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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______to _______
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(
(Registrant’s telephone number)
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer |
| ☐ | |
Non-accelerated filer |
| ☐ | Smaller reporting company |
| |
|
|
| Emerging growth company |
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Title of each class | Trading Symbol | Name of each exchange on which registered |
As of August 4, 2022, the total number of shares of common stock, par value $0.001 per share, outstanding was
NORTHWEST BIOTHERAPEUTICS, INC.
FORM 10-Q
TABLE OF CONTENTS
3 | ||
Item 1. | Condensed Consolidated Interim Financial Statements (Unaudited) | |
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Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 | 3 | |
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4 | ||
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5 | ||
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Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 | 7 | |
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9 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | |
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30 | ||
2
PART I - FINANCIAL INFORMATION
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| June 30, |
| December 31, | |||
2022 | 2021 | |||||
(Unaudited) | ||||||
ASSETS |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Prepaid expenses and other current assets |
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Total current assets |
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Non-current assets: |
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Property, plant and equipment, net |
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Right-of-use asset, net | | | ||||
Indefinite-lived intangible asset | | | ||||
Goodwill | | | ||||
Other assets |
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Total non-current assets |
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TOTAL ASSETS | $ | | $ | | ||
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accounts payable and accrued expenses | $ | | $ | | ||
Accounts payable and accrued expenses to related parties and affiliates |
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Convertible notes, net |
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Notes payable, net |
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Contingent payable derivative liability | | | ||||
Warrant liability |
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Lease liabilities | | | ||||
Shares payable | — | | ||||
Total current liabilities |
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Non-current liabilities: |
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Notes payable, net of current portion, net |
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Lease liabilities, net of current portion | | | ||||
Total non-current liabilities |
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Total liabilities |
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COMMITMENTS AND CONTINGENCIES (Note 10) |
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Stockholders’ deficit: |
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Preferred stock ($ | ||||||
Common stock ($ |
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Additional paid-in capital |
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Stock subscription receivable |
| ( |
| ( | ||
Accumulated deficit |
| ( |
| ( | ||
Accumulated other comprehensive income |
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Total stockholders’ deficit |
| ( |
| ( | ||
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TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | | $ | | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
3
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share amounts)
(Unaudited)
For the three months ended | For the six months ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2022 | 2021 |
| 2022 |
| 2021 | ||||||
Revenues: | ||||||||||||
Research and other | $ | | $ | | $ | | $ | | ||||
Total revenues | | | | | ||||||||
Operating costs and expenses: | ||||||||||||
Research and development | | | | | ||||||||
General and administrative | | | | | ||||||||
Total operating costs and expenses | | | | | ||||||||
Loss from operations | ( | ( | ( | ( | ||||||||
Other income (expense): | ||||||||||||
Change in fair value of derivative liabilities | ( | | ( | | ||||||||
Gain (loss) from extinguishment of debt | ( | ( | | ( | ||||||||
Interest expense | ( | ( | ( | ( | ||||||||
Foreign currency transaction loss | ( | | ( | ( | ||||||||
Total other income (loss) | ( | | ( | | ||||||||
Net income (loss) | $ | ( | $ | | $ | ( | $ | | ||||
Other comprehensive income (loss) | ||||||||||||
Foreign currency translation adjustment | | ( | | | ||||||||
Total comprehensive income (loss) | $ | ( | $ | | $ | ( | $ | | ||||
Net earnings (loss) per share applicable to common stockholders | ||||||||||||
Basic | $ | ( | $ | | $ | ( | $ | |||||
Diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average shares used in computing basic earnings (loss) per share | | | | | ||||||||
Weighted average shares used in computing diluted earnings (loss) per share | | | | | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(in thousands)
(Unaudited)
For the Three Months Ended June 30, 2022 | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||
Common Stock | Paid-in | Subscription | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||
| Shares |
| Par value |
| Capital |
| Receivable |
| Deficit |
| Income |
| Deficit | |||||||
Balances at April 1, 2022 |
| | $ | |
| $ | |
| $ | ( | $ | ( |
| $ | | $ | ( | |||
Issuance of common stock for cash | | | | — | — | — | | |||||||||||||
Warrants exercised for cash |
| | | | — | — | — | | ||||||||||||
Reclassification of warrant liabilities related to warrants exercised for cash |
| — | — | | — | — | — | | ||||||||||||
Cashless warrants and stock options exercise | | | ( | — | — | — | — | |||||||||||||
Reclassification of warrant liabilities related to cashless warrants exercise | — | — | | — | — | — | | |||||||||||||
Issuance of common stock conversion of debt and accrued interest | | | | — | — | — | | |||||||||||||
Stock-based compensation | | | | — | — | — | | |||||||||||||
Net loss | — | — | — | — | ( | — | ( | |||||||||||||
Cumulative translation adjustment |
| — | — |
| — |
| — | — |
| | | |||||||||
Balances at June 30, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | ( | ||||||
For the Three Months Ended June 30, 2021 | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||
Common Stock | Paid-in | Subscription | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||
| Shares |
| Par value |
| Capital |
| Receivable |
| Deficit |
| Income (Loss) |
| Deficit | |||||||
Balance at April 1, 2021 | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | |||||||
Issuance of common stock and warrants for conversion of debt and accrued interest | | | | — | — | — | | |||||||||||||
Warrants and stock options exercised for cash |
| |
| |
| |
| — |
| — |
| — |
| | ||||||
Reclassification of warrant liabilities related to warrants exercised for cash | — | — | | — | — | — | | |||||||||||||
Cashless warrants and stock options exercise | | | ( | — | — | — | — | |||||||||||||
Reclassification of warrant liabilities related to cashless warrants exercise | — | — | | — | — | — | | |||||||||||||
Stock-based compensation | — | — | | — | — | — | | |||||||||||||
Reclassification of warrant liabilities based on authorized shares |
| — |
| — |
| ( |
| — |
| — |
| — |
| ( | ||||||
