As filed with the Securities and Exchange Commission on December 17, 2007
Registration No. 333-134320
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 1
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Northwest Biotherapeutics, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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2834
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94-3306718
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(State or other jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer
|
incorporation or organization)
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Classification Code Number)
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Identification Number)
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7600 Wisconsin Avenue, Suite 750
Bethesda, Maryland 20814
(240) 497-9024
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Alton L. Boynton, Ph.D.
President, Chief Executive Officer
7600 Wisconsin Avenue, Suite 750
Bethesda, Maryland 20814
(240) 497-9024
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
David H. Engvall, Esq.
Covington & Burling LLP
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
(202) 662-6000
Approximate date of commencement of proposed sale to the public:
From time to time after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities
offered only in connection with dividend or interest reinvestment plans, check the following box.
þ
If this Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
o
The Registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become effective in
accordance with
Section 8(a)
of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Commission, acting pursuant to
said Section
8(a)
, may determine.
The information in this prospectus is not complete and may be changed. These securities may not be
sold until the registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER
, 2007
PROSPECTUS
688,722 Shares
Northwest Biotherapeutics, Inc.
Common Stock
This prospectus relates to the resale, from time to time, of up to 688,722 shares of our
common stock which are held by certain of our stockholders named in this prospectus, whom we refer
to collectively as the selling stockholders. These shares include 11,333 shares of common stock
held by the selling stockholders and 677,389 shares of common stock issuable upon exercise of
warrants held by the selling stockholders. All of these shares of common stock are being sold by
the selling stockholders, or their transferees, pledgees, donees or successors-in-interest. The
selling stockholders will receive all proceeds from the sale of the shares of our common stock
being offered in this prospectus. We will, however, receive the exercise price of the warrants held
by the selling stockholders upon exercise for cash by the selling stockholders.
The selling stockholders may sell the shares of common stock being offered by them from time
to time on the Over-the-Counter Bulletin Board, in market transactions, in negotiated transactions
or otherwise, and at prices and at terms that will be determined by the then prevailing market
price for the shares of common stock or at negotiated prices directly or through brokers or
dealers, who may act as agent or as principal or by a combination of such methods of sale. For
additional information on the methods of sale, you should refer to the section entitled Plan of
Distribution on page 73.
Our common stock trades on the Over-The-Counter Bulletin Board under the symbol NWBO.OB. On
December 5, 2007, the closing price of our common stock on the Over-The-Counter Bulletin Board was
$2.40.
Investing
in our common stock involves risks. See Risk Factors beginning on page 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is December
, 2007.
TABLE OF CONTENTS
You should rely only on the information contained in this document or any prospectus
supplement or to which we have referred you. Neither we nor any of the selling stockholders have
authorized anyone to provide you with information that is different. This document may only be used
where it is legal to sell these securities. The information in this document or any prospectus
supplement may only be accurate on the date of this document or any prospectus supplement.
IF IT IS AGAINST THE LAW IN ANY STATE TO MAKE AN OFFER TO SELL THESE SECURITIES, OR TO SOLICIT AN
OFFER FROM SOMEONE TO BUY THESE SECURITIES, THEN THIS PROSPECTUS DOES NOT APPLY TO ANY PERSON IN
THAT STATE, AND NO OFFER OR SOLICITATION IS MADE BY THIS PROSPECTUS TO ANY SUCH PERSON.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. It does not
contain all of the information that you should consider before investing in our common stock. You
should read the entire prospectus carefully, including our financial statements and notes thereto.
You should read Risk Factors beginning on page
5 for more information about important risks
that you should consider before investing in our common stock.
As used in this prospectus, unless the context otherwise requires, the terms Northwest
Biotherapeutics, the Company, we, us, and our refer to Northwest Biotherapeutics, Inc. and
its subsidiary.
Unless otherwise indicated, all references in this prospectus to our common stock are to our
common stock, par value $0.001 per share, after giving effect to the one-for-fifteen reverse stock
split effected on June 19, 2007.
NORTHWEST BIOTHERAPEUTICS, INC.
General
Northwest Biotherapeutics, Inc. was formed in 1996 and subsequently incorporated in Delaware
in July 1998. We are a development stage biotechnology company focused on discovering, developing,
and commercializing immunotherapy products that generate and enhance immune system responses to
effectively treat cancer. Currently approved cancer treatments are frequently ineffective, can
cause undesirable side effects and provide marginal clinical benefits. Our approach in developing
cancer therapies utilizes our expertise in the biology of dendritic cells, which are a type of
white blood cell that activate the immune system. Our primary activities since incorporation have
been focused on advancing a proprietary dendritic cell immunotherapy for prostate and brain cancer
together with strategic and financial planning, and raising capital to fund our operations. We
completed an initial public offering of our common stock on the NASDAQ market in December 2001, and
we completed an initial public offering of our common stock on the Alternative Investment Market
(AIM) of the London Stock Exchange in June 2007.
We have two basic technology platforms applicable to cancer therapeutics: dendritic cell-based
cancer vaccines, which we call DCVax
®
, and monoclonal antibodies for cancer
therapeutics. DCVax
®
is our registered trademark. Our DCVax
®
dendritic
cell-based cancer vaccine program is our main technology platform.
Other Information
Our principal executive offices are located at 7600 Wisconsin Avenue, Suite 750, Bethesda,
Maryland 20814. Our telephone number is (240) 497-9024. Our website address is www.nwbio.com. The
information available on or through our website is not part of this prospectus.
1
THE OFFERING
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Common stock offered by the selling stockholders:
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688,722 shares (this
includes 677,389 shares
issuable upon the
exercise of warrants
held by the selling
stockholders)
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Common stock outstanding on December 5, 2007:
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42,346,088 shares
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Use of proceeds:
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We will not receive any
of the proceeds from the
sale of shares by the
selling stockholders,
but we will receive the
exercise price for
warrants held by the
selling stockholders
when such warrants are
exercised for cash. We
intend to use the net
proceeds that we receive
from the exercise of
such warrants, if any,
for working capital and
other general corporate
purposes. See Use of
Proceeds.
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Over-The-Counter Bulletin Board symbol
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NWBO.OB
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The common stock outstanding on December 5, 2007 excludes:
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an aggregate of 50,906 shares of common stock issuable upon exercise of stock options
outstanding at December 5, 2007, granted under our 1998 Stock Plan, the 1999 Executive Stock
Plan, the 2001 Stock Plan, the Employee Stock Purchase Plan and the 2001 Nonemployee
Director Stock Incentive Plan;
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an aggregate of 769,208 shares of common stock issuable upon exercise of stock options
outstanding at December 5, 2007, granted under our 2007 Stock Option Plan and an aggregate
of 4,711,660 additional shares of common stock reserved for future grants under our 2007
Stock Option Plan. Our Board of Directors has resolved not to grant any further stock
options under the 1998 Stock Plan, the 1999 Executive Stock Plan, the 2001 Stock Plan, the
Employee Stock Purchase Plan or the 2001 Nonemployee Director Stock Incentive Plan;
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an aggregate of 31,701,498 shares of common stock issuable upon exercise of warrants
outstanding at December 5, 2007, including the 677,389 shares of common stock issuable upon
exercise of warrants held by the selling stockholders; and
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an aggregate of 23,205 shares of common stock issuable upon the conversion of certain
convertible promissory notes on which accrued interest of approximately $14,000 remains
outstanding.
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2
Summary Financial Data
The summary financial data set forth below as of December 31, 2005 and 2006 and for the years
ended December 31, 2004, 2005 and 2006 are derived from our audited consolidated financial
statements included elsewhere in this prospectus. The summary financial data as of and for the nine
months ended September 30, 2006 and 2007, and the period from March 18, 1996 (inception) to
September 30, 2007, are derived from our unaudited condensed consolidated financial statements
included elsewhere in this prospectus. The summary financial data set forth below as of December
31, 2004 is derived from audited financial statements not included in this prospectus. The summary
financial data should be read in conjunction with our audited consolidated financial statements and
the related notes and unaudited condensed consolidated financial statements and related notes and
Managements Discussion and Analysis of Financial Condition and Results of Operations included
elsewhere in this prospectus.
