that are currently being
negotiated. In connection with the Private Investor Promissory Notes,
the Company issued to SDS and the Private Investors warrants to purchase
2,132,927 shares of common stock at an exercise price of $0.41 per share and a
three year term. The Company recognized the notes and warrants based
on their relative fair values of $1,053,000 and $597,000,
respectively. The relative fair value of the warrants was classified
as a component of additional paid-in capital with the corresponding amount
reflected as a debt discount. The fair value of the warrants was
determined using the Black Scholes model, assuming a term of three years,
volatility of 158%, no dividends, and a risk-free interest rate of
1.86%. The Company granted SDS and the Private Investors piggyback
registration rights for any shares of common stock issued upon exercise of the
warrants. Additionally, SDS received certain rights relating to
subsequent financings, subject to the Company’s right to pre-pay SDS and avoid
the rights being triggered. On September 28, 2009, as consideration
for extending the maturity of the note through June 2010, the Company issued
warrants to purchase 861,250 shares of common stock at an exercise
price of $0.20 per share and a three year term. The Company recognized the fair
value of the warrants of $568,458, as a charge against income in 2009. The fair
value of the warrants was determined using the Black Scholes model, assuming a
term of three years, volatility of 150%, no dividends, and risk-free interest
rates of 1.47%.
During
March 2009, the Company received $650,000 upon issuing unsecured 6% convertible
loan agreements and promissory notes due in March 2011 to a group of private
lenders (“Private Lenders”). The conversion feature allows the
holders to receive shares of common stock only, and not cash or other
consideration, at a conversion price of $0.63. The intrinsic value of
the convertible notes resulted in a beneficial conversion feature amounting to
$73,000 which was recorded as a debt discount to be amortized over the term of
the notes.
During
March 2009, the Company received $110,000 upon issuing a unsecured 6%
convertible loan agreement and promissory note due on March 25, 2011 to a
Private Lender. Upon receiving a request for conversion, the Company
may elect to settle the instrument in cash or pay the total principal and
accrued interest in shares of common stock, at a conversion price of
$0.63. The Company has assessed the note and concluded that the
amount of the loan attributable to equity is immaterial. The
intrinsic value of the note did not result in a material beneficial conversion
feature.
On dates
between August 13, 2009 and September 24, 2009, the Company received $580,000
upon issuing unsecured 6% convertible loan agreements and promissory notes due
in August and September 2011 to a group of Private Lenders. The
conversion feature allows the holders to receive shares of common stock at a
conversion price of $0.20. The intrinsic value of the convertible
notes resulted in a beneficial conversion feature amounting to $580,000 which
was recorded as a debt discount to be amortized over the term of the
notes.
73
On dates
between October 6, 2009 and December 31, 2009, the Company received $215,000
upon issuing unsecured 6% convertible loan agreements and promissory notes due
in August and September 2011 to a group of Private Lenders. The
conversion feature allows the holders to receive shares of common stock at a
conversion price of $0.20. The intrinsic value of the convertible
notes resulted in a beneficial conversion feature amounting to $205,000 which
was recorded as a debt discount to be amortized over the term of the
notes.
On dates
between October 6, 2009 and December 31, 2009, the Company received $505,000
upon issuing unsecured 6% convertible loan agreements and promissory notes due
in August and September 2011 to a group of Private Lenders. The
conversion feature allows the holders to receive shares of common stock only,
and not cash or other consideration, at a conversion price of
$0.50. The intrinsic value of the convertible notes resulted in a
beneficial conversion feature amounting to $295,000 which was recorded as a debt
discount to be amortized over the term of the notes.
The
Company issued two convertible notes payable to two key employees on September
28, 2009, in lieu of cash payment of salaries amounting to
$125,000. Each of the notes allowed the employees to elect either to
receive payment of the principal balance or shares of common stock at a price of
$0.20 on November 1, 2009. 562,500 shares of common stock were issued
to the employees when they elected to convert the principal balance of the notes
payable on November 1, 2009.