Net income | — | — | — | — | | — | | |||||||||||||
Cumulative translation adjustment |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance at June 30, 2021 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
5
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(in thousands)
(Unaudited)
For the Six Months Ended June 30, 2022 | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||
Common Stock | Paid-in | Subscription | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||
| Shares |
| Par value |
| Capital |
| Receivable |
| Deficit |
| Income |
| Deficit | |||||||
Balances at January 1, 2022 | | $ | | $ | | $ | ( | $ | ( | $ | | $ | ( | |||||||
Issuance of common stock for cash | | | | — | — | — | | |||||||||||||
Warrants exercised for cash |
| |
| |
| |
| — |
| — |
| — |
| | ||||||
Reclassification of warrant liabilities related to warrants exercised for cash |
| — |
| — |
| |
| — |
| — |
| — |
| | ||||||
Cashless warrants and stock options exercise | | | ( | — | — | — | — | |||||||||||||
Reclassification of warrant liabilities related to cashless warrants exercise | — | — | | — | — | — | | |||||||||||||
Issuance of common stock conversion of debt and accrued interest |
| |
| |
| |
| — |
| — |
| — |
| | ||||||
Stock-based compensation |
| |
| |
| |
| — |
| — |
| — |
| | ||||||
Net loss |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Cumulative translation adjustment |
| — |
| — |
| — |
| — |
| — |
| |
| | ||||||
Balances at June 30, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | | $ | ( | ||||||
For the Six Months Ended June 30, 2021 | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||
Common Stock | Paid-in | Subscription | Accumulated | Comprehensive | Stockholders’ | |||||||||||||||
| Shares |
| Par value |
| Capital |
| Receivable |
| Deficit |
| Income (Loss) |
| Deficit | |||||||
Balance at January 1, 2021 | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | |||||||
Issuance of common stock for cash | | — | | — | — | — | | |||||||||||||
Issuance of common stock and warrants for conversion of debt and accrued interest |
| |
| |
| |
| — |
| — |
| — |
| | ||||||
Warrants and stock options exercised for cash |
| | | | — | — | — | | ||||||||||||
Reclassification of warrant liabilities related to warrants exercised for cash |
| — |
| — |
| |
| — |
| — |
| — |
| | ||||||
Cashless warrants and stock options exercise | | | ( | — | — | — | — | |||||||||||||
Reclassification of warrant liabilities related to cashless warrants exercise |
| — |
| — |
| |
| — |
| — |
| — |
| | ||||||
Stock-based compensation | | — | | — | — | — | | |||||||||||||
Reclassification of warrant liabilities based on authorized shares | — | — | ( | — | — | — | ( | |||||||||||||
Net income |
| — |
| — |
| — |
| — |
| |
| — |
| | ||||||
Cumulative translation adjustment |
| — |
| — |
| — |
| — |
| — |
| |
| | ||||||
Balance at June 30, 2021 |
| | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For the six months ended | ||||||
June 30, | ||||||
| 2022 |
| 2021 | |||
Cash Flows from Operating Activities: | ||||||
Net income (loss) | $ | ( | $ | | ||
Reconciliation of net loss to net cash used in operating activities: | ||||||
Depreciation and amortization | | | ||||
Amortization of debt discount | | | ||||
Change in fair value of derivatives | | ( | ||||
(Gain) loss from extinguishment of debt | ( | | ||||
Amortization of operating lease right-of-use asset | | | ||||
Stock-based compensation for services | | | ||||
Subtotal of non-cash charges | | ( | ||||
Changes in operating assets and liabilities: | ||||||
Prepaid expenses and other current assets | ( | | ||||
Other non-current assets | | ( | ||||
Accounts payable and accrued expenses | | | ||||
Related party accounts payable and accrued expenses | | ( | ||||
Lease liabilities | | | ||||
Net cash used in operating activities | ( | ( | ||||
Cash Flows from Investing Activities: | ||||||
Purchase of equipment and construction in progress | ( | ( | ||||
Net cash used in investing activities | ( | ( | ||||
Cash Flows from Financing Activities: | ||||||
Proceeds from issuance of common stock, net | | | ||||
Proceeds from exercise of warrants and stock options | | | ||||
Proceeds from issuance of notes payable, net | | | ||||
Repayment of notes payable | ( | ( | ||||
Net cash provided by financing activities | | | ||||
Effect of exchange rate changes on cash and cash equivalents | | | ||||
Net decrease in cash and cash equivalents | ( | ( | ||||
Cash and cash equivalents, beginning of the period | | | ||||
Cash and cash equivalents, end of the period | $ | | $ | | ||
Supplemental disclosure of cash flow information | ||||||
Interest payments on notes payable | $ | ( | $ | ( | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
For the six months ended | |||||||
June 30, | |||||||
| 2022 |
| 2021 |
| |||
Supplemental schedule of non-cash investing and financing activities: |
|
|
| ||||
Cashless warrants and stock options exercise | $ | | $ | | |||
Reclassification of warrant liabilities related to warrants exercised for cash | $ | | $ | | |||
Reclassification of warrant liabilities related to cashless warrants exercise | $ | | $ | | |||
Reclassification of warrant liabilities based on authorized shares | $ | — | $ | | |||
Issuance of common stock and warrants for conversion of debt and accrued interest | $ | | $ | | |||
Reclassification between shares payable and equity | $ | | $ | — | |||
Capital expenditures included in accounts payable | $ | | $ | | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
1. Organization and Description of Business
Northwest Biotherapeutics, Inc. and its wholly owned subsidiaries Flaskworks L.L.C., NW Bio GmbH, Aracaris Ltd, Aracaris Capital, Ltd, and Northwest Biotherapeutics B.V. (collectively, the “Company”, “we”, “us” and “our”) were organized to discover and develop innovative immunotherapies for cancer. The Company has developed DCVax® platform technologies for both operable and inoperable solid tumor cancers. The Company is headquartered in Bethesda, Maryland and has wholly owned subsidiaries in the U.K., in the Netherlands, and in Boston, Massachusetts.
The Company relies upon contract manufacturers for production of its DCVax products, research and development services, distribution and logistics, and related services, in compliance with the Company’s specifications and the applicable regulatory requirements.
2. Financial Condition, Going Concern and Management Plans
The Company has incurred annual net operating losses since its inception. The Company had a net loss of $
The Company does not expect to generate material revenue in the near future from the sale of products and is subject to all of the risks and uncertainties that are typically faced by biotechnology companies that devote substantially all of their efforts to research and development (“RD”) and clinical trials and do not yet have commercial products. The Company expects to continue incurring annual losses for the foreseeable future. The Company’s existing liquidity is not sufficient to fund its operations, anticipated capital expenditures, working capital and other financing requirements until the Company reaches significant revenues. Until that time, the Company will need to obtain additional equity and/or debt financing, especially if the Company experiences downturns in its business that are more severe or longer than anticipated, or if the Company experiences significant increases in expense levels resulting from being a publicly-traded company or from expansion of operations. If the Company attempts to obtain additional equity or debt financing, the Company cannot assume that such financing will be available to the Company on favorable terms, or at all.