3
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Period
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from
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|
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March
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|
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|
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|
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18,
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
1996
|
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|
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(Inception)
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Year Ended
|
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Nine Months Ended
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to
|
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December 31,
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September 30,
|
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September 30,
|
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2004
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2005
|
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|
2006
|
|
|
2006
|
|
|
2007
|
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|
2007
|
|
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|
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(Unaudited)
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(Unaudited)
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(In thousands, except per share data)
|
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Statement of Operations Data:
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|
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|
|
|
|
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Total Revenues
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$
|
390
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|
$
|
124
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$
|
80
|
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|
$
|
80
|
|
|
$
|
10
|
|
|
$
|
2,729
|
|
Operating Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
Cost of research material sales
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40
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382
|
|
Research and development
|
|
|
3,621
|
|
|
|
4,469
|
|
|
|
3,777
|
|
|
|
2,644
|
|
|
|
5,342
|
|
|
|
41,186
|
|
General and administrative
|
|
|
2,845
|
|
|
|
2,005
|
|
|
|
2,273
|
|
|
|
1,669
|
|
|
|
3,643
|
|
|
|
36,610
|
|
Depreciation and amortization
|
|
|
132
|
|
|
|
63
|
|
|
|
37
|
|
|
|
29
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|
|
|
18
|
|
|
|
2,321
|
|
Loss on facility sublease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
895
|
|
Asset impairment loss and (gain) loss on disposal
of equipment
|
|
|
130
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
(9
|
)
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|
|
|
|
|
|
2,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
6,768
|
|
|
|
6,549
|
|
|
|
6,077
|
|
|
|
4,333
|
|
|
|
9,003
|
|
|
|
83,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(6,378
|
)
|
|
|
(6,425
|
)
|
|
|
(5,997
|
)
|
|
|
(4,253
|
)
|
|
|
(8,993
|
)
|
|
|
(80,721
|
)
|
Other Income (expense), net
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Warrant valuation
|
|
|
(368
|
)
|
|
|
|
|
|
|
7,127
|
|
|
|
7,127
|
|
|
|
|
|
|
|
6,759
|
|
Gain on sale of intellectual property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,656
|
|
Interest expense
|
|
|
(1,765
|
)
|
|
|
(3,517
|
)
|
|
|
(2,564
|
)
|
|
|
(2,246
|
)
|
|
|
(5,561
|
)
|
|
|
(21,262
|
)
|
Interest income and other
|
|
|
3
|
|
|
|
5
|
|
|
|
39
|
|
|
|
34
|
|
|
|
738
|
|
|
|
1,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(8,508
|
)
|
|
|
(9,937
|
)
|
|
|
(1,395
|
)
|
|
|
662
|
|
|
|
(13,816
|
)
|
|
|
(90,055
|
)
|
Issuance of common stock in connection with
elimination of Series A and Series A-1 preferred
stock preferences
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,349
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)
|
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|
(12,349
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)
|
Modification of Series A preferred stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,306
|
)
|
|
|
(2,306
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)
|
Modification of Series A-1 preferred stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,393
|
)
|
|
|
(16,393
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)
|
Series A preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(334
|
)
|
|
|
(334
|
)
|
Series A-1 preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(917
|
)
|
|
|
(917
|
)
|
Warrants issued on Series A and Series A-1
preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,664
|
)
|
|
|
(4,664
|
)
|
Accretion of redemption value of mandatorily
redeemable membership units and preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,872
|
)
|
Series A preferred stock redemption fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
Beneficial conversion feature of series D
convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
(8,508
|
)
|
|
$
|
(9,937
|
)
|
|
$
|
(1,395
|
)
|
|
$
|
662
|
|
|
$
|
(50,779
|
)
|
|
$
|
(134.864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/loss per share applicable to common
stockholders basic
|
|
$
|
(6.70
|
)
|
|
$
|
(7.82
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
0.20
|
|
|
$
|
(2.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic
net income/loss per share
|
|
|
1,269
|
|
|
|
1,271
|
|
|
|
3,562
|
|
|
|
3,297
|
|
|
|
18,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/loss per share applicable to common
stockholders diluted
|
|
$
|
(6.70
|
)
|
|
$
|
(7.82
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
0.02
|
|
|
$
|
(2.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing diluted
net income/loss per share
|
|
|
1,269
|
|
|
|
1,271
|
|
|
|
3,562
|
|
|
|
29,521
|
|
|
|
18,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
September 30,
|
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
248
|
|
|
$
|
352
|
|
|
$
|
307
|
|
|
$
|
16,875
|
|
Working capital (deficit)
|
|
$
|
(5,353
|
)
|
|
$
|
(11,502
|
)
|
|
$
|
(5,998
|
)
|
|
$
|
10,554
|
|
Total assets
|
|
$
|
558
|
|
|
$
|
631
|
|
|
$
|
504
|
|
|
$
|
17,327
|
|
Long-term obligations, net of current portion and discounts
|
|
$
|
12
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
Total stockholders equity (deficit)
|
|
$
|
(5,217
|
)
|
|
$
|
(11,418
|
)
|
|
$
|
(5,949
|
)
|
|
$
|
10,566
|
|
4
RISK FACTORS
Our business, operations and financial condition are subject to various risks. You should consider
carefully the following risk factors, in addition to the other information set forth in this
prospectus, before deciding to participate in the offering. If any of these risks and uncertainties
actually occur, our business, financial condition or results of operations could be materially and
adversely affected, the value of our common stock could decline, and you may lose all or part of
your investment.
We are likely to continue to incur substantial losses, and may never achieve profitability.
We have incurred net losses every year since our formation in March 1996 and had a deficit
accumulated during the development stage of approximately $135 million as of September 30, 2007. We
expect that these losses will continue and anticipate negative cash flows from operations for the
foreseeable future. Despite the receipt of approximately $26.0 million of net proceeds from an
offering of our common stock on AIM in June 2007, we expect we will need additional funding, and
over the medium term we will need to generate revenue sufficient to cover operating expenses,
clinical trial expenses and some research and development costs to achieve profitability. We may
never achieve or sustain profitability.
Our auditors have issued a going concern audit opinion.
Our independent auditors have indicated in their report on our December 31, 2006 financial
statements that there is substantial doubt about our ability to continue as a going concern. A
going concern opinion indicates that the financial statements have been prepared assuming we will
continue as a going concern and do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty. Therefore, you should not rely on
our consolidated balance sheet as an indication of the amount of proceeds that would be available
to satisfy claims of creditors, and potentially be available for distribution to stockholders, in
the event of liquidation.
As a company in the early stage of development with an unproven business strategy, our limited
history of operations makes an evaluation of our business and prospects difficult.
We have had a limited operating history and we are at an early stage of development. We may
not be able to achieve revenue growth in the future. We have generated the following limited
revenues: $529,000 in 2003; $390,000 in 2004; $124,000 in 2005; $80,000 in 2006; and $10,000
through the first nine months of 2007. We have derived most of these limited revenues from the
sale of research products to a single customer, contract research and development from related
parties and research grants. Our limited operating history makes it difficult to assess our
prospects for generating revenues.
We will need to raise additional capital, which may not be available.
It is likely that we will need additional capital in the future to support and fund the
research, development and commercialization of our product candidates. If we require additional
funds and we are unable to obtain them on a timely basis or on favorable terms, we may be required
to curtail or cease certain of our operations. We may raise additional funds by issuing additional
common stock or securities (equity or debt) convertible into shares of common stock, in which case,
the ownership interest of our stockholders will be diluted. Any debt financing, if available, is
likely to include restrictive covenants that could limit our ability to take certain actions.
We may not be able to retain existing personnel.
We employ four full-time employees. The uncertainty of our business prospects and the
volatility in the price of our common stock may create anxiety and uncertainty, which could
adversely affect employee morale and cause us to lose employees whom we would prefer to retain. To
the extent that we are unable to retain existing personnel, our business and financial results may
suffer.
We may not be able to attract expert personnel.
In order to pursue our product development and marketing plans, we will need additional
management personnel and personnel with expertise in clinical testing, government regulation,
manufacturing and marketing. Attracting and retaining qualified personnel, consultants and advisors
will be critical to our success. There can be no assurance that we will be able to attract
personnel on acceptable terms given the competition for such personnel among biotechnology,
pharmaceutical and healthcare companies, universities and non-profit research institutions. The
failure to attract any of these personnel could impede the achievement of our development
objectives.
5
We must rely at present on a single relationship with a third-party contract manufacturer, which
will limit our ability to control the availability of our product candidates in the near-term.
We rely upon a single contract manufacturer, Cognate BioServices, Inc. (Cognate). The
majority owner of Cognate is Toucan Capital Fund II, L.P. (Toucan Capital), one of our majority
stockholders. Cognate provides consulting services and is the manufacturer of our product
candidates. We have an agreement in place with Cognate pursuant to which Cognate has agreed to
provide manufacturing and other services in connection with our pivotal Phase II clinical trial for
DCVax
®
-Brain. The agreement requires us to make minimum monthly payments to Cognate irrespective of
whether any DCVax
®
products are manufactured. The agreement does not extend to providing services
in respect of commercialization of the DCVax
®
-Brain product, nor for other clinical trials or
commercialization of any of our other product candidates. If and to the extent we wish to engage
Cognate to manufacture our DCVax
®
-Brain for commercialization or any of our other product
candidates (including DCVax
®
-Prostate) for clinical trials or commercialization, we will need to
enter into a new agreement with Cognate or another third-party manufacturer which might not be
feasible on a timely or favorable basis. The failure to timely enroll patients in our clinical
trials will have an adverse impact on our financial results due, in part, to the minimum monthly
payments that we make to Cognate.
Problems with our contract manufacturers facilities or processes could result in a failure to
produce, or a delay in production, of adequate supplies of our product candidates. Any prolonged
interruption in the operations of our contract manufacturers facilities could result in
cancellation of shipments or a shortfall in availability of a product candidate. A number of
factors could cause interruptions, including the inability of a supplier to provide raw materials,
equipment malfunctions or failures, damage to a facility due to natural disasters, changes in U.S.
Food and Drug Administration, or FDA, regulatory requirements or standards that require
modifications to our manufacturing processes, action by the FDA or by us that results in the
halting or slowdown of production of components or finished products due to regulatory issues, the
contract manufacturer going out of business or failing to produce product as contractually required
or other similar factors. Because manufacturing processes are highly complex and are subject to a
lengthy FDA approval process, alternative qualified production capacity may not be available on a
timely basis or at all. Difficulties or delays in our contract manufacturers manufacturing and
supply of components could delay our clinical trials, increase our costs, damage our reputation
and, if our product candidates are approved for sale, cause us to lose revenue or market share if
it is unable to timely meet market demands.
Our success partly depends on existing and future collaborators.
We work with scientists and medical professionals at academic and other institutions,
including UCLA, the University of Pennsylvania, M.D. Anderson Cancer Centre and the H. Lee Moffitt
Cancer Centre, among others, some of whom have conducted research for us or have assisted in
developing our research and development strategy. We do not employ these scientists and medical
professionals. They may have commitments to, or contracts with, other businesses or institutions
that limit the amount of time they have available to work with us. We have little control over
these individuals. We can only expect that they devote time to us as required by our license,
consulting and sponsored research agreements. In addition, these individuals may have arrangements
with other companies to assist in developing technologies that may compete with our products. If
these individuals do not devote sufficient time and resources to our programs, or if they provide
substantial assistance to our competitors, our business could be seriously harmed.
The success of our business strategy may partially depend upon our ability to develop and
maintain our collaborations and to manage them effectively. Due to concerns regarding our ability
to continue our operations or the commercial feasibility of our personalized DCVax
®
product
candidates, these third parties may decide not to conduct business with us or may conduct business
with us on terms that are less favorable than those customarily extended by them. If either of
these events occurs, our business could suffer significantly.
We may have disputes with our collaborators, which could be costly and time consuming. Failure
to successfully defend our rights could seriously harm our business, financial condition and
operating results. We intend to continue to enter into collaborations in the future. However, we
may be unable to successfully negotiate any additional collaboration and any of these
relationships, if established, may not be scientifically or commercially successful.
We are involved in legal proceedings that could result in the payment of damages, which
could be substantial, or that could otherwise harm our business. In addition, future
litigation could be costly to defend or pursue and uncertain in its outcome.
We are party to various legal actions, as more fully described below under Business Legal
Proceedings. These pending legal proceedings include a dispute with Soma Partners, LLC, an
investment bank, regarding certain fees Soma claims it is entitled to under
6
an engagement letter with us, as well as a patent infringement claim filed against us by Lonza
Group AG alleging infringement of certain patents relating to recombinant DNA methods, sequences,
vectors, cell lines and host cells. In addition, several complaints seeking class-action status
have been filed against us alleging violations of Section 10(b) of the Securities Exchange Act of
1934, as amended (the Exchange Act), and Rule 10b-5 thereunder, based on our public announcements
in July 2007 regarding the status of certain regulatory approvals for our DCVax
®
-Brain vaccine in
Switzerland. We are also cooperating with an informal inquiry of the Securities and Exchange
Commission, or SEC, regarding the same matter. We can provide no assurances as to the outcome of
these legal proceedings.
The defense of these or future legal proceedings could divert managements attention and
resources from the needs of our business. We may be required to make substantial payments in the
event of adverse judgments or settlements of any such claims, investigations, or proceedings. Any
legal proceeding, even if resolved in our favor, could result in negative publicity or cause us to
incur significant legal and other expenses. In addition, an adverse judgment in the patent
infringement claim could limit our ability to pursue our business strategy as currently planned.