|
Notes
payable classified as current liabilities consists of the following at
December 31, 2008 and December 31, 2009 (in
thousands):
|
|
December
31,
2008
|
December
31,
2009
|
|||||||
|
12%
unsecured note payable to SDS
|
$
|
1,000
|
$
|
1,000
|
||||
|
12%
unsecured notes payable to SDS and Private Investors, (net of warrant
related discount $603 and $0 in 2008 and 2009,
respectively)
|
1,047
|
1,650
|
||||||
|
Total
notes payable (net)
|
$
|
2,047
|
$
|
2,650
|
||||
|
12%
note payable to Al Rajhi
|
$
|
4,000
|
$
|
4,000
|
||||
|
12%
note payable to Toucan Partners
|
1,000
|
–
|
||||||
|
12%
note payable Toucan Partners (net of warrant related discount $46 in
2008)
|
454
|
–
|
||||||
|
Total
notes payable related parties (net)
|
$
|
5,454
|
$
|
4,000
|
||||
Notes
payable classified as long-term liabilities consists of the following at
December 31, 2008 and December 31, 2009 (in thousands):
|
December
31, 2008
|
December
31,
2009
|
|||||||
|
6%
unsecured convertible note payable to Toucan Partners, due July, 2011 and
November 2011, (net of discount related to beneficial conversion feature
$1,002 in 2009)
|
$ | – | $ | 298 | ||||
|
Total
long-term debt related parties (net)
|
$ | – | $ | 298 | ||||
|
6%
unsecured convertible notes payable to Private Lenders, due in August and
September 2011, (net of discount related to beneficial conversion feature
$485 in 2009)
|
– | 95 | ||||||
|
6%
unsecured convertible notes payable to Private Lenders, due March 25,
2011, (net of discount related to beneficial conversion feature $46 in
2009)
|
– | 604 | ||||||
|
6%
unsecured convertible notes payable to Private Lenders, due October, 2011,
(net of discount related to beneficial conversion feature $194 in
2009)
|
– | 21 | ||||||
|
6%
unsecured convertible notes payable to Private Lenders, due October and
December 2011, (net of discount related to beneficial conversion feature
$274 in 2009)
|
– | 231 | ||||||
|
6%
unsecured convertible note payable to Private Lender, due March 25,
2011
|
– | 110 | ||||||
|
Total
long-term debt (net)
|
$ | – | $ | 1,061 | ||||
74
(10) Unaudited Quarterly
Financial Information (in thousands, except loss
per share data)
The
following table contains selected unaudited statement of operations information
for each of the quarters in 2008 and 2009. The Company believes that the
following information reflects all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the information for
the periods presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
75
|
First
Quarter
2008
|
Second
Quarter
2008
|
Third
Quarter
2008
|
Fourth
Quarter
2008
|
|||||||||||||
|
Total
revenues
|
$ | — | $ | — | $ | 10 | $ | — | ||||||||
|
Net
loss applicable to common stockholders
|
$ | (5,625 | ) | $ | (6,050 | ) | $ | (5,414 | ) | $ | (4,342 | ) | ||||
|
Net
loss per share applicable to common stockholders — basic and
diluted
|
$ | (0.13 | ) | $ | (0.14 | ) | $ | (0.13 | ) | $ | (0.10 | ) | ||||
|
Weighted
average shares used in computing basic and diluted loss per
share
|
42,346 | 42,376 | 42,493 | 42,493 | ||||||||||||
|
First
Quarter
2009
|
Second
Quarter
2009
|
Third
Quarter
2009
|
Fourth
Quarter
2009
|
|||||||||||||
|
Total
revenues
|
$ | — | $ | — | $ | 10 | $ | — | ||||||||
|
Net
loss applicable to common stockholders
|
$ | (4,576 | ) | $ | (4,095 | ) | $ | (12,241 | ) | $ | (4,359 | ) | ||||
|
Net
loss per share applicable to common stockholders — basic and
diluted
|
$ | (0.11 | ) | $ | (0.09 | ) | $ | (0.27 | ) | $ | (0.08 | ) | ||||
|
Weighted
average shares used in computing basic and diluted loss per
share
|
43,385 | 45,069 | 45,276 | 57,966 | ||||||||||||
(11) Subsequent
Events
On
February 22, 2010 the Company entered into a Stock Purchase and Stock Conversion
and Loan Extension Agreement with Al Rajhi Holdings in which the Company and Al
Rajhi agreed as follows:
|
|
·
|
The
Company agreed to sell to Al Rajhi 553,333 shares of its common stock at a
price of $0.75 per share for a total consideration of
$415,000. The Company granted Al Rajhi piggyback registration
rights for the shares issued under the sale of the
securities. The Stock Purchase and, Stock Conversion and Loan
Extension Agreement contains the usual representations, warrants and
covenants.