Because of recurring operating losses and operating cash flow deficits, there is substantial doubt about the Company’s ability to continue as a going concern within one year from the date of this filing. The condensed consolidated financial statements have been prepared assuming that the Company 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.
As previously reported, coronavirus-related difficulties have impacted most aspects of the database lock and the process of analyzing the Phase III trial results, especially with the successive waves of COVID-19 cases in many areas. The independent service firms have had limited capacity, and restrictions on operations. Key experts at certain specialized service providers have been unavailable for periods of time due to illness in their family. Other experts have gone on extended leave due to restrictions on operations. Clinical trial sites have not allowed personnel from the contract research organization managing the trial, or other service providers, to visit the sites for trial matters such as data monitoring and collection activities. Clinical trial site personnel have been unavailable due to being reassigned for COVID-19, and the limited site personnel have had to work under restrictions. Committee processes and regulatory processes have been similarly focused on COVID-19 matters and delayed on other matters. Firms such as the ones storing the Phase III trial tissue samples that are needed for certain analyses, and the firms conducting the analyses have had only limited operations. Even logistical matters such as the shipping of materials have been subjected to substantial restrictions and delays.
3. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated. Certain immaterial reclassifications have been made to prior period amounts to conform to the current period presentation.
9
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated balance sheet as of June 30, 2022, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statement of stockholders’ deficit for the three and six months ended June 30, 2022 and 2021, and the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and six months ended June 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022 or for any future interim period. The condensed consolidated balance sheet at December 31, 2021 has been derived from audited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2021 and notes thereto included in the Company’s annual report on Form 10-K (the “2021 Annual Report”), which was filed with the SEC on March 1, 2022.
Use of Estimates
In preparing condensed consolidated financial statements in conformity with U.S. GAAP, management is required 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, as well as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in these estimates.
On an ongoing basis, the Company evaluates its estimates and judgments, including valuing equity securities in share-based payment arrangements, estimating the fair value of financial instruments recorded as derivative liabilities, useful lives of depreciable assets and whether impairment charges may apply. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates, particularly given the significant social and economic disruptions and uncertainties associated with the ongoing coronavirus pandemic (“COVID-19”) and the COVID-19 control responses.
Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2021 Annual Report.
Recently Adopted Accounting Standards
Modifications or Exchanges of Freestanding Equity-Classified Written Call Options
In May 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. On January 1, 2022, the Company adopted this standard without any material impact on the Company’s financial statements or disclosures.
10
Recent Accounting Standards Not Yet Adopted
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820 “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The FASB is issuing this Update (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820.
For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance.
The Company is still evaluating the impact of this pronouncement on the consolidated financial statements.
4. Fair Value Measurements
In accordance with ASC 820 (Fair Value Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants and certain embedded conversion feature associated with convertible debt on a recurring basis to determine the fair value of the liability. ASC 820 also establishes a hierarchy categorizing inputs into three levels used to measure and disclose fair value. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to unobservable inputs. An explanation of each level in the hierarchy is described below:
Level 1 - Unadjusted quoted prices in active markets for identical instruments that are accessible by the Company on the measurement date
Level 2 - Quoted prices in markets that are not active or inputs which are either directly or indirectly observable
Level 3 - Unobservable inputs for the instrument requiring the development of assumptions by the Company
The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of June 30, 2022 and December 31, 2021 (in thousands):
Fair value measured at June 30, 2022 | ||||||||||||
|
| Quoted prices in active |
| Significant other |
| Significant | ||||||
| Fair value at | markets | observable inputs | unobservable inputs | ||||||||
June 30, 2022 |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||||
Warrant liability | $ | | $ | | $ | | $ | | ||||
Embedded redemption option | | | | | ||||||||
Contingent payable derivative liability |
| |
| |
| |
| | ||||
Total fair value | $ | | $ | | $ | | $ | | ||||
Fair value measured at December 31, 2021 | ||||||||||||
|
| Quoted prices in active |
| Significant other |
| Significant | ||||||
Fair value at | markets | observable inputs | unobservable inputs | |||||||||
| December 31, 2021 |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||||
Warrant liability | $ | | $ | | $ | | $ | | ||||
Embedded redemption option |
| |
| |
| |
| | ||||
Contingent payable derivative liability |
| |
| |
| |
| | ||||
Total fair value | $ | | $ | | $ | | $ | | ||||
There were no transfers between Level 1, 2 or 3 during the six-month period ended June 30, 2022.
11
The following table presents changes in Level 3 liabilities measured at fair value for the six-month period ended June 30, 2022. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (in thousands).
