See accompanying notes to the unaudited
condensed consolidated financial statements
See accompanying notes
to the unaudited condensed consolidated financial statements
See accompanying notes to the unaudited
condensed consolidated financial statements
See accompanying notes to the unaudited
condensed consolidated financial statements
See accompanying notes to the unaudited
condensed consolidated financial statements
See accompanying notes to the unaudited
condensed consolidated financial statements
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
1.
|
Organization and Description of Business and Recent Developments
|
Northwest Biotherapeutics, Inc. and its
wholly owned subsidiaries NW Bio Europe S.A.R.L and NW Bio Gmbh (collectively, the “Company”, “we”, “us”
and “our”) were organized to discover and develop innovative immunotherapies for cancer.
The Company’s platform technology,
DCVax, is currently being tested for the treatment of certain types of cancers through clinical trials in the United States and
Europe that are in various phases. The Company is considered to be a development stage company and, as such, the Company’s
financial statements are prepared in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 915 “Development Stage Entities.” The Company is subject to all of the risks and uncertainties
associated with development stage biotech companies.
Recent Developments
On January 17, 2014, the Company entered
into the following agreements (collectively, the “Cognate Agreements” or the “Agreements”) with Cognate
BioServices, Inc. (“Cognate”) for manufacturing and related services for our DCVax® products:
·
a DCVax®-L Manufacturing and Services Agreement;
·
a DCVax®-Direct Manufacturing and Services Agreement;
·
an Ancillary Services Agreement; and
a Manufacturing
Expansion Services Agreement.
Together, these Agreements provide
for substantial expansion of the manufacturing capacity for the Company’s programs, in multiple regions, as well as
development of the necessary systems and logistics, and other near-term and long-term preparations, for large scale scale-up
of the Company’s programs. These Agreements include most favored nation treatment with respect to the terms provided to
any other investors or creditors (including with respect to any warrants).
The Company also entered into a Lock-Up
Agreement with Cognate on January 17, 2014, under which Cognate agreed to have all of the shares that are issued as part of the
milestone and initiation payments and the invoice conversions under the Cognate Agreements (collectively, the “Lock-Up Shares”)
locked up for up to 36 months, in return for 15% warrant coverage for each 6-month period of lock-up, on the same terms as the
warrants in the Cognate Agreements. During the lock-up, the Lock-Up Shares may not be sold or traded on the market. These lock-up
terms are subject to the same most favored nation treatment as provided in the Cognate Agreements as described above.
2.
|
Liquidity and Financial Condition
|
The Company used approximately $10.6 million
of cash in its operating activities for the three months ended March 31, 2014 and has used $188.3 million of cash in its operating
activities since inception. The Company incurred a $46.0 million aggregate combined cash and non-cash loss for the three months
ended March 31, 2014, including $35.4 million of net aggregate non-cash charges associated with stock based compensation, a mark
to market charge for the change in the fair value of its derivative liability, and inducement expenses related to the exchange
of Cognate BioServices, Inc. (“Cognate”) accounts payable for common stock and warrants.
The Company had cash and cash equivalents
of $12.2 million as of March 31, 2014, and current assets less accounts payable and accrued expenses and notes payable of approximately
$3.8 million at March 31, 2014. The Company owes an aggregate of $1.1 million of trade liabilities and convertible notes to related
parties.
On April 9, 2014, the Company entered into
a Securities Purchase Agreement with a single institutional investor for the sale of 2,272,727 shares of common stock at a purchase
price of $6.60 per share, for a total purchase price of $15.0 million. Additionally, from the date of the closing until one year
after the closing date, the investor has a non-transferable Overallotment Right to purchase up to 2,272,727 additional shares of
common stock at a price per share of $7.50, for an additional subscription amount of up to $17.05 million. See Note 11.
Because of recurring operating losses,
net operating cash flow deficits, and a deficit accumulated during the development stage, there is substantial doubt about the
Company’s ability to continue as a going concern. The financial statements have been prepared assuming 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.
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.
The accompanying unaudited condensed financial
statements as of March 31, 2014 and for the three months then ended 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 March 31, 2014, condensed consolidated statements of operations and condensed consolidated statements of comprehensive
loss for the three months ended March 31, 2014 and 2013, condensed consolidated statement of stockholders’ equity (deficit)
for the three months ended March 31, 2014, and the condensed consolidated statements of cash flows for the three months ended March
31, 2014 and 2013 and period from March 18, 1996 (inception) to March 31, 2014 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 months ended March 31, 2014 are not necessarily
indicative of results to be expected for the year ending December 31, 2014 or for any future interim period. The condensed balance
sheet at December 31, 2013 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 condensed financial statements should be read
in conjunction with the consolidated financial statements for the year ended December 31, 2013, and notes thereto included in the
Company’s annual report on Form 10-K, which was filed with the SEC on April 1, 2014.