|
|
|
·
|
Al
Rajhi agreed to convert the interest accrued pursuant to the Note and Loan
Agreement dated May 6, 2008 into shares of common stock of the
Company. A total of $853,952 was converted into 1,138,603
shares of common stock at a conversion price of $0.75 cents per
share.
|
|
|
·
|
Al
Rajhi agreed to extend the term of the May 6, 2008 Note to by one year to
December 31, 2010.
|
|
|
·
|
The
Company agreed to extend by one year the term of the warrants issued to Al
Rajhi in consideration of previous extensions of the term of the note from
November 6, 2008 to May 6, 2009 and from May 6 2009 through December 31,
2009.
|
|
|
·
|
The
Company also agreed to sell to Al Rajhi an additional 1,106,666 shares of
its common stock at a price of $0.75 per share for a total consideration
of $830,000.
|
As of
April 5, 2010 the Company had received through this agreement $1,088,750 from Al
Rajhi though the sale of 1,451,666 shares of its common stock.
On April
1, 2010 the Company received $150,000 from the sale of 200,000 shares of its
common stock to a private investor. The Company granted the private investor
piggyback registration rights for the shares issued under the sale of the
securities.
On dates
between January 8, 2010 and March 29, 2010, the Company received $875,000 upon
issuing unsecured 6% convertible loan agreements and promissory notes due
between January and March 2012 to a group of Private Lenders. The
conversion feature allows the holders to receive shares of common stock only,
and not cash or other consideration, at a conversion price of
$0.50.
During 2010 we also issued 560,082 shares of common stock in
exchange for services.
76
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Bethesda, State of
Maryland, on April 15, 2010.
|
NORTHWEST
BIOTHERAPEUTICS, INC.
|
|||
|
By:
|
/s/
ALTON L. BOYNTON
|
||
|
Alton L. Boynton
|
|||
|
Its:
President and Chief
Executive
Officer
|
|||
77
NORTHWEST
BIOTHERAPEUTICS, INC.
(A
Development Stage Company)
EXHIBIT INDEX
|
Exhibit
Number
|
Description
|
|
|
3.1
|
Seventh
Amended and Restated Certificate of
Incorporation.(3.1)(22)
|
|
|
3.2
|
Third
Amended and Restated Bylaws of the Company.(3.1)(29)
|
|
|
3.3
|
Amendment
to Seventh Amended and Restated Certificate of
Incorporation.(3.2)(29)
|
|
|
3.4
|
Amendment
to Seventh Amended and Restated Certificate of
Incorporation.(3.4)(33)
|
|
|
4.1
|
Form
of common stock certificate.(4.1)(2)
|
|
|
4.2
|
Northwest
Biotherapeutics, Inc. Stockholders Rights Agreement dated
February 26, 2002 between the Company and Mellon Investors Services,
LLC.(4.2)(3)
|
|
|
4.3
|
Form
of Rights Certificate.(4.1)(3)
|
|
|
4.4
|
Amendment
to Northwest Biotherapeutics, Inc. Stockholders Rights Agreement dated
April 26, 2004.(4.2)(4)
|
|
|
10.1
|
Amended
and Restated Loan Agreement and 10% Promissory Note dated
November 14, 2005 in the principal amount of $400,000 as amended and
restated on April 14, 2007 between the Company and Toucan Partners,
LLC.(10.1)(23)
|
|
|
10.2
|
Second
Amended and Restated Loan Agreement and 10% Promissory Note originally
dated December 30, 2005, and amended and restated on April 17,
2006 and April 14, 2007 in the principal amount of $250,000 between
the Company and Toucan Partners, LLC.(10.2)(23)
|
|
|
10.3
|
Second
Amended and Restated Loan Agreement and 10% Promissory Note originally
dated March 9, 2006, and as amended and restated on April 17,
2006 and April 14, 2007 in the principal amount of $300,000 between
the Company and Toucan Partners, LLC.(10.3)(23)
|
|
|
10.4
|
Form
of Loan Agreement and 10% Convertible, Promissory Note between the
Company and Toucan Partners, LLC.(10.4)(23)
|
|
|
10.5
|
Amended
and Restated Investor Rights Agreement dated April 17,
2006.(10.4)(18)
|
|
|
10.6
|
Second
Amended and Restated Investor Rights Agreement dated June 22, 2007