Warrant | Embedded | Contingent Payable | ||||||||||
| Liability |
| Redemption Option |
| Derivative Liability |
| Total | |||||
Balance - January 1, 2022 | $ | | $ | | $ | | $ | | ||||
Additional warrant liability | | | | | ||||||||
Reclassification of warrant liabilities | ( | | | ( | ||||||||
Change in fair value | | | ( | | ||||||||
Balance – June 30, 2022 | $ | | $ | | $ | | $ | | ||||
A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of June 30, 2022 and December 31, 2021 is as follows:
As of June 30, 2022 | |||||||
Warrant | Contingent Payable | ||||||
| Liability |
| Derivative Liability |
| |||
Strike price | $ | | $ | | * | ||
Contractual term (years) |
|
|
| ||||
Volatility (annual) |
| | % | | % | ||
Risk-free rate |
| | % | | % | ||
Dividend yield (per share) |
| | % | | % | ||
As of December 31, 2021 |
| ||||||
| Warrant |
| Contingent Payable |
| |||
| Liability |
| Derivative Liability |
| |||
Strike price | $ | | $ | | * | ||
Contractual term (years) |
|
| |||||
Volatility (annual) |
| | % |
| | % | |
Risk-free rate |
| | % |
| | % | |
Dividend yield (per share) |
| | % |
| | % | |
| * | Contingent based on current stock price as of June 30, 2022 and December 31, 2021. |
5. Stock-based Compensation
The following table summarizes total amounts of stock-based compensation that were expensed during the three and six months ended June 30, 2022 and 2021 (in thousands). The related party amounts were for milestone incentives that are deemed probable to be achieved in the future and become payable at that time; only $
For the three months ended | For the six months ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Research and development | $ | | $ | | $ | | $ | | ||||
Research and development - related party | | — | | — | ||||||||
General and administrative |
| ( |
| |
| ( |
| | ||||
Total stock-based compensation expense | $ | | $ | | $ | | $ | | ||||
12
During the three months ended June 30, 2022, the Company reversed approximately $
The Black-Scholes option pricing model is used to estimate the fair value of stock options granted. The weighted average assumptions used in calculating the fair values of stock options that were granted during the six months ended June 30, 2022 was as follows:
For the six months |
| |||
ended |
| |||
| June 30, 2022 |
| ||
Exercise price | $ | | ||
Expected term (years) |
| |||
Expected stock price volatility |
| | % | |
Risk-free rate |
| | % | |
Dividend yield (per share) |
| % | ||
The total unrecognized compensation cost was approximately $
Stock Options
The following table summarizes stock option activity for the Company’s option plans during the six months ended June 30, 2022 (amount in thousands, except per share number):
Weighted Average | ||||||||||
Weighted | Remaining | |||||||||
Number of | Average | Contractual Life | Total Intrinsic | |||||||
Shares | Exercise Price | (in years) | Value | |||||||
Outstanding as of January 1, 2022 |
| | $ | | $ | | ||||
Granted(1) | | | ||||||||
Cashless exercised | ( | | ||||||||
Forfeited/expired |
| ( |
| |
| |||||
Outstanding as of June 30, 2022 |
| | $ | | $ | | ||||
Options vested (2) |
| | $ | | $ | | ||||
| (1) | Awards granted to Flaskworks employees and consultants. |
| (2) | Approximately |
Ms. Linda Powers, the Company’s Chief Executive Officer, and Mr. Leslie Goldman, the Company’s Senior Vice President, are subject to an agreement under which they cannot exercise any options or warrants except upon at least
Restricted Stock Awards
During April 2022, the Company’s Board approved and the Company entered into a Statement of Work #6 (the “SOW 6”) with Advent BioServices for
13
component of such milestones, in anticipation that it is probable the milestones will be achieved and earned in the future. The amounts recognized and expensed during the three months ended June 30, 2022, included $
6. Notes Payable
The following two tables summarize outstanding debt as of June 30, 2022 and December 31, 2021, respectively (amount in thousands):
|
| Stated |
|
|
|
| Embedded |
| ||||||||||||
Interest | Conversion | Remaining | Redemption | Carrying | ||||||||||||||||
Maturity Date | Rate | Price | Face Value | Debt Discount | Option | Value | ||||||||||||||
Short term convertible notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
6% unsecured |
|
| | % | $ | | $ | | $ | — | $ | — | $ | | ||||||
| — | — | | |||||||||||||||||
Short term notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
8% unsecured |
|
| | % |
| N/A |
| |
| ( |
| — |
| | ||||||
9% unsecured |
|
| | % |
| N/A |
| |
| ( |
| |
| | ||||||
12% unsecured |
|
| | % |
| N/A |
| |
| — |
| — |
| | ||||||
| |
| ( |
|
| | | |||||||||||||
Long term notes payable | ||||||||||||||||||||
8% unsecured |
|
| | % |
| N/A |
| |
| ( |
| |
| | ||||||
6% secured |
| | % | N/A | |
| — |
|
| — | | |||||||||
| ( | | | |||||||||||||||||
|
|
| ||||||||||||||||||
Ending balance as of June 30, 2022 | $ | | $ | ( | $ | | $ | | ||||||||||||
Stated | Embedded |
| ||||||||||||||||||
Interest | Conversion | Remaining | Redemption | Carrying | ||||||||||||||||
| Maturity Date |
| Rate |
| Price |
| Face Value |
| Debt Discount |
| Option |
| Value | |||||||
Short term convertible notes payable | ||||||||||||||||||||
6% unsecured |
|
| | % | $ | | $ | | $ | — | $ | — | $ | | ||||||
| |
| — |
| — | | ||||||||||||||
Short term notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
8% unsecured | | % | N/A | | ( | — | | |||||||||||||
9% unsecured | | % | N/A | | ( | | | |||||||||||||
12% unsecured | | % | N/A | | — | — | | |||||||||||||
| |
| ( |
| | | ||||||||||||||
Long term notes payable | ||||||||||||||||||||
1% unsecured(10) | | % | N/A | | — | — | | |||||||||||||
8% unsecured | | % | N/A | | ( | | | |||||||||||||
6% secured | | % | N/A | | — | — | | |||||||||||||
| ( | | | |||||||||||||||||
Ending balance as of June 30, 2022 | $ | | $ | ( | $ | | $ | | ||||||||||||
During the six months ended June 30, 2022, the Company entered into multiple four-month note agreements (the “Notes”) with various individual lenders (the “Holders”) with an aggregate principal amount of $
14
equal in value to (a)
During the six months ended June 30, 2022, the Company issued approximately
During the six months ended June 30, 2022, the Company made aggregate cash payments of $
During the six months ended June 30, 2022, the Company entered into multiple note extension agreements whereby the maturity date of the notes was extended for additional
The Company received
For the three months ended June 30, 2022 and 2021, interest expense related to notes payable totaled approximately $
For the six months ended June 30, 2022 and 2021, interest expense related to notes payable totaled approximately $
7. Net Earnings (Loss) per Share Applicable to Common Stockholders
Basic earnings (loss) per common share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per common share is computed similar to basic earnings (loss) per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Diluted weighted average common shares include common stock potentially issuable under the Company’s convertible notes, warrants and vested and unvested stock options.
For the three and six months ended June 30, 2021, net income is adjusted for gain from change in fair value of warrant liabilities.