Actual costs incurred in any legal proceedings may differ from our expectations and could exceed
any amounts for which we have made reserves.
Clinical trials for our product candidates are expensive and time consuming and their outcome is
uncertain.
The process of obtaining and maintaining regulatory approvals for new therapeutic products is
expensive, lengthy and uncertain. It can vary substantially, based upon the type, complexity and
novelty of the product involved. Accordingly, any of our current or future product candidates could
take a significantly longer time to gain regulatory approval than we expect or may never gain
approval, either of which could reduce our anticipated revenues and delay or terminate the
potential commercialization of our product candidates.
We have limited experience in conducting and managing clinical trials.
We rely on third parties to assist us in managing and monitoring all our clinical trials. Our
reliance on these third parties may result in delays in completing, or failure to complete, these
trials if the third parties fail to perform under the terms of our agreements with them. We may not
be able to find a sufficient alternative supplier of these services in a reasonable time period, or
on commercially reasonable terms, if at all. If we were unable to obtain an alternative supplier of
these services, we might be forced to curtail our Phase II clinical trial for DCVax
®
-Brain.
Our product candidates will require a different distribution model than conventional therapeutic
products.
The nature of our product candidates means that different systems and methods will need to be
followed for the distribution and delivery of the products than is the case for conventional
therapeutic products. The personalized nature of these products, the need for centralized storage,
and the requirement to maintain the products in frozen form may mean that we are not able to take
advantage of distribution networks normally used for conventional therapeutic products. If our
product candidates are approved, it may take time for hospitals and physicians to adapt to the
requirements for handling and storage of these products, which may adversely affect their sales.
We lack sales and marketing experience and as a result may experience significant difficulties
commercializing our research product candidates.
The commercial success of any of our product candidates will depend upon the strength of our
sales and marketing efforts. We do not have a sales force and have no experience in sales,
marketing or distribution. To fully commercialize our product candidates, we will need a
substantial marketing staff and sales force with technical expertise and the ability to distribute
these products. As an alternative, we could seek assistance from a third party with a large
distribution system and a large direct sales force. We may be unable to put either of these plans
in place. In addition, if we arrange for others to market and sell our products, our revenues will
depend upon the efforts of those parties. Such arrangements may not succeed.
Even if one or more of our product candidates is approved for marketing, if we fail to
establish adequate sales, marketing and distribution capabilities, independently or with others,
our business will be seriously harmed.
Competition in the biotechnology and biopharmaceutical industry is intense and most of our
competitors have substantially greater resources than us.
The biotechnology and biopharmaceutical industries are characterized by rapidly advancing
technologies, intense competition and a strong emphasis on proprietary products. Several companies,
such as Cell Genesys, Inc., Dendreon Corporation, Immuno-Designed
7
Molecules, Inc., Celldex Therapeutics, Inc., Ark Therapeutics plc, Oxford Biomedica plc, Argos
Therapeutics, Inc. and Antigenics, are actively involved in the research and development of
immunotherapies or cell-based cancer therapeutics. Of these companies, we believe that only
Dendreon and Cell Genesys are carrying-out Phase III clinical trials with a cell-based therapy. No
dendritic cell-based therapeutic product is currently approved for commercial sale. Additionally,
several companies, such as Medarex, Inc., Amgen, Inc., Agensys, Inc., and Genentech, Inc., are
actively involved in the research and development of monoclonal antibody-based cancer therapies.
Currently, at least seven antibody-based products are approved for commercial sale for cancer
therapy. Genentech is also engaged in several Phase III clinical trials for additional
antibody-based therapeutics for a variety of cancers, and several other companies are in early
stage clinical trials for such products. Many other third parties compete with us in developing
alternative therapies to treat cancer, including: biopharmaceutical companies; biotechnology
companies; pharmaceutical companies; academic institutions; and other research organizations.
Most of our competitors have significantly greater financial resources and expertise in
research and development, manufacturing, pre-clinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing than we do. In addition, many of these competitors are
actively in seeking patent protection and licensing arrangements in anticipation of collecting
royalties for use of technology they have developed. Smaller or early-stage companies may also
prove to be significant competitors, particularly through collaborative arrangements with large and
established companies. These third parties compete with us in recruiting and retaining qualified
scientific and management personnel, as well as in acquiring technologies complementary to our
programs.
We expect that our ability to compete effectively will be dependent upon our ability to:
obtain additional funding; successfully complete clinical trials and obtain all requisite
regulatory approvals; maintain a proprietary position in our technologies and products; attract and
retain key personnel; and maintain existing or enter into new partnerships.
Our competitors may develop more effective or affordable products, or achieve earlier patent
protection or product marketing and sales. As a result, any products developed by us may be
rendered obsolete and non-competitive.
Our intellectual property rights may not provide meaningful commercial protection for our
research products or product candidates, which could enable third parties to use our technology,
or very similar technology, and could reduce our ability to compete in the market.
We rely on patent, copyright, trade secret and trademark laws to limit the ability of others
to compete with us using the same or similar technology in the United States and other countries.
However, as described below, these laws afford only limited protection and may not adequately
protect our rights to the extent necessary to sustain any competitive advantage we may have. The
laws of some foreign countries do not protect proprietary rights to the same extent as the laws of
the United States, and we may encounter significant problems in protecting our proprietary rights
in these countries.
We have 27 issued and licensed patents (10 in the United States and 17 in other jurisdictions)
and 133 patent applications pending (15 in the United States and 118 in other jurisdictions) which
cover the use of dendritic cells in DCVax
®
as well as targets for either our dendritic cell or
fully human monoclonal antibody therapy candidates. The issued patents expire at various dates from
2015 to 2026.
We will only be able to protect our technologies from unauthorized use by third parties to the
extent that they are covered by valid and enforceable patents or are effectively maintained as
trade secrets. The patent positions of companies developing novel cancer treatments, including our
patent position, generally are uncertain and involve complex legal and factual questions,
particularly concerning the scope and enforceability of claims of such patents against alleged
infringement. Recent judicial decisions in the United States are prompting a reinterpretation of
the limited case law that exists in this area, and historical legal standards surrounding questions
of infringement and validity may not apply in future cases. A reinterpretation of existing U.S. law
in this area may limit or potentially eliminate our patent position and, therefore, our ability to
prevent others from using our technologies. The biotechnology patent situation outside the United
States is even more uncertain. Changes in either the patent laws or the interpretations of patent
laws in the United States and other countries may, therefore, diminish the value of our
intellectual property.
We own or have rights under licenses to a variety of issued patents and pending patent
applications. However, the patents on which we rely may be challenged and invalidated, and our
patent applications may not result in issued patents. Moreover, our patents and patent applications
may not be sufficiently broad to prevent others from using our technologies or from developing
competing products. We also face the risk that others may independently develop similar or
alternative technologies or design around our patented technologies.
We have taken security measures to protect our proprietary information, especially proprietary
information that is not covered by patents or patent applications. These measures, however, may not
provide adequate protection for our trade secrets or other proprietary
8
information. We seek to protect our proprietary information by entering into confidentiality
agreements with employees, partners and consultants. Nevertheless, employees, collaborators or
consultants may still disclose our proprietary information, and we may not be able to protect our
trade secrets in a meaningful way. In addition, others may independently develop substantially
equivalent proprietary information or techniques or otherwise gain access to our trade secrets.
Our success will depend substantially on our ability to operate without infringing or
misappropriating the proprietary rights of others.
Our success will depend to a substantial degree upon our ability to develop, manufacture,
market and sell our research products and product candidates without infringing the proprietary
rights of third parties and without breaching any licenses entered into by us regarding our product
candidates.
There is a substantial amount of litigation involving patent and other intellectual property
rights in the biotechnology and biopharmaceutical industries generally. Infringement and other
intellectual property claims, with or without merit, can be expensive and time-consuming to
litigate and can divert managements attention from our core business. For example, recently, Lonza
Group AG filed a complaint against us in the United States District Court for the District of
Delaware alleging patent infringement. In addition, we may be exposed to future litigation by third
parties based on claims that our products infringe their intellectual property rights. This risk is
exacerbated by the fact that there are numerous issued and pending patents in the biotechnology
industry and the fact that the validity and breadth of biotechnology patents involve complex legal
and factual questions for which important legal principles remain unresolved.
Competitors may assert that our products and the methods we employ are covered by U.S. or
foreign patents held by them. In addition, because patents can take many years to issue, there may
be currently pending applications, unknown to us, which may later result in issued patents that our
products may infringe. There could also be existing patents of which we are not aware that one or
more of our products may inadvertently infringe.
If we lose a patent infringement claim, we could be prevented from selling our research
products or product candidates unless we can obtain a license to use technology or ideas covered by
such patent or we are able to redesign our products to avoid infringement. A license may not be
available at all or on terms acceptable to us, or we may not be able to redesign our products to
avoid infringement. If we are not successful in obtaining a license or redesigning our products, we
may be unable to sell our products and our business could suffer.
We may not receive regulatory approvals for our product candidates or there may be a delay in
obtaining such approvals.
Our products and our ongoing development activities are subject to regulation by governmental
and other regulatory authorities in the countries in which we or our collaborators and distributors
wish to test, manufacture or market our products. For instance, the FDA will regulate the product
in the U.S. and equivalent authorities, such as the European Medicines Agency (EMEA), will
regulate in other jurisdictions. Regulatory approval by these authorities will be subject to the
evaluation of data relating to the quality, efficacy and safety of the product for its proposed
use.
The time taken to obtain regulatory approval varies between countries. Different regulators
may impose their own requirements and may refuse to grant, or may require additional data before
granting, an approval, notwithstanding that regulatory approval may have been granted by other
regulators. Regulatory approval may be delayed, limited or denied for a number of reasons,
including insufficient clinical data, the product not meeting safety or efficacy requirements or
any relevant manufacturing processes or facilities not meeting applicable requirements.
Further trials and other costly and time-consuming assessments of the product may be required to
obtain or maintain regulatory approval.
Medicinal products are generally subject to lengthy and rigorous pre-clinical and clinical
trials and other extensive, costly and time-consuming procedures mandated by regulatory
authorities. We may be required to conduct additional trials beyond those currently planned, which
could require significant time and expense. For example, the field of cancer treatment is evolving,
and the standard of care for a particular cancer could change while we are in the process of
conducting the clinical trials for our product candidates. Such a change in standard of care could
make it necessary for us to conduct additional clinical trials, which could delay our opportunities
to obtain regulatory approval of our product candidates.