between the Company and Toucan Capital Fund II,
LLP.(10.3)(29)
|
|
|
10.7
|
Securities
Purchase Agreement, dated March 30, 2006 by and among the Company and
the Investors identified therein.(10.1)(6)
|
|
|
10.8
|
Form
of Warrant.(10.2)(6)
|
|
|
10.9
|
Warrant
to purchase securities of the Company dated April 26, 2004 issued to
Toucan Capital Fund II, L.P.(10.9)(7)
|
|
|
10.10
|
Warrant
to purchase securities of the Company dated June 11, 2004 issued to
Toucan Capital Fund II, L.P.(10.8)(7)
|
|
|
10.11
|
Warrant
to purchase securities of the Company dated July 30, 2004 issued to
Toucan Capital Fund II, L.P.(10.7)(7)
|
|
|
10.12
|
Warrant
to purchase securities of the Company dated October 22, 2004 issued
to Toucan Capital Fund II, L.P.(10.3)(8)
|
|
|
10.13
|
Warrant
to purchase securities of the Company dated November 10, 2004 issued
to Toucan Capital Fund II, L.P.(10.3)(9)
|
|
|
10.14
|
Warrant
to purchase securities of the Company dated December 27, 2004 issued
to Toucan Capital Fund II, L.P.(10.3)(10)
|
|
|
10.15
|
First
Amendment to Warrants between Northwest Biotherapeutics, Inc. and Toucan
Capital Fund II, L.P. dated January 26,
2005.(10.5)(1)
|
|
|
10.16
|
Warrant
to purchase Series A Preferred Stock dated January 26, 2005
issued to Toucan Capital Fund II, L.P.(10.2)(1)
|
|
|
10.17
|
Warrant
to purchase securities of the Company dated April 12, 2005 issued to
Toucan Capital Fund II, L.P.(10.39)(11)
|
|
|
10.18
|
Warrant
to purchase securities of the Company dated May 13, 2005 issued to
Toucan Capital Fund II,
L.P.(10.3)(12)
|
78
|
10.19
|
Warrant
to purchase securities of the Company dated June 16, 2005 issued to
Toucan Capital Fund II, L.P.(10.3)(13)
|
|
|
10.20
|
Warrant
to purchase securities of the Company dated July 26, 2005 issued to
Toucan Capital Fund II, L.P.(10.3)(14)
|
|
|
10.21
|
Warrant
to purchase securities of the Company dated September 7, 2005 issued
to Toucan Capital Fund II, L.P.(10.3)(15)
|
|
|
10.22
|
Amended
Form of Warrant to purchase securities of the Company dated
November 14, 2005 and April 17, 2006, as amended April 14,
2007, issued to Toucan Partners, LLC.(10.21)(23)
|
|
|
10.23
|
Form
of Warrant to purchase securities of the Company dated April 14, 2007
issued to Toucan Partners, LLC.(10.22)(23)
|
|
|
10.24
|
Loan
Agreement and 10% Convertible Promissory Note in the principal amount
of $100,000 between the Company and Toucan Partners, LLC, dated
April 27, 2007.(10.1)(24)
|
|
|
10.25
|
Warrant
to purchase securities of the Company issued to Toucan Partners, LLC,
dated April 27, 2007. (10.2)(24)
|
|
|
10.26
|
Form
of Toucan Partners Loan Agreement and 10% Convertible Note, dated as
of June 1, 2007.(10.1)(27)
|
|
|
10.27
|
Form
of Toucan Partners Warrant, dated as of June 1,
2007.(10.2)(27)
|
|
|
10.28
|
Amended
and Restated Warrant to purchase Series A Preferred Stock issued to
Toucan Capital Fund II, L.P., dated as of June 1,
2007.(10.3)(27)
|
|
|
10.29
|
Warrant
to purchase Series A-1 Preferred Stock issued to Toucan Capital
Fund II, L.P., dated as of June 1,
2007.(10.4)(27)
|
|
|
10.30
|
Warrant
to purchase Series A-1 Preferred Stock issued to Toucan Capital
Fund II, L.P., dated as of June 1,
2007.(10.5)(27)
|
|
|
10.31
|
Northwest
Biotherapeutics, Inc. $225,000 Demand Note dated June 13,
2007.(10.1)(28)
|
|
|
10.32
|
Conversion
Agreement dated June 15, 2007 and effective June 22, 2007
between the Company and Toucan Capital Fund II,
LLP.(10.1)(29)
|
|
|
10.33
|
Termination
Agreement dated June 22, 2007 between the Company and Toucan Capital
Fund II, LLP.(10.2)(29)
|
|
|
10.34
|
NOMAD
Agreement dated June 15, 2007 and effective June 22, 2007
between the Company and Collins Stewart Europe
Limited.(10.4)(29)
|
|
|
10.35***
|
Employment
Agreement dated June 18, 2007 between Dr. Alton L. Boynton and
the Company. (10.6)(29)
|
|
|
10.36***
|
Employment