The following table sets forth the computation of earnings (loss) per share (amounts in thousands):
| For the three months ended |
| For the six months ended | |||||||||
June 30, | June 30, | |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
Net earnings (loss) - basic | $ | ( | $ | | $ | ( | $ | | ||||
Reversal of gain due to change in fair value of warrant liability |
| — |
| ( |
| — |
| ( | ||||
Net loss - diluted |
| ( |
| ( |
| ( |
| ( | ||||
|
|
| ||||||||||
Weighted average shares outstanding - basic |
| |
| |
| |
| | ||||
Diluted shares- Options |
| — |
| |
| — |
| | ||||
Diluted shares- Warrants |
| — |
| |
| — |
| | ||||
Convertible notes and interest |
| — |
| |
| — |
| | ||||
Weighted average shares outstanding - diluted |
| |
| |
| |
| | ||||
15
The following securities were not included in the diluted net earnings (loss) per share calculation because their effect was anti-dilutive as of the periods presented (in thousands):
For the six months ended | ||||
June 30, | ||||
| 2022 |
| 2021 | |
Common stock options | | | ||
Common stock warrants | | | ||
Convertible notes and accrued interest | |
| — | |
Potentially dilutive securities | | | ||
8. Related Party Transactions
Advent BioServices Agreement
The Company has a Manufacturing Services Agreement with Advent BioServices (“Advent”) for the manufacture of DCVax-L products at an existing facility in London, as previously reported. The Company also has an Ancillary Services Agreement with Advent, which establishes a structure under which Advent submits Statements of Work (“SOWs”) for activities related to the development of the Sawston facility and the compassionate use activities in the UK, as previously reported. The Ancillary Services Agreement had an original term of
During April 2022, the Company's Board approved and the Company entered into a Statement of Work #6 (the SOW 6) with Advent BioServices for
Advent BioServices Sublease Agreement
On December 31, 2021, the Company entered into a Sub-lease Agreement (the “Agreement”) with Advent. The Agreement permits use by Advent of a portion of the space in the Sawston facility which is leased by the Company under a separate head lease with a different counterparty (Huawei) that commenced on December 14, 2018. The Company subleased approximately
During the three and six months ended June 30, 2022, the Company recognized sub-lease income of $
Related Party Expenses and Accounts Payable
During the six months ended June 30, 2022 and 2021, the Company capitalized $
16
The following table summarizes outstanding unpaid accounts payable and accrued expenses held by related parties as of June 30, 2022 and December 31, 2021 (amount in thousands). These unpaid amounts include part of the expenses reported in the above section. The 2021 balance also included certain expenses incurred in prior periods.
| June 30, |
| December 31, | |||
2022 | 2021 | |||||
Advent BioServices – amount invoiced | $ | | $ | | ||
Advent BioServices – amount accrued | | — | ||||
Accounts payable and accrued expenses to Advent BioServices | $ | | $ | | ||
As of June 30, 2022, there was approximately $
9. Stockholders’ Deficit
Common Stock
Common Stock Issued for Cash
During the six months ended June 30, 2022, the Company received $
Warrants Exercised for Cash
During the six months ended June 30, 2022, the Company received $
Warrants and Options Cashless Exercise
During the six months ended June 30, 2022, certain warrant holders elected to exercise some of their warrants pursuant to cashless exercise formulas. The Company issued approximately
During the six months ended June 30, 2022, certain options holders elected to exercise some of their options pursuant to cashless exercise formulas. The Company issued approximately
Stock Purchase Warrants
The following is a summary of warrant activity for the six months ended June 30, 2022 (dollars in thousands, except per share data):
| Number of |
| Weighted Average |
| Remaining | ||
Warrants | Exercise Price | Contractual Term | |||||
Outstanding as of January 1, 2022 |
| | $ | |
| ||
Warrants exercised for cash |
| ( |
| |
| ||
Cashless warrrants exercise | ( | | |||||
Warrants expired and cancellation |
| ( |
| |
| ||
Outstanding as of June 30, 2022 |
| | $ | |
| ||
The options and warrants held by Ms. Powers and Mr. Goldman are subject to an ongoing suspension on a rolling basis pursuant to the Blocker Letter. In addition, other executive officers and directors extended their suspensions to various dates until at least August 31, 2022.
17
At June 30, 2022, of the
At August 1, 2022, a total of approximately
10. Commitments and Contingencies
Operating Lease- Lessee Arrangements
The Company has operating leases for corporate offices in the U.S. and U.K., and for manufacturing facilities in the U.K. Leases with an initial term of 12 months or less are not recorded in the balance sheet. The Company has elected the
At June 30, 2022, the Company had operating lease liabilities of approximately $
18
The following summarizes quantitative information about the Company’s operating leases (amount in thousands):
For the Six Months ended | |||||||||
June 30, 2022 | |||||||||
| U.K |
| U.S |
| Total | ||||
Lease cost |
|
|
|
|
|
| |||
Operating lease cost | $ | | $ | | $ | | |||
Short-term lease cost |
| |
| — |
| | |||
Variable lease cost |
| — |
| |
| | |||
Sub-lease income |
| ( |
| — |
| ( | |||
Total | $ | | $ | | $ | | |||
Other information |
|
|
|
|
|
| |||
Operating cash flows from operating leases | $ | ( | $ | ( | $ | ( | |||
Weighted-average remaining lease term – operating leases |
|
|
|
| |||||
Weighted-average discount rate – operating leases |
| | % |
| | % |
|
| |
For the Six Months ended | |||||||||
June 30, 2021 | |||||||||
| U.K |
| U.S |
| Total | ||||
Lease cost |
|
|
|
|
|
| |||
Operating lease cost | $ | | $ | | $ | | |||
Short-term lease cost |
| |
| — |
| | |||
Variable lease cost |
| |
| |
| | |||
Total | $ | | $ | | $ | | |||
|
|
| |||||||
Other information |
|
|
|
|
| ||||
Operating cash flows from operating leases | $ | ( | $ | ( | $ | ( | |||
Weighted-average remaining lease term – operating leases |
|
|
| ||||||
Weighted-average discount rate – operating leases |
| | % |
| | % |
| ||
The Company recorded lease costs as a component of general and administrative expense during the three and six months ended June 30, 2022 and 2021, respectively.