As for all biological products, we may need to provide pre-clinical and clinical data
evidencing the comparability of products before and after any changes in manufacturing process both
during and after product approval. Regulators may require that we
9
generate data to demonstrate that products before or after any change are of comparable safety
and efficacy if we are to rely on studies using earlier versions of the product. DCVax
®
-Brain has
been the subject of process changes during the early clinical phase of its development and
regulators may require comparability data unless they are satisfied that changes in process do not
affect the quality, and hence efficacy and safety, of the product.
We plan to rely on our current Phase II study in DCVax
®
-Brain as a single study in support of
regulatory approval. While under certain circumstances, both EMEA and the FDA will accept a Phase
II study as a single study in support of approval, it is not yet known whether they will do so in
this case. If the regulators do not consider the Phase II study adequate on its own to support a
finding of efficacy, we may be required to perform additional clinical trials in DCVax
®
-Brain.
There is some possibility that changes requested by the FDA could complicate the licensing
application process. Only the data for DCVax
®
-Brain has been discussed with European regulators. On
an informal basis, a number of European national regulators have indicated that additional
pre-clinical and clinical data could be required before the DCVax
®
-Brain product would be approved.
However, it is not clear whether such data will be required until formal scientific advice is
sought from the EMEA, which is the regulator that will ultimately review any application for
approval of this product. Unless the EMEA grants a deferral or a waiver, we may also be obliged to
generate clinical data in pediatric populations.
The FDA previously identified a number of deficiencies regarding the design of our original
proposed Phase III clinical trial for DCVax
®
-Prostate. We believe we remedied these deficiencies in
the new trial design for a 600-patient Phase III trial, which was cleared by the FDA in January
2005. However, we now intend to split this single 600-patient Phase III trial into two separate
300-patient Phase III trials, and submit a Special Protocol Assessment to the FDA. These revisions
in trial design may cause delay in the development process for DCVax
®
-Prostate. It is not yet known
whether the FDA will consider the two-trial design sufficient for marketing approval, or whether
the agency will require us to design and carry out additional studies. If, after the Phase III
studies are carried out, the FDA is not satisfied that its concerns were adequately addressed,
those studies could be insufficient to demonstrate efficacy and additional clinical studies could
be required at that time.
Any delay in completing sufficient trials or other regulatory requirements will delay our
ability to generate revenue from product sales and we may have insufficient capital resources to
support its operations. Even if we do have sufficient capital resources, our ability to generate
meaningful revenues or become profitable may be delayed.
Regulatory approval may be withdrawn at any time.
After regulatory approval has been obtained for medicinal products, the product and the
manufacturer are subject to continual review and there can be no assurance that such approval will
not be withdrawn or restricted. Regulators may also subject approvals to restrictions or
conditions, or impose post-approval obligations on the holders of these approvals, and the
regulatory status of such products may be jeopardized if we do not comply. Extensive post-approval
safety studies are likely to be a condition of the approval and will commit us to significant time
and expense.
We may fail to comply with regulatory requirements.
Our success will be dependent upon our ability, and of our collaborative partners, to maintain
compliance with regulatory requirements including regulators current good manufacturing practices
(cGMP) and safety reporting obligations. The failure to comply with applicable regulatory
requirements can result in, among other things, fines, injunctions, civil penalties, total or
partial suspension of regulatory approvals, refusal to approve pending applications, recalls or
seizures of products, operating and production restrictions and criminal prosecutions.
We may be subject to sanctions if we are determined to be promoting our investigational products
prior to regulatory approval or for unapproved uses.
In both the U.S. and Europe, legislation prohibits us from promoting any product that has not
received approval from the appropriate regulator, or from promoting a product for an unapproved
use. If any regulator determines that we have engaged in such pre-approval, or off-label promotion,
through our website, press releases, or other communications, the authority could require us to
change the content of those communications and could also take regulatory enforcement action,
including the issuance of a warning letter, requirements for corrective action, civil fines, and
criminal penalties. In the event of a product liability lawsuit, materials that appear to promote a
product for unapproved uses may increase our product liability exposure.
10
We may not obtain or maintain orphan drug status and the associated benefits, including marketing
exclusivity.
We may not receive the benefits associated with orphan drug designation. This may result from
a failure to achieve or maintain orphan drug status or the development of a competing product that
has an orphan designation for the same indication. In Europe, the orphan status of DCVax
®
-Brain
will be reassessed shortly prior to the product receiving any regulatory approval. The EMEA will
need to be satisfied that there is evidence that DCVax
®
-Brain offers a significant benefit relative
to existing therapies for the treatment of glioma if DCVax
®
-Brain is to maintain its orphan drug
status.
New legislation may have an adverse effect on our business.
Changes in applicable legislation and/or regulatory policies or discovery of problems with the
product, production process, site or manufacturer may result in delays in bringing products to
market, the imposition of restrictions on the products sale or manufacture, including the possible
withdrawal of the product from the market, or may otherwise have an adverse effect on our business.
The availability and amount of reimbursement for our product candidates and the manner in which
government and private payers may reimburse for our potential products is uncertain.
In many of the markets where we intend to operate, the prices of pharmaceutical products are
subject to direct price controls (by law) and to drug reimbursement programs with varying price
control mechanisms.
We expect that many of the patients in the United States who may seek treatment with our
products that may be approved for marketing will be eligible for coverage under Medicare, the
federal program that provides medical coverage for the aged and disabled. Other patients may be
covered by private health plans or may be uninsured. The Medicare program is administered by the
Centers for Medicare & Medicaid Services (CMS), an agency within the U.S. Department of Health
and Human Services. Coverage and reimbursement for products and services under Medicare are
determined pursuant to regulations promulgated by CMS and pursuant to CMSs subregulatory coverage
and reimbursement determinations. It is difficult to predict how CMS will apply those regulations
and subregulatory determinations to novel products such as ours.
Moreover, the methodology under which CMS makes coverage and reimbursement determinations is
subject to change, particularly because of budgetary pressures facing the Medicare program. For
example, the Medicare Prescription Drug, Improvement, and Modernization Act (the Medicare
Modernization Act), enacted in 2003, provided for a change in reimbursement methodology that has
reduced the Medicare reimbursement rates for many drugs, including oncology therapeutics. Even if
our product candidates are approved for marketing in the U.S., if we are unable to obtain or retain
coverage and adequate levels of reimbursement from Medicare or from private health plans, our
ability successfully to market such products in the U.S. will be adversely affected. The manner and
level at which the Medicare program reimburses for services related to our potential products
(e.g., administration services) also may adversely affect our ability to market or sell any of our
product candidates that may be approved for marketing in the U.S.
In the U.S., efforts to contain or reduce health care costs have resulted in many legislative
and regulatory proposals at both the federal and state level, and it is difficult to predict which,
if any, of these proposals will be enacted, and, if so, when. Cost control initiatives by
governments or third party payers could decrease the price that we receive for any one or all of
our potential products or increase patient coinsurance to a level that makes our product candidates
unaffordable for patients. In addition, government and private health plans are more persistently
challenging the price and cost-effectiveness of therapeutic products. If third-party payers were to
determine that one or more of our product candidates is not cost-effective, this could result in
refusal to cover those products or in coverage at a low reimbursement level. Any of these
initiatives or developments could prevent us from successfully marketing and selling any of our
potential products.
In the E.U., governments influence the price of pharmaceutical products through their pricing and
reimbursement rules and control of national health care systems that fund a large part of the cost
of such products to consumers. The approach taken varies from member state to member state. Some
jurisdictions operate positive and/or negative list systems under which products may only be
marketed once a reimbursement price has been agreed. Other member states allow companies to fix
their own prices for medicines, but monitor and control company profits. The downward pressure on
health care costs in general, particularly prescription drugs, has become very intense. As a
result, increasingly high barriers are being erected to the entry of new products, as exemplified
by the role of the National Institute for Health and Clinical Excellence in the U.K. which
evaluates the data supporting new medicines and passes reimbursement recommendations to the
government. In addition, in some countries cross-border imports from low-priced markets (parallel
imports) exert commercial pressure on pricing within a country.
11
We may not be granted permission to charge for the cost of our investigational product in our
pivotal Phase II clinical trial for DCVax
®
-Brain.
We have submitted to the FDA a cost recovery request for our pivotal clinical trial for
DCVax
®
-Brain. In this request, we have asked the FDAs permission to charge subjects for the cost
of the DCVax
®
-Brain product administered in the trial. Sponsors are not normally permitted to
charge for investigational products, but a sponsor can in some cases be granted permission to do
this where it provides the FDA with a satisfactory explanation as to why charging is necessary in
order for the sponsor to undertake or continue the clinical trial, e.g., why distribution of the
drug to test subjects should not be considered part of the normal cost of doing business. We have
cited several factors in favor of the FDA allowing cost recovery, including the life-threatening
nature of the disease affecting the DCVax
®
-Brain trial subjects, the clinical benefits shown in
prior studies, and the difficulty of obtaining funding for the study from other sources. The FDAs
decision to grant permission to charge for an investigational drug is completely discretionary,
however, and it is unclear at this time whether that permission will be granted.
DCVax
®
is our only technology in clinical development.
Unlike many pharmaceutical companies that have a number of products in development and which
utilize many technologies, we are dependent on the success of our DCVax
®
platform and, potentially,
our CXCR4 antibody technology. While DCVax
®
technology has a number of potentially beneficial uses,
if that core technology is not commercially viable, we would have to rely on the CXCR4 technology,
which is at an early pre-clinical stage of development, for our success. If the CXCR4 technology
also fails, we currently do not have other technologies to fall back on and our business could
fail.
We may be prevented from using the DCVax
®
name in Europe.
The EMEA has indicated that DCVax
®
may not be an acceptable name because of the suggested
reference to a vaccine. Failure to obtain the approval for the use of the DCVax
®
name in Europe
would require us to market our potential products in Europe under a different name which could
impair the successful marketing of our product candidates and may have a material adverse effect on
our results of operations and financial condition.
Competing generic medicinal products may be approved.
In the E.U., there exists a process for the approval of generic biological medicinal products
once patent protection and other forms of data and market exclusivity have expired. If generic
medicinal products are approved, competition from such products may reduce sales of our products.
Other jurisdictions, including the U.S., are considering adopting legislation that would allow the
approval of generic biological medicinal products.
We may be exposed to potential product liability claims, and insurance against these claims may
not be available to us at a reasonable rate in the future, if at all.
Our business exposes us to potential product liability risks that are inherent in the testing,
manufacturing, marketing and sale of therapeutic products. Our insurance coverage may not be
adequate to cover claims against us or may not be available to us at an acceptable cost, if at all.
Regardless of their merit or eventual outcome, product liability claims may result in decreased
demand for a product, injury to our reputation, withdrawal of clinical trial volunteers and loss of
revenues. Thus, whether or not we are insured, a product liability claim or product recall may
result in losses that could be material.
Our business could be adversely affected by animal rights activists.