Agreement dated October 1, 2007 between Anthony P. Deasey and the
Company.(10.1)(30)
|
|
|
10.37***
|
Letter
of Appointment for Linda F. Powers.(10.8)(29)
|
|
|
10.38***
|
Letter
of Appointment for R. Steve Harris.(10.9)(29)
|
|
|
10.39
|
Form
of Warrant to purchase common stock of the Company, as
amended.(10.27)(18)
|
|
|
10.40**
|
Northwest
Biotherapeutics DCVax — Brain Services Agreement with Cognate
BioServices, Inc. dated May 17, 2007.(10.1)(25)
|
|
|
10.41***
|
1998
Stock Option Plan.(10.15)(2)
|
|
|
10.42***
|
1999
Executive Stock Option Plan.(10.16)(2)
|
|
|
10.43***
|
2001
Stock Option Plan.(10.17)(2)
|
|
|
10.44***
|
2001
Nonemployee Director Stock Incentive Plan.(10.18)(2)
|
|
|
10.45***
|
Employee
Stock Purchase Plan.(10.19)(2)
|
|
|
10.46***
|
2007
Stock Option Plan.(10.5)(29)
|
|
|
10.47***
|
Form
of Stock Option Agreement under the 2007 Stock Option
Plan.(10.2)(31)
|
|
|
10.48
|
Lease
Agreement.(10.34)(18)
|
|
|
10.49
|
Lease
Extension between the Company and the International Union of Operating
Engineers Local 302, dated May 31,
2007(10.1)(26).
|
79
|
10.50
|
Clinical
Study Agreement between the Company and the Regents of the University of
California dated February 14, 2006.(10.35)(18)
|
|
|
10.51***
|
Employment
Agreement dated June 18, 2007, by and between Jim Johnston and the
Company.(10.7)(29)
|
|
|
10.52***
|
Form
of Stock Option Agreement, dated December 31, 2007, by and between
Dr. Alton L. Boynton and the Company.(99.1)(32)
|
|
|
10.53***
|
Form
of Stock Option Agreement, dated December 31, 2007, by and between
Dr. Marnix Bosch and the Company.(99.2)(32)
|
|
|
10.54
|
Sublease
Agreement, dated as of March 21, 2008, between the Company and Toucan
Capital Corporation.(10.1)(34)
|
|
|
10.55
|
Loan
Agreement and Promissory Note, dated May 9, 2008 between the Company and
Al Rajhi Holdings WLL (4.5)(36)
|
|
|
10.56
|
Loan
Agreement and Promissory Note, dated August 19, 2008 between the Company
and Toucan Partners LLC (10.1)(37)
|
|
|
10.57
|
Loan
Agreement and Promissory Note, dated October 1, 2008 between the Company
and SDS Capital Group SPC, Ltd (10.2)(38)
|
|
|
10.58
|
Warrant,
dated October 1, 2008, between the Company and SDS Capital Group SPC, Ltd
(10.3)(38)
|
|
|
10.59
|
Loan
Agreement and Promissory Note, dated October 21, 2008, between the Company
and SDS Capital Group SPC, Ltd (10.4)(39)
|
|
|
10.60
|
Form
of Loan Agreement and Promissory Note, dated November 6, 2008, between the
Company and a Group of Private Investors (10.5)(39)
|
|
|
10.61
|
Form
of Warrant, dated November 6, 2008, between the Company and SDS Capital
Group SPC. Ltd and a Group of Private Investors
(10.5)(39)
|
|
|
10.62
|
Loan
Agreement and Promissory Note, dated December 22, 2008, between the
Company and Toucan Partners LLC (10.62)(40)
|
|
|
10.63
|
Form
of Warrant, dated December 22, 2008, between the Company and Toucan
Partners LLC (10.62)(40)
|
|
|
10.64
|
Form
of Securities Purchase Agreement, dated January 16, 2009, by
and among the Company and Al Rajhi Holdings (10.62)(40)
|
|
|
10.65
|
Securities
Purchase Agreement, dated March 27, 2009 by and among the Company and a
Group of Equity Investors (10.62)(40)
|
|
|
10.66
|
Form
of Warrant, dated March 27,2009, between the Company and a Group of Equity
Investors (10.62)(40)
|
|
|
10.67
|
Form
of Loan Agreement and Promissory Note, dated March 27 2009, between the
Company and a Group of Private Lenders (10.62)(40)
|
|
|
10.68
|
Conversion
Agreement effective September 28, 2009 between the Company and Toucan
Partners, LLC (10.1) (41)
|
|
|
10.69
|
Form
of Loan Extension Agreement dated September 28, 2009 (10.2)
(42)
|
|
|
10.70***
|
Retention
Agreement between Dr. Alton L. Boynton and the Company dated September 28,
2009 (10.3) (42)
|
|
|
11
|
Computation
of net loss per share included within the Northwest Biotherapeutics, Inc.