Use of Estimates
In preparing 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 assumptions.
These estimates and assumptions include valuing equity securities in share-based payment arrangements, estimating the fair value
of equity instruments recorded as derivative liabilities, and estimating the useful lives of depreciable assets and whether impairment
charges may apply.
Research and Development Costs
Research and development costs are charged
to operations as incurred and consist primarily of clinical trial costs, related party manufacturing cost, consulting costs, contract
research and development costs, and compensation costs. For the three months ended March 31, 2014 and 2013 the Company recognized
$20.0 million and $11.6 million, respectively, of research and development costs (cash and non-cash combined).
Significant Accounting Policies
There have been no material changes in
the Company’s significant accounting policies to those previously disclosed in the 2013 Annual Report.
4. Fair Value Measurements
The following table classifies
the Company’s liabilities measured at fair value on a recurring basis (primarily reflecting an increase in stock price
per share) into the fair value as of March 31, 2014 and December 31, 2013 (in thousands):
|
|
Fair value measured at March 31, 2014
|
|
|
|
Total carrying
|
|
|
Quoted prices in active
|
|
|
Significant other
|
|
Significant
|
|
|
|
value at March 31,
|
|
|
markets
|
|
|
observable inputs
|
|
unobservable inputs
|
|
|
|
2014
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
(Level 3)
|
|
Warrant liability
|
|
$
|
33,624
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
33,624
|
|
|
|
Fair value measured at December 31, 2013
|
|
|
|
|
Total carrying
|
|
|
|
Quoted prices in active
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
value at December 31,
|
|
|
|
markets
|
|
|
observable inputs
|
|
|
unobservable inputs
|
|
|
|
|
2013
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Warrant liability
|
|
$
|
8,688
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
8,688
|
|
There were no transfers between Level 1,
2 or 3 during the three months ended March 31, 2014.
The following table presents changes in
Level 3 liabilities measured at fair value from the period ended December 31, 2013 through March 31, 2014. Both observable and
unobservable inputs are 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.
Balance – December 31, 2013
|
|
$
|
8,688
|
|
3,174,833 warrants issued during 1st quarter
|
|
|
7,952
|
|
Change in fair value of warrant liability
|
|
|
16,984
|
|
Balance – March 31, 2014
|
|
$
|
33,624
|
|
The Company’s warrant liabilities
are measured at fair value using the Monte Carlo simulation valuation methodology. A summary of quantitative information about
significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities that are categorized
within Level 3 of the fair value hierarchy for the three months ended March 31, 2014 is as follows (
dollars and shares in thousands
):
Warrants issuance date
|
|
January 6, 2014
|
|
|
January 17, 2014
|
|
|
January 31, 2014
|
|
|
February 3, 2014
|
|
|
February 28, 2014
|
|
|
March 31, 2014
|
|
|
Total
|
|
Number of warrants issued
|
|
|
139
|
|
|
|
2,434
|
|
|
|
143
|
|
|
|
119
|
|
|
|
195
|
|
|
|
145
|
|
|
|
3,175
|
|
Fair value
of warrants at issuance date
|
|
$
|
308
|
|
|
$
|
5,501
|
|
|
$
|
383
|
|
|
$
|
327
|
|
|
$
|
844
|
|
|
$
|
589
|
|
|
$
|
7,952
|
|
Date of valuation
|
|
January 6, 2014
|
|
|
January 17, 2014
|
|
|
January 31, 2014
|
|
|
February 3, 2014
|
|
|
February 28, 2014
|
|
|
March 31, 2014
|
|
Dividend yield (per share)
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Strike price
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
$
|
4.00
|
|
|
|
$2.40
- $6.00
|
|
Volatility (annual)
|
|
|
92.13
|
%
|
|
|
93.12
|
%
|
|
|
96.72
|
%
|
|
|
91.79
|
%
|
|
|
105.03
|
%
|
|
|
74.43%-88.03
|
%
|
Risk-free rate
|
|
|
1.73
|
%
|
|
|
1.66
|
%
|
|
|
1.55
|
%
|
|
|
1.49
|
%
|
|
|
1.49
|
%
|
|
|
1.73
|
%
|
Expected life (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
5.00
|
|
|
|
4.33-4.85
|
|
The development and determination of the
unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s
Management.
5.
|
Stock-based Compensation
|
Stock Based Compensation to Non-employees
Stock-based
compensation expense related to stock-based awards to non-employees is recognized as the stock-based awards are
earned, generally through the provision of services. The Company believes that the fair value of the stock-based awards is
more reliably measurable than the fair value of the services received. The fair value of the granted stock-based awards
is calculated at each reporting date. On January 17, 2014, in connection with the Cognate Agreements, the Company
issued 5,101,366 shares of common stock. The common stock will vest over thirty six months from the closing date.