Our business activities have involved animal testing. These types of activities have been the
subject of controversy and adverse publicity. Some organizations and individuals have attempted to
stop animal testing by pressing for legislation and regulation in these areas. To the extent the
activities of such groups are successful, our business could be adversely affected. Negative
publicity about us, our pre-clinical trials and our product candidates could have an adverse impact
on our sales and profitability.
We use hazardous materials and must comply with environmental, health and safety laws and
regulations, which can be expensive and restrict how we do business.
We store, handle, use and dispose of controlled hazardous, radioactive and biological
materials in our business. Our current use of these materials generally is below thresholds giving
rise to burdensome regulatory requirements. Our development efforts, however, may result in our
becoming subject to additional requirements, and if we fail to comply with applicable requirements
we could be subject to substantial fines and other sanctions, delays in research and production,
and increased operating costs. In addition, if regulated materials were improperly released at our
current or former facilities or at locations to which we send materials for disposal, we could be
liable for substantial damages and costs, including cleanup costs and personal injury or property
damages, and incur delays in research and production and increased operating costs.
12
Insurance covering certain types of claims of environmental damage or injury resulting from
the use of these materials is available but can be expensive and is limited in its coverage. We
have no insurance specifically covering environmental risks or personal injury from the use of
these materials and if such use results in liability, our business may be seriously harmed.
Toucan Capital and Toucan Partners beneficially own a majority of our shares of common stock and,
as a result, the trading price for our common
s
tock may be depressed and these stockholders can
take actions that may be adverse to the interests of other investors.
As of December 5, 2007, Toucan Capital and its affiliate, Toucan Partners, LLC (Toucan
Partners) collectively beneficially owned an aggregate of 21,872,196 shares of common stock,
representing approximately 51.7 percent of our outstanding common stock. In addition, as of
December 5, 2007, Toucan Capital may acquire an aggregate of approximately 22.0 million shares of
common stock upon exercise of warrants and Toucan Partners may acquire an aggregate of
approximately 8.9 million shares of common stock upon the exercise of warrants and conversion of
the accrued interest on previously outstanding promissory notes pursuant to the terms of the 2007
Warrants and 2007 Convertible Notes (each as defined under Managements Discussion and Analysis of
Financial Condition and Results of Operations Liquidity and Capital Resources below). This
significant concentration of ownership may adversely affect the trading price of our common stock
because investors often perceive disadvantages in owning stock in companies with controlling
stockholders. Toucan Capital has the ability to exert substantial influence over all matters
requiring approval by our stockholders, including the election and removal of directors and any
proposed merger, consolidation or sale of all or substantially all of our assets. In addition, a
managing member of the manager of Toucan Capital is a member of the Board. In light of the
foregoing, Toucan Capital can significantly influence the management of our business and affairs.
This concentration of ownership could have the effect of delaying, deferring or preventing a change
in control, or impeding a merger or consolidation, takeover or other business combination that
could be favorable to investors.
Our Certificate of Incorporation and Bylaws and stockholder rights plan may delay or prevent a
change in our management.
Our Seventh Amended and Restated Certificate of Incorporation, as amended (the Certificate of
Incorporation), Third Amended and Restated Bylaws (the Bylaws) and our stockholder rights plan
contain provisions that could delay or prevent a change in our management team. Some of these
provisions:
|
|
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authorize the issuance of preferred stock that can be created and issued by the Board
without prior stockholder approval, commonly referred to as blank check preferred
stock, with rights senior to those of the common stock;
|
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|
|
allow the Board to call special meetings of stockholders at any time but restrict the
stockholders from calling special meetings;
|
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|
authorize the Board to issue dilutive common stock upon certain events; and
|
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|
|
|
provide for a classified Board.
|
These provisions could allow our Board to affect the rights of an investor since the Board can
make it more difficult for holders of common stock to replace members of the Board. Because the
Board is responsible for appointing the members of the management team, these provisions could in
turn affect any attempt to replace the current management team.
There may not be an active, liquid trading market for our common stock.
Our common stock is currently listed on the Over-The-Counter Bulletin Board, or OTCBB, and on
AIM, which are generally recognized as being less active markets than NASDAQ, the stock exchange on
which our common stock previously was listed. You may not be able to sell your shares at the time
or at the price desired. There may be significant consequences associated with our stock trading on
the OTCBB rather than a national exchange. The effects of not being able to list our securities on
a national exchange include:
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limited release of the market price of our securities;
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limited news coverage;
|
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|
|
limited interest by investors in our securities;
|
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volatility of our stock price due to low trading volume;
|
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|
|
increased difficulty in selling our securities in certain states due to blue sky
restrictions; and
|
13
|
|
|
limited ability to issue additional securities or to secure additional financing.
|
The resale, or the availability for resale, of the shares covered by this prospectus could have a
material adverse impact on the market price of our common stock.
In March 2006, we completed a private placement of an aggregate of approximately 2.6 million
shares of common stock and accompanying warrants to purchase an aggregate of approximately 1.3
million shares of common stock (the PIPE Financing). In connection with the PIPE Financing, we
agreed to register, and subsequently did register, the resale of the shares of common stock sold in
the PIPE Financing and the shares underlying the warrants issued in the PIPE Financing. This
prospectus is part of the registration statement registering such shares for resale. Moreover,
even in the absence of an effective registration statement covering these shares, these
stockholders may currently resell their shares pursuant to, and in accordance with the provisions
of, Rule 144 under the Securities Act of 1933, as amended (the Securities Act). The resale of a
substantial number of the shares covered by this prospectus, or even the availability of these
shares for resale, could have a material adverse impact on our stock price.
Because our common stock is subject to penny stock rules, the market for the common stock may
be limited.
Because our common stock is subject to the SECs penny stock rules, broker-dealers may
experience difficulty in completing customer transactions and trading activity in our securities
may be adversely affected. Under the penny stock rules promulgated under the Exchange Act,
broker-dealers who recommend such securities to persons other than institutional accredited
investors must:
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make a special written suitability determination for the purchaser;
|
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|
receive the purchasers written agreement to a transaction prior to sale;
|
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|
provide the purchaser with risk disclosure documents which identify certain risks
associated with investing in penny stocks and which describe the market for these penny
stocks as well as a purchasers legal remedies; and
|
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|
|
obtain a signed and dated acknowledgment from the purchaser demonstrating that the
purchaser has actually received the required risk disclosure document before a transaction
in a penny stock can be completed.
|
As a result of these rules, broker-dealers may find it difficult to effectuate customer
transactions and trading activity in our common stock may be adversely affected. As a result, the
market price of our common stock may be depressed, and stockholders may find it more difficult to
sell our common stock.
The price of our common stock may be highly volatile
The share price of publicly traded biotechnology and emerging pharmaceutical companies,
particularly companies without earnings and consistent product revenues, can be highly volatile and
are likely to remain highly volatile in the future. The price at which our common stock is quoted
and the price which investors may realize in sales of their shares of our common stock will be
influenced by a large number of factors, some specific to us and our operations and some unrelated
to our operating performance. These factors could include the performance of our marketing
programs, large purchases or sales of the shares, currency fluctuations, legislative changes and
general economic conditions. In the past, share class action litigation has often been brought
against companies that experience volatility in the market price of their shares. Whether or not
meritorious, litigation brought against us following fluctuations in the trading price of our
common stock could result in substantial costs, divert managements attention and resources and
harm our financial condition and results of operations.
The requirements of the Sarbanes-Oxley Act of 2002 and other U.S. securities laws reporting
requirements impose cost and operating challenges on us.
We are subject to certain of the requirements of the Sarbanes-Oxley Act of 2002 in the U.S.
and the reporting requirements under the Exchange Act. These laws require, among other things, an
attestation report of our independent auditor on the effectiveness of our internal control over
financial reporting, beginning with our annual report for the year ended December 31, 2008, as well
as the filing of annual reports on Form 10-K, quarterly reports on Form 10-Q and periodic reports
on Form 8-K following the happening of certain material events. In addition, our Chief Executive
Officer and Chief Financial Officer will be required to report on the effectiveness of our internal
control over financial reporting beginning with our annual report for the year ended December 31,
2007. To meet these compliance deadlines, we will need to have our internal controls designed,
tested and operational by early 2008 to ensure compliance with applicable standards. We have not
taken any steps to document our internal controls or financial reporting procedures. This process
will likely be time consuming and will result in us having to significantly change our controls and
reporting procedures due to
14
our small number of employees and lack of governance controls. Most similarly-sized companies
registered with the SEC have had to incur significant costs to ensure compliance. Moreover, any
failure by us to comply with such provisions would be required to be disclosed publicly, which
could lead to a loss of public confidence in our internal controls and could harm the market price
of our common stock.
Our management has identified significant internal control deficiencies, which management and our
independent auditor believe constitute material weaknesses.
In connection with the preparation of our financial statements for the year ended December 31,
2006, certain significant internal control deficiencies became evident to management that, in the
aggregate, represent material weaknesses, including:
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lack of sufficient number of independent directors on our audit committee;
|
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lack of an audit committee financial expert;
|
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insufficient personnel in our finance and accounting functions;
|
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insufficient segregation of duties; and
|
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insufficient corporate governance policies.
|
As part of the communications by our independent auditors with our audit committee with
respect to audit procedures for the year ended December 31, 2006, our independent auditors informed
the audit committee that these deficiencies constituted material weaknesses, as defined by Auditing
Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction
with an Audit of Financial Statements, established by the Public Company Accounting Oversight
Board, or PCAOB. We intend to take appropriate and reasonable steps to make the necessary
improvements to remediate these deficiencies but we cannot be certain that we will have the
necessary financing to address these deficiencies or that we will be able to attract qualified
individuals to serve on our Board and to take on key management roles within the Company. Our
failure to successfully remediate these issues could lead to heightened risk for financial
reporting mistakes and irregularities and a further loss of public confidence in our internal
controls that could harm the market price of our common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, particularly the sections entitled Prospectus Summary, Risk Factors,
Managements Discussion and Analysis of Financial Condition and Results of Operations and
Business, contains forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. These statements relate to future events or our future
financial performance and involve known and unknown risks, uncertainties and other factors that
might cause our actual results, levels of activity, performance or achievements to differ
materially from any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements. These risks and other factors include those listed
under Risk Factors and elsewhere in this prospectus. In some cases, you can identify
forward-looking statements by terminology such as may, might, will, should, expects,
plans, anticipates, could, intends, target, projects, contemplates, believes,
estimates, predicts, potential, continue, the negative of these terms or other comparable
terminology.
You are encouraged to carefully review the various disclosures made by us in this prospectus
and in our previous filings with the SEC, and those factors described under Risk Factors,
beginning on page 5.