Maturities of our operating leases, excluding short-term leases and sublease agreement, are as follows:
Six months ended December 31, 2022 | $ | | |
Year ended December 31, 2023 |
| | |
Year ended December 31, 2024 | | ||
Year ended December 31, 2025 | | ||
Year ended December 31, 2026 | | ||
Thereafter | | ||
Total | | ||
Less present value discount | ( | ||
Operating lease liabilities included in the Condensed Consolidated Balance Sheet at June 30, 2022 | $ | |
19
Maturities of our operating leases under the sublease agreement, based on the current exchange rate, are as follows:
Six months ended December 31, 2022 |
| $ | |
Year ended December 31, 2023 |
| | |
Year ended December 31, 2024 |
| | |
Year ended December 31, 2025 |
| | |
Year ended December 31, 2026 |
| | |
Thereafter |
| | |
Total | $ | |
Manufacturing Services Agreements
Advent BioServices
On May 14, 2018, the Company entered into a DCVax®-L Manufacturing and Services Agreement (“MSA”) with Advent BioServices, a related party which was formerly part of Cognate BioServices and was spun off separately as part of an institutional financing of Cognate. The Advent Agreement provides for manufacturing of DCVax-L products at an existing facility in London. The Agreement is structured in the same manner as the Company’s prior agreements with Cognate BioServices. The Advent Agreement provided for a program initiation payment of approximately $
On November 8, 2019, the Company and Advent entered into an Ancillary Services Agreement with an 8-month Term for U.K. Facility Development Activities and Compassionate Use Program Activities. The Ancillary Services Agreement establishes a structure under which Advent develops Statements of Work (“SOWs”) for the U.K. Facility Development Activities and Compassionate Use Program Activities and delivers those SOWs to the Company for review and approval. After an SOW is approved by the Company, Advent will proceed with or continue the applicable services and will invoice the Company pursuant to the SOW. Since both the U.K. Facility Development and the Compassionate Use Program involve pioneering and uncertainties in most aspects, the invoicing under the Ancillary Services Agreement is on the basis of costs incurred plus fifteen percent. The Agreement may also cover agreement by the parties and SOWs for operational milestones and related payments. The Ancillary Services Agreement had an original term of
During April 2022, the Company entered into a Statement of Work #6 (the “SOW 6”) with Advent to be incorporated into the Ancillary Services Agreement. SOW 6 provides for
20
German Tax Matter
The German tax authorities have audited our wholly owned subsidiary, NW Bio GmbH, for 2013-2015. The NW Bio GmbH submitted substantial documentation to refute certain aspects of the assessments and the German tax authorities agreed in principle with the Company’s proposed revised approach and settlement offer. A final settlement bill was received from the German Tax Authority confirming that only a portion of the original bill was owed, €
11. Subsequent Events
Certificate of Elimination of Series A Preferred Stock and Series B Preferred Stock
On July 20, 2022, the Company filed a Certificate of Elimination with the Secretary of State of the State of Delaware with respect to the Company’s Series A Preferred Stock and Series B Preferred Stock pursuant to which both series were eliminated and returned to the status of authorized and unissued preferred shares of the Company, as there are
Certificate of Designation of Series C Preferred Stock
Also on July 20, 2022, the Company filed the Certificate of Designations for Series C Preferred Stock (the “Series C Certificate of Designations”) with the Secretary of State of the State of Delaware, setting forth the terms of the Series C Preferred Stock. The Series C Certificate of Designations, effective as of July 20, 2022, that was created out of the authorized and unissued shares of preferred stock of the Company the Series C Preferred Stock, provides for
Financing
During July 2022, the Company entered into various Subscription Agreements (the “Series C Subscription Agreements”) with certain investors (the “Series C Investors”). Pursuant to the Series C Subscription Agreements, the Company is issuing to the Series C Investors an aggregate of
Each Series C Shares will be convertible at the option of the holder, only after the convertibility date as defined in the Series C Subscription Agreements, into a total of
Debt Redemption
In July 2022, the Company issued approximately
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements included with this report. 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”). Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words “believe,” “expect,” “intend,” “anticipate,” and similar expressions are used to identify forward-looking statements, but some forward-looking statements are expressed differently. Many factors could affect our actual results, including those factors described under “Risk Factors” in our Form 10-K for the year ended December 31, 2021 and in Part II Item 1A of this report. These factors, among others, could cause results to differ materially from those presently anticipated by us. You should not place undue reliance on these forward-looking statements.
Overview
We are a biotechnology company focused on developing personalized immune therapies for cancer. We have developed a platform technology, DCVax®, which uses activated dendritic cells to mobilize a patient’s own immune system to attack their cancer.
Our lead product, DCVax®-L, is designed to treat solid tumor cancers in which the tumor can be surgically removed. We have completed a 331-patient international Phase III trial of DCVax-L for Glioblastoma multiforme brain cancer (GBM ). On May 10, 2022, top line data from the Phase III trial were presented in a scientific conference at the New York Academy of Sciences by one of the investigators in the trial. The presentation was made available publicly on a third party site.
The Company is now working on preparations for seeking regulatory approval of DCVax-L.
Post-COVID difficulties continue to impact supply chains and program operations for the Company as well as for other companies in this industry and others. The independent service firms have limited capacity, and still have some restrictions on operations. Key experts at certain specialized service providers have been unavailable for periods of time. Other experts have gone on extended leave. Clinical trial site personnel have been unavailable due to being reassigned for COVID, and the limited site personnel have had to work under restrictions. Committee processes and regulatory processes have been similarly focused on COVID matters and delayed on other matters. Firms such as the ones storing the Phase III trial tissue samples that are needed for certain analyses, and the firms conducting the analyses, continue to have only limited operations. Even logistical matters such as the shipping of materials have been, and continue to be, subjected to substantial difficulties and delays.
On August 28, 2020, the Company acquired Flaskworks, LLC (“Flaskworks”), a company that has developed a system designed to close and automate the manufacturing of cell therapy products such as DCVax®. The Company acquired 100% of the ownership, and Flaskworks became a wholly-owned subsidiary of the Company. Flaskworks was previously owned by its technical founders and Corning Inc. The technical team from Flaskworks joined the Company as part of the Acquisition. It is anticipated that the Flaskworks system will enable substantial scale-up of production volumes of DCVax products and substantial reduction of production costs. The Company’s buildout of the Sawston, UK facility has been designed to proceed in phases, as modules, both for efficiency in the timing of capital costs and to allow flexibility in operations and usage. The Company anticipates that implementation of the Flaskworks system will enable certain phases of the buildout to be simplified and streamlined.
Our second product, DCVax®-Direct, is designed to treat inoperable solid tumors. A 40-patient Phase I trial has been completed and included treatment of a diverse range of more than a dozen types of cancers. The Company plans to work on preparations for Phase II trials of DCVax-Direct as resources permit.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses.
On an ongoing basis, we evaluate our estimates and judgments, including those related to derivative liabilities, accrued expenses and stock-based compensation. We based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ
22
from those estimates, particularly given the significant social and economic disruptions and uncertainties associated with the ongoing coronavirus pandemic (“COVID-19”) and the COVID-19 control responses.
Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the year ended December 31, 2021. Our critical accounting policies and significant estimates have not changed substantially from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Results of Operations
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 or we are undertaking substantial one-time expenses following trials, such as for statistical work under the Statistical Analysis Plan, and other activities related to completion and assessment of the trial and its results. The operating costs also include administrative expenses associated with trials, in addition to RD expenses, and increase as such operating activities grow.