Stock-based compensation expense related to non-employee grants was $2.5 million for the three
months ended March 31, 2014 and is anticipated to be a similar amount for each calendar quarter over the next three years.
During the three months ended March 31,
2014, the Company converted notes and relevant accrued interest of $0.1 million into approximately 0.07 million shares of common
stock. During the three months ended March 31, 2013, $0.9 million of notes were converted into 0.4 million shares of common stock.
Notes payable consist of the following at March 31, 2014 and
December 31, 2013 (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Notes payable - current
|
|
|
|
|
|
|
12% unsecured orginally due July 2011 - in dispute (1)
|
|
|
934
|
|
|
|
934
|
|
|
|
|
934
|
|
|
|
934
|
|
Convertible notes payable, net - current
|
|
|
|
|
|
|
|
|
6% unsecured (2)
|
|
|
135
|
|
|
|
160
|
|
8% unsecured note due 2014 (3)
|
|
|
53
|
|
|
|
53
|
|
|
|
|
188
|
|
|
|
213
|
|
Convertible Notes payable related party, net - current
|
|
|
|
|
|
|
|
|
6% due on demand (4)
|
|
|
50
|
|
|
|
75
|
|
|
|
|
50
|
|
|
|
75
|
|
Total notes payable, net
|
|
$
|
1,172
|
|
|
$
|
1,222
|
|
(1) This $0.934 million note, which was
originally due in July 2011 is currently under dispute with the creditor as to the validity of the note payable balance, which
the Company believes has already been paid in full and is not outstanding.
(2) This $0.135 million note as of March
31, 2014 consists of two separate 6% notes in the amounts of $0.110 million and $0.025 million. In regard to the $0.110 million
note, the Company has made ongoing attempts to locate the creditor to repay or convert this note, but has been unable to locate
the creditor to date. In regard to the $0.025 million note, the holder has elected to convert these notes into equity, the Company
has delivered the applicable conversion documents to the holder, and the Company is waiting for the holder to execute and return
the documents.
(3) This $0.530 million note is due May
25, 2014.
(4) This $0.050 million demand note as
of March 31, 2014 is held by an officer of the Company. The holder has made no demand for payment, and is not expected to make
a demand any time in the near term.
7. Net Loss Per Share Applicable to
Common Stockholders
Options, warrants, and convertible debt
outstanding were all considered anti-dilutive for the three months ended March 31, 2014, and 2013, due to net losses.
The following securities were not included
in the diluted net loss per share calculation because their effect was anti-dilutive as of the periods presented (in thousands):
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Common stock options
|
|
|
1,551
|
|
|
|
1,551
|
|
Common stock warrants
|
|
|
22,640
|
|
|
|
12,214
|
|
Convertible notes
|
|
|
81
|
|
|
|
102
|
|
Excluded potentially dilutive securities
|
|
|
24,272
|
|
|
|
13,867
|
|
8. Related Party Transactions
a.
Cognate BioServices
Under the January 17, 2014 DCVax®-L
Manufacturing Services Agreement and the DCVax-Direct Agreement, a modified set of provisions applies going forward to any shut
down or suspension. Such shut down provisions have been included in all of the agreements with Cognate since 2005. Under
the modified provisions, if the Company shuts down or suspends its DCVax-L program or DCVax-Direct program with Cognate in breach
of the Agreement, the Company will be liable for certain fees in addition to any other remedies. The fees are based on the stage
at which the shut down or suspension occurs:
|
•
|
Prior to the last dose of the last patient enrolled in the Phase III trial for DCVax®-L or after the last dose of the last patient enrolled in the Phase III clinical trial for DCVax®-L but before any submission for product approval in any jurisdiction or after the submission of any application for market authorization but prior to receiving a marketing authorization approval: in any of these cases, the fee shall be $3 million.
|
|
•
|
At any time after receiving the equivalent of a marketing authorization for DCVax®-L in any jurisdiction, the fee shall be $5 million.
|
For the three months ended March 31,
2014 the Company recognized approximately $10.1 million was associated with one-time charges (including charges relating to
start-up and substantial expansion of several Company programs) under the 2014 service agreements. In addition, the Company
incurred recurring research and development charges, which, for the three months ended March 31, 2014 were $5.5 million.
As of March 31, 2014 and December 31, 2013, the Company owed Cognate (including third party sub-contract amounts)
approximately $1.0 million and $3.6 million, respectively.
Cognate Accounts Payable Conversions
and inducement charge –First quarter 2014
Under the July 2013 Conversion and Lock-up
Agreement $5.9 million in accounts payable due to Cognate was converted into common stock and warrants. 1.5 million shares of common
stock were issued based on a $4.00 per share conversion price. 50% warrant coverage of the common stock issued resulted in 0.7
million warrants issued with an initial exercise price of $4.00. The shares and warrants are subject to most favored nation treatment
with respect to the terms provided to any other investors or creditors subsequent to their issuance (including with respect to any warrants).