audited financial statements for the year ended December 31, 2008
included in this Annual Report on Form 10-K.
|
|
|
21
|
Subsidiary
of the registrant.(21.1)(35)
|
|
|
23*
|
Consent
of Peterson Sullivan LLP, Independent Registered Public Accounting
Firm.
|
|
|
31.1*
|
Certification
of President (Principal Executive Officer and Principal Financial and
Accounting Officer), Pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
32.1*
|
Certification
of President, Chief Executive Officer and Principal Financial and
Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
32.2*
|
Certification
of Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
*
|
Filed
or furnished herewith.
|
|
**
|
Portions
of this exhibit have been omitted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential
treatment.
|
|
***
|
Denotes
management contract or compensation plan or
arrangement.
|
|
(1)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K, February 1,
2005.
|
80
|
(2)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Amendment No. 3 to the Registration Statement on
Form S-1 (Registration No. 333-67350) on November 14,
2001.
|
|
(3)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Registration Statement on Form 8-A on July 8,
2002.
|
|
(4)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Form 10-K on May 14,
2004.
|
|
(5)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Quarterly Report on Form 10-Q on November 14,
2005.
|
|
(6)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on March 31,
2006.
|
|
(7)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on August 6,
2004.
|
|
(8)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on October 28,
2004.
|
|
(9)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on November 16,
2004.
|
|
(10)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on December 30,
2004.
|
|
(11)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Annual Report on Form 10-K on April 15,
2005.
|
|
(12)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8- K on May 18,
2005.
|
|
(13)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on June 21,
2005.
|
|
(14)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on August 1,
2005.
|
|
(15)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on September 9,
2005.
|
|
(16)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Quarterly Report on Form 10-Q on November 14,
2003.
|
|
(17)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on August 5,
2005.
|
|
(18)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 10-K on April 18,
2006.
|
|
(19)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on April 26,
2006.
|
|
(20)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Form 10-K/A on June 30,
2006.
|
|
(21)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant Registration Statement on Form S-1 (File
No. 33-134320) on May 19,
2006.
|
81
|
(22)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Amendment No. 1 to the Registration Statement on
Form S-1(File No. 333-134320) on July 17,
2006.
|
|
(23)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Form 10-K on April 17,
2007.
|
|
(24)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on May 3,
2007.
|
|
(25)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on May 21,
2007.
|
|
(26)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on June 4,
2007.
|
|
(27)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on June 7,
2007.
|
|
(28)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on June 18,
2007.
|
|
(29)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on June 22,
2007.
|
|
(30)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on October 2,
2007.
|
|
(31)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Registration Statement on Form S-8 on
November 21, 2007.
|
|
(32)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on January 3,
2008.
|
|
(33)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Post-Effective Amendment No. 2 to the Registrant’s Registration
Statement on Form S-1 on January 28,
2008.
|
|
(34)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on March 24,
2008.
|
|
(35)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Post-Effective Amendment No. 1 to the Registrant’s Registration
Statement on Form S-1 on December 17,
2007.
|
|
(36)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on May 15, 2008,
2008.
|
|
(37)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Quarterly Report on Form 10-Q on August 19,
2008.
|
|
(38)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on October 6,
2008.
|
|
(39)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Current Report on Form 8-K on November 11,
2008.
|
|
(40)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Form 10-K on April 15,
2008
|
|
(41)
|
Incorporated
by reference to the exhibit shown in the preceding parentheses filed with
the Registrant’s Quarterly Report on Form 10-Q on August 14,
2008.
|
82
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. (removed and Reserved)Part IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosure About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9a(t). Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesItem 15. Exhibits, Financial Statement Schedules