In addition to clinical trial related costs, our operating costs may include ongoing work relating to our DCVax products, including RD, product characterization, and related matters. Going forward, we are also incurring large amounts of costs to carry out and complete statistical analyses, validation work, data reports and other work associated with analyzing the trial results and proceeding.
Following our acquisition of Flaskworks, our operating costs now include the costs for its ongoing operations and its intellectual property filings.
Our operating costs also include the costs of preparations for the launch of new or expanded clinical trial programs. The preparation costs include payments to regulatory consultants, lawyers, statisticians, sites and others, evaluation of potential investigators, the clinical trial sites and the CROs managing the trials and other service providers, and expenses related to institutional approvals, clinical trial agreements (business contracts with sites), training of medical and other site personnel, trial supplies and other. Additional substantial costs relate to the maintenance and substantial expansion of manufacturing capacity, in both the U.S. and Europe.
Our operating costs also include legal and accounting costs in operating the Company.
Research and development:
Discovery and preclinical research and development expenses include costs for substantial external scientific personnel, technical and regulatory advisers, and others, 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 pre-revenue 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.
General and administrative:
General and administrative expenses include personnel related salary and benefit expenses, cost of facilities, insurance, travel, legal services, property and equipment and amortization of stock options and warrants.
Three Months Ended June 30, 2022 and 2021
We recognized a net loss of $29.7 million and a net income of $4.4 million for the three months ended June 30, 2022 and 2021, respectively.
Research and Development Expense
For the three months ended June 30, 2022 and 2021, research and development expense was $13.6 million and $5.5 million, respectively. The increase was mainly related to SOW 6 that was entered into in April, 2022 for five workstreams that are prerequisites for an application for regulatory approval of DCVax-L, for drafting of key portions of the application and for three required licenses for the
23
Sawston facility. During the three months ended June 30, 2022, the Company expensed $3.8 million for cash milestones (but only paid $0.5 million) and $5.3 million for stock-based milestones that the Company believes are probable to be achieved and hence to become payable during the contract period. The $5.3 million stock-based compensation expense, for the milestones, were offset by a decrease of $1.9 million of stock-based compensation in research and development which was related to cancellation of certain unvested performance-based awards and less amortization related to previously granted awards.
General and Administrative Expense
General and administrative expenses were $7.9 million and $7.4 million for three months ended June 30, 2022 and 2021, respectively. The increase was mainly related to an increase of approximately $1.7 million in business travel costs, conferences expenses and DO insurance premiums, and offset by a decrease of $1.2 million stock-based compensation, which were related to the cancellation of certain unvested performance-based awards and less amortization related to previously granted awards.
Change in fair value of derivatives
During the three months ended June 30, 2022 and 2021, we recognized a non-cash loss of $4.3 million and a non-cash gain of $17.5 million, respectively. The 2022 loss was primarily due to the extension of the exercise periods of certain warrants and offset by a decrease of stock price as of June 30, 2022 compared to March 31, 2022. The 2021 gain was primarily due to the decrease of stock price as of June 30, 2021 compared to March 31, 2021.
Loss from Extinguishment of Debt
During the three months ended June 30, 2022 and 2021, we recognized $0.1 million and $0.1 million debt extinguishment loss from the redemption of certain loans, respectively. Changes are consistent compared to the same period of last year.
Interest Expense
During the three months ended and June 30, 2022 and 2021, we recognized interest expense of $1.4 million and $0.8 million, respectively. The increase was primarily due to an increase of outstanding debt as of March 31, 2022 compared to the outstanding balance as of March 31, 2021.
Foreign currency transaction loss
During the three months ended and June 30, 2022 and 2021, we recognized foreign currency transaction loss of $2.8 million and foreign currency transaction gain of $0.3 million, respectively. The loss was due to the strengthening of the U.S. dollar relative to the British pound sterling and Euro. The gain was due to the weakening of the U.S. dollar relative to the British pound sterling.
Six Months Ended June 30, 2022 and 2021
We recognized a net loss of $43.9 million and a net income of $0.3 million for the six months ended June 30, 2022 and 2021, respectively.
Research and Development Expense
For the six months ended June 30, 2022 and 2021, research and development expense was including the expense for milestones under SOW 6 with Advent that are expected to be achieved and become payable in the future) was $18.5 million and $12.4 million, respectively. We incurred an increase in related party research and development expenses of $11.2 million by Advent, of which $9.2 million comprised amounts expensed for SOW 6 milestones that are anticipated to be achieved and become payable in the future (of which the Company only paid $0.5 million during the six months ended June 30, 2022), offset by a decrease of $5.1 million stock-based compensation, which was related to the cancellation of certain unvested performance-based awards and less amortization related to previously granted awards.
We recognized and expensed approximately $14.7 million (including $9.2 million for milestones expected to be achieved and become payable in the future) and $3.5 million in expenses from related parties during the six months ended June 30, 2022 and 2021, respectively.
General and Administrative Expense
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General and administrative expenses were $15.8 million and $20.3 million for six months ended June 30, 2022 and 2021, respectively. The decrease was mainly related to a decrease of $7.2 million stock-based compensation, which were related to the cancellation of certain unvested performance-based awards and less amortization related to previously granted awards, and offset by an increase of approximately $2.2 million in business travel costs, conferences expenses and DO insurance premiums.
Change in fair value of derivatives
During the six months ended June 30, 2022 and 2021, we recognized a non-cash loss of $3.7 million and a non-cash gain of $35.1 million, respectively. The 2022 loss was primarily due to the extension of certain warrants and offset by a decrease of stock price as of June 30, 2022 compared to December 31, 2021. The 2021 gain was primarily due to the decrease of stock price as of June 30, 2021 compared to December 31, 2020.
Gain (Loss) from Extinguishment of Debt
During the six months ended June 30, 2022 and 2021, we recognized debt extinguishment gain of $0.3 million and debt extinguishment loss of $0.1 million, respectively. The gain in 2022 was related to $0.4 million gain from the forgiveness of two PPP loans and offset by a loss of $0.1 million from redemption of certain loans.
Interest Expense
During the six months ended and June 30, 2022 and 2021, we recorded interest expense of $3.3 million and $2.3 million, respectively. The increase was primarily due to an increase of outstanding debt as of December 31, 2021 compared to the outstanding balance as of December 31, 2020.
Foreign currency transaction loss
During the six months ended and June 30, 2022 and 2021, we recognized foreign currency transaction loss of $3.7 million and $0.4 million, respectively. The loss was due to the strengthening of the U.S. dollar relative to the British pound sterling and Euro, and the fluctuation was much higher this year compared to the same period of last year.