USE OF PROCEEDS
The proceeds from the sale of the common stock offered in this prospectus are solely for the
account of the selling stockholders. Accordingly, we will not receive any proceeds from the sale of
the shares by the selling stockholders. However, we will receive the exercise price of any common
stock we sell to the selling stockholders upon exercise for cash by them of their warrants. The
warrants have a provision allowing the selling stockholders to exercise them on a net (or cashless)
basis in certain circumstances. If warrants to purchase all of the underlying 677,389 shares of
common stock are exercised for cash, we would receive approximately $1,422,517 in total proceeds,
before expenses, subject to any adjustment due to the anti-dilution provisions of the warrants. The
selling stockholders are not obligated to exercise the warrants for cash or at all, and if none are
exercised for cash we will not receive any proceeds. In the event that any or all of the warrants
are exercised for cash, the proceeds will be used to fund working capital needs and for general
corporate purposes.
15
MARKET FOR COMMON STOCK
Our common stock is quoted on the OTCBB under the symbol NWBO.OB The following table
summarizes our common stocks high and low sales prices for the periods indicated as reported by
the OTCBB. Quotations on the OTCBB reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.
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High
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Low
|
Year Ending December 31, 2005
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|
|
|
|
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First Quarter
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$
|
10.50
|
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|
$
|
0.45
|
|
Second Quarter
|
|
$
|
3.90
|
|
|
$
|
2.40
|
|
Third Quarter
|
|
$
|
3.30
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|
$
|
1.95
|
|
Fourth Quarter
|
|
$
|
2.55
|
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|
$
|
1.35
|
|
Year Ending December 31, 2006
|
|
|
|
|
|
|
|
|
First Quarter
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|
$
|
10.35
|
|
|
$
|
1.35
|
|
Second Quarter
|
|
$
|
8.25
|
|
|
$
|
3.30
|
|
Third Quarter
|
|
$
|
8.25
|
|
|
$
|
2.25
|
|
Fourth Quarter
|
|
$
|
4.50
|
|
|
$
|
0.90
|
|
Year Ending December 31, 2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
2.40
|
|
|
$
|
0.75
|
|
Second Quarter
|
|
$
|
3.75
|
|
|
$
|
1.35
|
|
Third Quarter
|
|
$
|
7.33
|
|
|
$
|
1.85
|
|
Fourth Quarter (through December 5, 2007)
|
|
$
|
2.90
|
|
|
$
|
2.10
|
|
The closing price of our common stock on December 5, 2007, as quoted on the OTCBB, was $2.40
per share.
As
of December 5, 2007 there were approximately 335 holders of record of our common stock.
Such holders include any broker or clearing agencies as holders of record but exclude the
individual stockholders whose shares are held by brokers or clearing agencies.
16
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We currently intend to
retain future earnings, if any, to fund the development and growth of our business and do not
currently anticipate paying any cash dividends on our common stock in the foreseeable future. The
payment of future dividends, if any, will be determined by our board of directors.
SELECTED FINANCIAL DATA
The following selected financial data as of December 31, 2005 and 2006 and for each of the
years ending December 31, 2004 to December 31, 2006, as of and for the nine month periods ended
September 30, 2006 and 2007, and as of and for the period from March 18, 1996 (inception) to
September 30, 2007 is derived from our audited consolidated financial statements and our unaudited
condensed consolidated financial statements included elsewhere in this prospectus. The summary
financial data set forth below as of December 31, 2002 to 2004 and for each of the years ending
December 31, 2002 to December 31, 2003 is derived from audited financial statements not included in
this prospectus. The financial data should be read in conjunction with Managements Discussion
and Analysis of Financial Condition and Results of Operations, our consolidated financial
statements and notes thereto and other financial information included elsewhere in this prospectus.
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
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|
|
|
|
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|
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|
|
|
|
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|
|
|
|
|
|
|
|
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|
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|
from
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
(Inception)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September
|
|
|
|
Years Ended December 31,
|
|
|
September 30,
|
|
|
30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
9
|
|
|
$
|
529
|
|
|
$
|
390
|
|
|
$
|
124
|
|
|
$
|
80
|
|
|
$
|
80
|
|
|
$
|
10
|
|
|
$
|
2,729
|
|
Operating Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of research material sales
|
|
|
7
|
|
|
|
79
|
|
|
|
40
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382
|
|
Research and development
|
|
|
5,956
|
|
|
|
1,624
|
|
|
|
3,621
|
|
|
|
4,469
|
|
|
|
3,777
|
|
|
|
2,644
|
|
|
|
5,342
|
|
|
|
41,186
|
|
General and administrative
|
|
|
7,463
|
|
|
|
4,059
|
|
|
|
2,845
|
|
|
|
2,005
|
|
|
|
2,273
|
|
|
|
1,669
|
|
|
|
3,643
|
|
|
|
36,610
|
|
Depreciation and amortization
|
|
|
593
|
|
|
|
207
|
|
|
|
132
|
|
|
|
63
|
|
|
|
37
|
|
|
|
29
|
|
|
|
18
|
|
|
|
2,321
|
|
Loss on facility sublease
|
|
|
721
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
895
|
|
Asset impairment loss and
(gain) loss on disposal of
equipment
|
|
|
1,032
|
|
|
|
904
|
|
|
|
130
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
2,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and
expenses
|
|
|
15,772
|
|
|
|
7,047
|
|
|
|
6,768
|
|
|
|
6,549
|
|
|
|
6,077
|
|
|
|
4,333
|
|
|
|
9,003
|
|
|
|
83,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(15,763
|
)
|
|
|
(6,518
|
)
|
|
|
(6,378
|
)
|
|
|
(6,425
|
)
|
|
|
(5,997
|
)
|
|
|
(4,253
|
)
|
|
|
(8,993
|
)
|
|
|
(80,721
|
)
|
Other Income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant valuation
|
|
|
|
|
|
|
|
|
|
|
(368
|
)
|
|
|
|
|
|
|
7,127
|
|
|
|
7,127
|
|
|
|
|
|
|
|
6,759
|
|
Gain on sale of intellectual
property to Medarex
|
|
|
2,840
|
|
|
|
816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,656
|
|
Interest expense
|
|
|
(38
|
)
|
|
|
(73
|
)
|
|
|
(1,765
|
)
|
|
|
(3,517
|
)
|
|
|
(2,564
|
)
|
|
|
(2,246
|
)
|
|
|
(5,561
|
)
|
|
|
(21,262
|
)
|
|
Interest income and other
|
|
|
157
|
|
|
|
23
|
|
|
|
3
|
|
|
|
5
|
|
|
|
39
|
|
|
|
34
|
|
|
|
738
|
|
|
|
1,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(12,804
|
)
|
|
|
(5,752
|
)
|
|
|
(8,508
|
)
|
|
|
(9,937
|
)
|
|
|
(1,395
|
)
|
|
|
662
|
|
|
|
(13,816
|
)
|
|
|
(90,055
|
)
|
Issuance of common stock in
connection with elimination
of Series A and Series A-1
preferred stock preferences
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,349
|
)
|
|
|
(12,349
|
)
|
Modification of Series A
preferred stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,306
|
)
|
|
|
(2,306
|
)
|
Modification of Series A-1
preferred stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,393
|
)
|
|
|
(16,393
|
)
|
Series A preferred stock
dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(334
|
)
|
|
|
(334
|
)
|
Series A-1 preferred stock
dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(917
|
)
|
|
|
(917
|
)
|
Warrants issued on Series A
and Series A-1 preferred
stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,664
|
)
|
|
|
(4,664
|
)
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Inception)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September
|
|
|
|
Years Ended December 31,
|
|
|
September 30,
|
|
|
30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
Accretion of
redemption value
of mandatorily
redeemable
membership units
and preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,872
|
)
|
Series A preferred
stock redemption
fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
Beneficial
conversion feature
of series D
convertible
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
applicable to
common
stockholders
|
|
$
|
(12,804
|
)
|
|
$
|
(5,752
|
)
|
|
$
|
(8,508
|
)
|
|
$
|
(9,937
|
)
|
|
$
|
(1,395
|
)
|
|
$
|
662
|
|
|
$
|
(50,779
|
)
|
|
$
|
(134.864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/loss
per share
applicable to
common
stockholders
basic
|
|
$
|
(11.36
|
)
|
|
$
|
(4.56
|
)
|
|
$
|
(6.70
|
)
|
|
$
|
(7.82
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
0.20
|
|
|
$
|
(2.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares used in
computing basic
net income/loss
per share
|
|
|
1,127
|
|
|
|
1,261
|
|
|
|
1,269
|
|
|
|
1,271
|
|
|
|
3,562
|
|
|
|
3,297
|
|
|
|
18,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/loss
per share
applicable to
common
stockholders
diluted
|
|
$
|
(11.36
|
)
|
|
$
|
(4.56
|
)
|
|
$
|
(6.70
|
)
|
|
$
|
(7.82
|
)
|
|
$
|
(0.39
|
)
|
|
$
|
0.02
|
|
|
$
|
(2.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares used in
computing diluted
net income/loss
per share
|
|
|
1,127
|
|
|
|
1,261
|
|
|
|
1,269
|
|
|
|
1,271
|
|
|
|
3,562
|
|
|
|
29,521
|
|
|
|
18,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
|
|
|
December 31,
|
|
30,
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,539
|
|
|
$
|
255
|
|
|
$
|
248
|
|
|
$
|
352
|
|
|
$
|
307
|
|
|
$
|
16,875
|
|
Working capital (deficit)
|
|
$
|
3,466
|
|
|
$
|
(392
|
)
|
|
$
|
(5,353
|
)
|
|
$
|
(11,502
|
)
|
|
$
|
(5,998
|
)
|
|
$
|
10,554
|
|
Total assets
|
|
$
|
7,572
|
|
|
$
|
871
|
|
|
$
|
558
|
|
|
$
|
631
|
|
|
$
|
504
|
|
|
$
|
17,327
|
|
Long-term obligations, net of current portion and discounts
|
|
$
|
378
|
|
|
$
|
49
|
|
|
$
|
12
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
Total stockholders equity (deficit)
|
|
$
|
4,876
|
|
|
$
|
16
|
|
|
$
|
(5,217
|
)
|
|
$
|
(11,418
|
)
|
|
$
|
(5,949
|
)
|
|
$
|
10,566
|
|
19
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is qualified in its entirety
by reference to, our consolidated financial statements and the related notes included elsewhere in
this prospectus. The discussions in this section contain forward-looking statements that involve
risks and uncertainties, and actual results could differ materially from those discussed below. See
Risk Factors and Special Note Regarding Forward-Looking Statements for a discussion of these
risks and uncertainties.