In accordance with ASC Topic 820,
the fair value of the shares was recognized as approximately $8.7 million. The fair value of the warrants was based on the Monte Carlo simulation model, the inputs of which are
disclosed in note 4 and was approximately $2.5 million. The Company recorded a $5.3 million of inducement expense in
connection with these transactions.
The conversion shares are subject
to a lock-up period of at least 18 months from the date of their issuance. Under the lock-up, the shares cannot be sold or
traded on the market.
The Company classified the warrants as
liabilities at their fair value and adjusts the instruments to fair value at each reporting period in the condensed consolidated
statements of operations.
9. Redeemable Common Stock
During the first quarter of 2014, the
redemption provision on all 1.4 million redeemable shares outstanding as of December 31, 2013 lapsed and $8.9 million was transferred
from redeemable common stock to stockholders’ equity (deficit).
10. Stockholders’ Deficit
a.
Common Stock Issuances
First Quarter 2014
During the quarter ended March
31, 2014 the Company issued in aggregate 5,339,862 shares of common stock in exchange for consulting services. In accordance
with ASC Topic 718, the fair value of the vested portion of the common stock was recognized as $4.0 million.
During the quarter ended March 31, 2014
the Company issued in aggregate 32,000 shares of common stock for cash. The fair value of the common stock recognized was $0.2
million.
During the quarter ended March 31, 2014,
the Company converted accounts payable due to Cognate of approximately $5.9 million into 1,481,644 shares. The Company recorded
$2.8 million of inducement expense associated with the issuance of the common shares. In addition, as noted in footnote 10b the
Company issued warrants that were valued at $2.5 million at the date of issuance related to the conversion of accounts payable.
Total inducement charge was $5.3 million.
During the quarter ended March
31, 2014, the Company converted notes and relevant accrued interest, based upon the original terms, of $0.2 million into
approximately 0.07 million shares of common stock.
During the quarter ended March 31, 2014,
the Company issued an aggregate of 721,827 shares of common stock from the exercise of warrants previously issued. The Company
received proceeds of approximately $2.7 million from the exercise of these warrants.
During the quarter ended March 31, 2014,
1,444,788 redeemable shares with a carrying value of $8.9 million were no longer redeemable and were reclassed to stockholders’
equity.
b.
Stock Purchase Warrants
The following is a summary of warrant activity
for the three months ended March 31, 2014 (in thousands):
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2013
|
|
|
20,266
|
|
|
$
|
5.23
|
|
Warrants issued in connection with conversion of Cognate accounts payable*
|
|
|
741
|
|
|
|
4.00
|
|
Warrants issued in exchange for services
|
|
|
2,434
|
|
|
|
4.00
|
|
Warrants exercised on a cashless basis
|
|
|
(73
|
)
|
|
|
-
|
|
Warrants exercised for cash
|
|
|
(722
|
)
|
|
|
3.66
|
|
Expired in first quarter of 2014
|
|
|
(6
|
)
|
|
|
9.54
|
|
Outstanding as of March 31, 2014
|
|
|
22,640
|
|
|
$
|
5.12
|
|
*The warrants contain “down round protection”
and the Company classifies these warrant instruments as liabilities at fair value and remeasures these instruments to fair value
each reporting period. The Company recorded a $2.5 million charge to inducement expense related to these warrants. The fair value
of the warrants was based upon a Monte Carlo Simulation as more fully discussed in Note 4.
11. Subsequent Events
Securities Purchase Agreement - $15.0
million in procceds
On April 15, 2014, the Company sold to
a single institutional investor 2,272,727 shares of common stock at a purchase price of $6.60 per share, for a total purchase price
of $15.0 million. Additionally, from the date of the closing until one year after the closing date, the investor has a non-transferable
Overallotment Right to purchase up to 2,272,727 additional shares of common stock at a price per share of $7.50, for an additional
subscription amount of up to $17.05 million. In connection with the sale, the Company paid H.C. Wainwright, the sole placement
agent in the offering, fees of approximately $1.05 million, and issued to H.C. Wainwright a warrant to purchase 113,636 shares,
which was equal to 5% of the shares sold to the investor in the financing, with an exercise price of $8.25 (which is equal to 125%
of the price per share for the shares sold to the investor).
If the investor exercises any portion of
the Overallotment Right, the Company will issue to H.C. Wainwright a warrant to purchase shares in an amount equal to 5% of the
shares purchased by the investor, with an exercise price of $9.375 (equal to 125% of the price per share for the Overallotment
Right shares, if any). The warrants will be exercisable until February 5, 2018.