Liquidity and Capital Resources
We have experienced recurring losses from operations since inception. We have not yet established an ongoing source of revenues and must cover our operating expenses through debt and equity financings to allow us to continue as a going concern. Our ability to continue as a going concern depends on the ability to obtain adequate capital to fund operating losses until we generate adequate cash flows from operations to fund our operating costs and obligations. If we are unable to obtain adequate capital, we could be forced to cease operations.
We depend upon our ability, and will continue to attempt, to secure equity and/or debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Our management determined that there was substantial doubt about our ability to continue as a going concern within one year after the condensed consolidated financial statements were issued, and management’s concerns about our ability to continue as a going concern within the year following this report persist.
Cash Flow
Operating Activities
During the six months ended June 30, 2022 and 2021, net cash used in operations were approximately $27.8 million and $20.0 million, respectively. The increase in cash used in operating activities was primarily attributable to an increase in clinical trial related expenditures.
Financing Activities
We received approximately $9.5 million cash from issuance of 13.1 million shares of common stock during the six months ended June 30, 2022.
We received approximately $9.6 million and $4.1 million, in cash from the exercise of warrants and options during the six months ended June 30, 2022 and 2021, respectively.
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We received approximately $0.6 million from issuance of multiple loans to individual lenders during the six months ended June 30, 2022. We received approximately $10.0 million cash proceeds from a loan from a commercial lender, $1.9 million cash from loans from various third-party lenders and $0.4 million from PPP loans during six months ended June 30, 2021.
We made aggregate debt payments of $5.3 million and $0.8 million during the six months ended June 30, 2022 and 2021, respectively.
Other factors affecting our ongoing funding requirements include the number of staff we employ, the number of sites, number of patients and amount of activity in our clinical trial programs, the costs of further product and process development work relating to our DCVax products, the costs of preparations for Phase II trials, the costs of expansion of manufacturing, and unanticipated developments. The extent of resources available to us will determine which programs can move forward and at what pace.
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may result from the change in value of financial instruments due to fluctuations in its market price. Market risk is inherent in all financial instruments. Market risk may be exacerbated in times of trading illiquidity when market participants refrain from transacting in normal quantities and/or at normal bid-offer spreads. Our exposure to market risk is directly related to derivatives, debt and equity linked instruments related to our financing activities.
Our assets and liabilities are overwhelmingly denominated in U.S. dollars. We do not use foreign currency contracts or other derivative instruments to manage changes in currency rates. We do not now, nor do we plan to, use derivative financial instruments for speculative or trading purposes. However, these circumstances might change.
The primary quantifiable market risk associated with our financial instruments is sensitivity to changes in interest rates. Interest rate risk represents the potential loss from adverse changes in market interest rates. We use an interest rate sensitivity simulation to assess our interest rate risk exposure. For purposes of presenting the possible earnings effect of a hypothetical, adverse change in interest rates over the 12-month period from our reporting date, we assume that all interest rate sensitive financial instruments will be impacted by a hypothetical, immediate 100 basis point increase in interest rates as of the beginning of the period. The sensitivity is based upon the hypothetical assumption that all relevant types of interest rates that affect our results would increase instantaneously, simultaneously and to the same degree. We do not believe that our cash and equivalents have significant risk of default or illiquidity.
The sensitivity analyses of the interest rate sensitive financial instruments are hypothetical and should be used with caution. Changes in fair value based on a 1% or 2% variation in an estimate generally cannot be extrapolated because the relationship of the change in the estimate to the change in fair value may not be linear. Also, the effect of a variation in a particular estimate on the fair value of financial instruments is calculated independent of changes in any other estimate; in practice, changes in one factor may result in changes in another factor, which might magnify or counteract the sensitivities. In addition, the sensitivity analyses do not consider any action that we may take to mitigate the impact of any adverse changes in the key estimates.
Based on our analysis, as of June 30, 2022, the effect of a 100+/- basis point change in interest rates on the value of our financial instruments and the resultant effect on our net loss are considered immaterial.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation as of June 30, 2022, of the design and operation of our disclosure controls and procedures, as such terms are defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, management concluded that, as of such date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
No change in internal control over financial reporting occurred during the most recent quarter with respect to our operations, which materially affected, or is reasonable likely to materially affect, our internal controls over financial reporting.
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Part II - Other Information
Item 1. Legal Proceedings
Derivative Lawsuits by Putative Stockholders
In February and March, three stockholders filed in the Delaware Court of Chancery three similar derivative lawsuits against the Company and certain of its directors and officers, including J. Cofer Black, Marnix L. Bosch, Alton L. Boynton, Leslie J. Goldman, Jerry Jasinowski, Navid Malik, and Linda F. Powers (the “Individual Defendants”), alleging the Individual Defendants (i) breached their fiduciary duties, and (ii) were unjustly enriched by director and officer compensation awarded to the Individual Defendants—notwithstanding the fact that approximately 90% of shareholders voted to approve of the Company’s executive compensation (the same compensation that these three stockholders are seeking to challenge) through its Say on Pay vote, and the director awards are subject to shareholder approval. On March 31, 2022, the Delaware Court of Chancery consolidated these actions into a single action under the caption In re Northwest Biotherapeutics, Inc. Stockholder Litigation (the “Derivative Action”).
The Company believes these cases are baseless, and intends to vigorously contest the Derivative Action.
Item 1A. Risk Factors
Applicable risk factors are set forth in the Company’s report on Form 10-K for 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not Applicable
Item 6. Exhibits
31.1 |
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32.1 | ||
101.INS | Inline XBRL Instance Document. | |
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101.SCH | Inline XBRL Schema Document. | |
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101.CAL | Inline XBRL Calculation Linkbase Document. | |
| ||
101.DEF | Inline XBRL Definition Linkbase Document. | |
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101.LAB | Inline XBRL Label Linkbase Document. | |
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101.PRE | Inline XBRL Presentation Linkbase Document. | |
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104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL (included as Exhibit 101). |
* Filed herewith
** Furnished herewith
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SIGNATURES
Pursuant to the requirements 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.
NORTHWEST BIOTHERAPEUTICS, INC | |||
Dated: August 9, 2022 | By: | /s/ Linda F. Powers | |
Name: | Linda F. Powers | ||
Title: | President and Chief Executive Officer | ||
Principal Executive Officer | |||
Principal Financial and Accounting Officer | |||
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