Overview
We are a development stage biotechnology company focused on discovering, developing and
commercializing immunotherapy products that generate and enhance immune system responses to treat
cancer. Currently approved cancer treatments are frequently ineffective, can cause undesirable side
effects and provide marginal clinical benefits. Our approach in developing cancer therapies
utilizes our expertise in the biology of dendritic cells, which are a type of white blood cell that
activate the immune system. Data from our clinical trials suggest that our cancer therapies
significantly extend both time to recurrence and survival, while providing a superior quality of
life with no debilitating side effects when compared with current therapies.
Our platform technology, DCVax
®
, uses a patients own dendritic cells, the starter engine of
the immune system. The dendritic cells are extracted from the body, loaded with tumor biomarkers or
antigens, thereby creating a personalized therapeutic vaccine. Injection of these cells back into
the patient is designed to initiate a potent immune response against cancer cells resulting in
delayed time to progression and prolonged survival. Our lead product candidate is DCVax
®
-Brain
which targets Glioblastoma Multiforme (GBM), the most lethal form of brain cancer. DCVax
®
-Brain
has entered a Phase II FDA-allowed clinical trial, which is designed and powered as a pivotal trial
(i.e. a trial from which a company may go directly to product approval). Following this trial, we
anticipate filing a biologic license application (BLA) with the FDA for DCVax
®
- Brain.
DCVax
®
-Prostate, which targets hormone independent (i.e. late stage) prostate cancer, has also been
cleared by the FDA to commence a Phase III clinical trial, which is also designed and powered as a
pivotal trial. Additional activities have included pre-clinical development of antibody drugs
targeting CXCR4, a chemokine receptor that plays a central role in all three phases of cancer
progression: expansion of the primary tumor, migration of tumor cells and establishment of distant
metastases.
In February 2007, we, through our legal representative, applied to the Bundesamt für
Gesundheit (BAG or Office Fédéral de la Santé Publique) in Switzerland for an Authorization for
Use (Autorisation). In June 2007, we, through our legal representative, received such
Autorisation from the BAG to make DCVax
®
-Brain available at limited selected medical centers in
Switzerland as well as an authorization (Autorisation pour activités transfrontalières avec des
transplants) to export patients cells and tissues from Switzerland, for vaccine manufacturing in
the United States, and to import patients DCVax
®
-Brain finished vaccines into Switzerland. These
authorizations are conditional upon certain implementation commitments which must be fulfilled to
the satisfaction of Swissmedic (Institut Suisse des Agents Thérapeutiques) before the product may
be made available (e.g., finalizing our pending arrangements for a clean-room suite for processing
of patients immune cells). Implementation of these commitments is underway.
In the BAGs processing of and decision on our application and data with respect to the
authorizations described above, Swissmedic conducted an inspection of our facilities. A
comprehensive evaluation of DCVax
®
-Brain will be conducted by Swissmedic within the assessment of a
Marketing Authorization Application (MAA). We plan to submit an MAA to Swissmedic by the end of
2007. The assessment by Swissmedic of our MAA will include a full review by Swissmedic of the
safety and efficacy data generated in our DCVax
®
-Brain clinical studies to date. This review could
take up to one year from the date the MAA is submitted. If Marketing Authorization is granted for
DCVax
®
-Brain by Swissmedic, we would have the right to fully market and commercialize the product
in Switzerland. However, if and until such a Market Authorization is granted, and assuming the
Company completes its implementation committments to the satisfaction of Swissmedic, DCVax
®
-Brain
may only be made available at the selected Medical Centers in Switzerland under the Autorisation
granted by the BAG. The term of the BAG Autorisation expires in June 2012.
We are also conducting a DCVax-Brain
®
Phase II pivotal trial in 141 patients in the U.S.
Presently, we have four clinical sites with open enrollment. We plan to seek product approval in
both the U.S. and European Union in 2009, based upon the results of the pivotal trial.
DCVax
®
-Brain has been granted orphan drug status in both the U.S. and the European Union. Such
status will afford DCVax
®
-Brain 7 years of market exclusivity in the U.S. and 10 years in the
European Union, if DCVax
®
-Brain is the first product of its type to obtain product approval.
20
We completed an initial public offering of our common stock on the NASDAQ market in December
2001, and on June 22, 2007, we placed 15,789,473 shares of our common stock with foreign
institutional investors at a price of £0.95 per share through an initial public offering on AIM.
The gross proceeds from the placement were approximately £15.0 million, or $29.9 million, while net
proceeds from the offering, after deducting commissions and expenses, were approximately £13.0
million, or $25.9 million. The net proceeds from the placement are being used to fund clinical
trials, product and process development, working capital and repayment of certain existing debt.
21
Going Concern
Despite the receipt of proceeds in our offerings and subsequent financings described under
Liquidity and Capital Resources below, we may require additional funding to achieve
profitability and there can be no assurance that our efforts to seek such funding will be
successful. If our capital raising efforts are unsuccessful, our inability to obtain additional
cash as needed could have a material adverse effect on our financial position, results of
operations and our ability to continue our existence. Our financial statements for the year ended
December 31, 2006 and the nine months ended September 30, 2007 were prepared on a going concern
basis, which contemplates the realization of assets and the settlement of liabilities in the normal
course of business. Nevertheless, we have experienced recurring losses from operations since
inception, and have a deficit accumulated during the development stage of $134.9 million as of
September 30, 2007, which raises substantial doubt about our ability to continue as a going
concern. Our independent registered public accounting firm has indicated in its report on the
financial statements, included in our December 31, 2006 annual report on Form 10-K, that there is
substantial doubt about our ability to continue as a going concern.
22
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America (GAAP) require our management to make estimates and
assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of our financial statements, as well as the amounts of revenues and
expenses during periods covered by our financial statements. The actual amounts of these items
could differ materially from those estimates. Our accounting policies are described in more detail
in Note 3 to our financial statements for the year ended December 31, 2006, included elsewhere
herein. We have identified the following as the most critical accounting policies and estimates
used in this preparation of our consolidated financial statements.
Restructuring liabilities
When circumstances warrant, we may elect to discontinue certain business activities or change
the manner in which we conduct ongoing operations. When such a change is made, management will
estimate the costs to exit a business or restructure ongoing operations. The components of the
estimates may include estimates and assumptions regarding the timing and costs of future events and
activities that represent managements best expectations based on known facts and circumstances at
the time of estimation. Management periodically reviews its restructuring estimates and assumptions
relative to new information, if any, of which it becomes aware. Should circumstances warrant,
management will adjust its previous estimates to reflect what it then believes to be a more
accurate representation of expected future costs. Because managements estimates and assumptions
regarding restructuring costs include probabilities of future events, such estimates are inherently
vulnerable to changes due to unforeseen circumstances, changes in market conditions, regulatory
changes, changes in existing business practices and other circumstances that could materially and
adversely affect the results of operations.
We recognized, for the year ended December 31, 2002, a liability of approximately $929,000 and
a loss on facility sublease of $721,000, net of deferred rent write off in estimating the loss of
economic benefit from vacating approximately 22,000 square feet of laboratory and administrative
space at our prior facility in accordance with the Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board (FASB) EITF Issue No. 94-3,
Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit on Activity (Including Certain Costs
Incurred in Restructuring)
(EITF 94-3).
On June 30, 2003, we entered into a settlement agreement with Nexus Canyon Park, our prior
landlord. Under this settlement agreement, Nexus Canyon Park agreed to permit premature termination
of our prior lease and excuse us from future performance of lease obligations in exchange for
90,000 shares of our unregistered common stock with a fair value of $35,000 and Nexus retention of
our $1.0 million security deposit. The settlement agreement resulted in an additional loss on
facility sublease and lease termination of $174,000, net of deferred rent of $202,000. Statement of
Financial Accounting Standards No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities,
has replaced EITF 94-3 but similar charges may occur if we have to cancel our current
lease or enter into other restructuring transactions.
Impairment of Long-Lived Assets
As of December 31, 2006, we had approximately $15,000 of property and equipment, net of
accumulated depreciation. In accounting for these long-lived assets, we make estimates about the
expected useful lives of the assets, the expected residual values of the assets, and the potential
for impairment based on events or circumstances. The events or circumstances could include a
significant decrease in market value, a significant change in asset condition or a significant
adverse change in regulatory climate. Application of the test for impairment requires judgment.
During 2003, we recognized non-cash asset impairment losses totaling $987,000, on certain
facilities and property and equipment resulting from our decisions to cancel our leases or vacate
certain space. The losses on the equipment were determined based on actual sales or disposal of
assets. We identified an indicator of impairment with respect to our leasehold improvements as a
result of our decision to vacate our prior administrative space. Accordingly, we reduced the
carrying value of the assets to their estimated fair value of zero.
23
Stock-Based Compensation
Effective January 1, 2006, we adopted SFAS No. 123 (revised 2004),
Share-Based Payment
(SFAS
No. 123R), using the modified prospective method, and therefore were not required to restate prior
periods results. Under this method, we recognized compensation expense (a) for all equity
incentive awards granted prior to, but not yet vested as of January 1, 2006, based on the
grant-date fair value estimated in accordance with the original provisions of SFAS No. 123 and
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25),
and (b) for all equity incentive awards granted, modified or settled subsequent to January 1, 2006,
based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R.
Determining the appropriate fair-value model and calculating the fair value of share-based
awards at the date of grant requires judgment. We use the Black-Scholes option pricing model to
estimate the fair value of employee stock options and rights to purchase shares under stock plans,
consistent with the provisions of SFAS No. 123R. Option pricing models, including the Black-Scholes
model, also require the use of input assumptions, including expected volatility, expected life,
expected dividend rate, and expected risk-free rate of return. We estimate the volatility of our
common stock based on the historical volatility over the most recent period corresponding with the
estimated expected life of the award. We estimate expected life of the award based on historical
experience with similar awards, giving consideration to the contractual terms, vesting schedules
and pre-vesting and post-vesting forfeitures. Higher volatility and expected lives result in a
proportional increase to share-based compensation determined at the date of grant. The expected
dividend rate and expected risk-free rate of return are not as significant to the calculation of
fair value. Although the fair value of our share-based awards is determined in accordance with SFAS
No. 123R and SEC Staff Accounting Bulletin, or SAB 107, the Black-Scholes option pricing model
requires the input of highly subjective assumptions, and other reasonable assumptions could provide
differing results.
In addition, SFAS No. 123R requires us to develop a forfeiture rate which is an estimate of
the number of share-based awards that will be forfeited prior to vesting. Quarterly changes in the
estimated forfeiture rate can potentially have a significant effect on reported share-based
compensation, as the effect of adjusting the forfeiture rate for all expense amortization after
January 1, 2006 is recognized in the period the forfeiture estimate is changed.
Revenue recognition
We earn revenues through research grants and previously earned revenues through sale of
research materials and providing research services to third parties. Revenues from sale of research
materials are to multiple customers with whom there is no other contractual relationship and are
recognized when shipped to the customer and title has passed.
Research contracts and grants require us to perform research activities as specified in each
respective contract or grant on a best efforts basis, and we are paid based on the fees stipulated
in the respective contracts and grants which approximate the costs incurred by us in performing
such activities. We recognize revenue under the research contracts and grants based on completion
of performance under the respective contracts and grants where no ongoing obligation on our part
exists. Direct costs related to these contracts and grants are reported as research and development
expenses.
Results of Operations
Operating costs and expenses consist primarily of research and development expenses, including
clinical trial expenses incurred when we are actively participating in clinical trials, and general
and administrative expenses.
Research and development expenses include salary and benefit expenses and costs of laboratory
supplies used in our internal research and development projects, as well as consulting and
pre-manufacturing costs incurred with respect to our third party manufacturer.
From our inception through September 30, 2007, we incurred costs of approximately $41.2
million associated with our research and development activities. Because our technologies are
unproven, we are unable to estimate with any certainty the costs we will incur in the continued
development of our product candidates for commercialization.
General and administrative expenses include salary and benefit expenses related to
administrative personnel, cost of facilities, insurance, legal support, as well as amortization
costs of stock options granted to employees and warrants issued to consultants for their
professional services.
24
Nine Months Ended September 30, 2006 and 2007
.
Net Income (Loss).
During the nine months ended September 30, 2006 we realized net income of
$0.7 million and realized a net loss of $13.8 million for the nine months ended September 30, 2007.
The net income for the nine months ended September 30, 2006 was generated from the reversal of
previously recorded non-cash items as further described in Total Other Income (Expense), Net. We
do not expect transactions similar to this non-cash reversal in the future. The net loss for the
nine months ended September 30, 2007 is due primarily to the initiation of our DCVax
®
-Brain pivotal
clinical trial, an increase in our pre-manufacturing costs as we prepared for the enrollment of our
first patients, as well as an increase in legal, patent, travel and consulting costs as we expand
our business activities and defend current litigation.
Total Revenues
. We recognized $80,000 and $10,000 in revenues during the nine months ended
September 30, 2006 and 2007, respectively. To date, our revenues have primarily been derived from
the manufacture and sale of research materials, contract research and development services and
research grants from the federal government. Revenues in 2006 and 2007 reflected sales of residual
research materials.
Cost of Research Material Sales.
Cost of research material sales were zero for the nine months
ended September 30, 2006 and 2007. We discontinued actively selling research materials effective
December 31, 2005.
Research and Development Expense.
Research and development expense increased from $2.6 million
for the nine months ended September 30, 2006 to $5.3 million for the nine months ended September
30, 2007. The increase in research and development expense is due primarily to the initiation of
our DCVax
®
-Brain pivotal clinical trial. In January 2007, our pre-manufacturing costs increased as
we prepared for the enrollment of our first patients. These costs have continued to increase as we
initiate additional sites and prepare to enroll additional patients.
General and Administrative Expense.
General and administrative expense increased from $1.7
million for the nine months ended September 30, 2006 to $3.6 million for the nine months ended
September 30, 2007. We have expanded our business activities both in the United States and
internationally, especially in Switzerland, and as a result have incurred higher legal, patent,
travel and consulting costs. Our overall legal costs have increased during the nine months ending
September 30, 2007 relative to the comparable period in 2006 due to legal defense costs incurred in
the litigation discussed under Business Legal Proceedings and in Note 8 (Contingencies) to our
condensed consolidated financial statements, and our patent application and maintenance costs in
the United States and internationally. Insurance costs have also increased due to increased
directors and officers liability insurance coverage acquired in connection with the increase in the
size of the Board of Directors and the appointment of a new independent board member in June 2007.
Additionally, in the nine months ended September 30, 2007, we recognized approximately $493,000 of
general and administrative costs related to the Toucan Capital recapitalization agreement and to
certain other costs incurred by Toucan Capital on the Companys behalf. Approximately $220,000 of
these costs relate to activities which took place prior to 2007.
Depreciation and Amortization.
Depreciation and amortization decreased from $29,000 for the
nine months ended September 30, 2006 to $18,000 for the nine months ended September 30, 2007. This
decrease was primarily due to the majority of our property and equipment becoming fully depreciated
during the second quarter of 2007.
Total Other Income (Expense), Net.
Interest expense increased from $2.2 million for the nine
months ended September 30, 2006 to approximately $5.6 million for the nine months ended September
30, 2007. Interest expense is primarily related to the debt discount and interest accretion
associated with the convertible promissory notes and warrants debt financing. Interest expense
increased significantly during the nine months ended September 30, 2007 due to the immediate
amortization of the debt discount associated with the June 1, 2007 amendment to certain convertible
notes payable to Toucan Partners on June 30, 2007. In addition, we recorded a warrant valuation
gain of $7.1 million during the nine months ended September 30, 2006 with respect to the
revaluation of the potential shares that could be issued in excess of the available authorized
shares. We did not have a similar gain or loss during the nine months ended September 30, 2007.
During the nine months ended September 30, 2007, we have also recorded foreign exchange gains on
our foreign currency cash transferred to the US and on the increasing number of transactions in
foreign currencies.
Year Ended December 31, 2005 Compared to the Year Ended December 31, 2006
Total Revenues.
Revenues decreased 36%, from $124,000 for the year ended December 31, 2005 to
$80,000 for the year ended December 31, 2006. The overall decrease is primarily due to the fact we
completed two research grants in 2005, offset by a one time sale of certain license rights during
2006.
25
Research and Development Expense.
Research and development expense decreased 16%, from $4.5
million for the year ended December 31, 2005 to $3.8 million for the year ended December 31, 2006.
This decrease was primarily due to a decrease in contract manufacturing costs.
General and Administrative Expense.
General and administrative expense increased 13%, from
$2.0 million for the year ended December 31, 2005 to $2.3 million for the year ended December 31,
2006. This increase was primarily due to an increase in SEC filing costs and initial investigations
into establishing a European presence.
Depreciation and Amortization.
Depreciation and amortization decreased 41%, from $63,000 for
the year ended December 31, 2005 to $37,000 for the year ended December 31, 2006. This decrease was
primarily due to the fact that our remaining assets are either fully depreciated or previously
impaired. We did not acquire any new assets during the year ended December 31, 2006.
Total Other Income (Expense), Net.
Interest expense decreased from approximately $3.5 million
for the year ended December 31, 2005 to $2.6 million for the year ended December 31, 2006. This
decrease was due primarily to the fact that the Toucan Capital and management loans were converted
into equity in April 2006, offset by the fact that the average note payable balance was higher
prior to conversion in 2006 as compared to the balances outstanding during the year ended December
31, 2005. Additionally, we recorded a warrant valuation gain of $7.1 million during 2006 with
respect to the revaluation of the potential shares that could be issued in excess of the available
authorized shares. We did not have a similar gain during 2005.
Warrant valuation.
In accordance with EITF 00-19, we account for potential shares that can be
converted to common stock and that are in excess of authorized shares as a liability that is
recorded at fair value. Total potential outstanding common stock exceeded our authorized shares as
of December 31, 2005 when we entered into another convertible promissory note and warrant agreement
with Toucan Partners on December 30, 2005. The fair value of the warrants in excess of the
authorized shares at December 31, 2005 totaling approximately $604,000 was recognized as a
liability on December 31, 2005. This liability was required to be remeasured at each reporting date
with any change in value included in other income/(expense) until such time as enough shares were
authorized to cover all potentially convertible instruments. Accordingly, during the first quarter
of 2006, we recognized a loss totaling $2.1 million with respect to the revaluation of this warrant
liability. Further, during March 2006, we issued an additional warrant to Toucan Partners, along
with a convertible promissory note. The fair value of the warrants in excess of the authorized
shares was approximately $6.7 million and was recognized as an additional liability as of March 31,
2006. During April 2006, we sold common stock to outside investors in the PIPE Financing. In
addition, members of management and Toucan Capital elected to convert their promissory notes and
related accrued interest into common stock and Series A-1 Preferred Stock, respectively. As a
result, the fair value of the potential common stock in excess of the authorized shares was $24.4
million and was recognized as an additional liability during April 2006.
Effective May 25, 2006, the number of authorized common shares was increased to 800 million.
The liability for potential shares in excess of total authorized shares was revalued at that date.
This valuation resulted in a gain of approximately $7.1 million during year ended December 31,
2006, due to the net decreases in the net fair value of the related warrants on the date the
authorized shares were increased. This gain is included in the statement of operations as a warrant
valuation. As we exceeded our authorized shares on December 31, 2005, no corresponding charges to
the statement of operations were recorded for the year ended December 31, 2005.
Year Ended December 31, 2004 Compared to the Year Ended December 31, 2005
Total Revenues.
Revenues decreased 68.2%, from $390,000 for the year ended December 31, 2004
to $124,000 for the year ended December 31, 2005. The research material sales component of revenue
decreased 27.0% from $52,000 for the year ended December 31, 2004 to $38,000 for the year ended
December 31, 2005 as we ceased actively selling research materials sales effective December 31,
2005. Research grant and other income decreased 74.5%, from $338,000 for the year ended December
31, 2004 to $86,000 for the year ended December 31, 2005. This decrease in grant revenue was
attributable to the cessation of two research grant awards in the first quarter of 2005.
Cost of Research Material Sales.
Cost of research material sales decreased 70.0%, from
$40,000 for the year ended December 31, 2004 to $12,000 for the year ended December 31, 2005. This
decrease was due to lower direct sales and related direct labor costs. We ceased actively selling
research materials sales effective December 31, 2005.
26
Research and Development Expense.
Research and development expense increased 23.4%, from $3.6
million for the year ended December 31, 2004 to $4.5 million for the year ended December 31, 2005.
This increase was primarily due to increased expenditures for consultants in preparation of
regulatory filings with the FDA and entering into a service agreement for drug manufacturing,
regulatory advice, research and development related to preclinical activities.
General and Administrative Expense.
General and administrative expense decreased 29.5%, from
$2.8 million for the year ended December 31, 2004 to $2.0 million for the year ended December 31,
2005. This decrease was primarily due to the elimination of two positions in 2005 and continuing to
focus on the October 9, 2002 directive from our Board of Directors to initiate immediate actions to
conserve cash.
Depreciation and Amortization.
Depreciation and amortization expense decreased 52.2%, from
$132,000 for the year ended December 31, 2004 to $63,000 for the year ended December 31, 2005. This
decrease was primarily due to our continued disposal of all equipment and facilities heretofore
necessary for proof-of-principle research and development as we moved forward in focusing on our
primary business strategy of recapitalizing the company in anticipation of re-initiating our two
clinical trial vaccine prospects.
Asset Impairment Loss.
Asset disposal costs of $130,000 for the year ended December 31, 2004
primarily relates to the write-off of unused property and equipment associated with our vacating a
14,000 square foot laboratory and administrative space and entering a sublease for approximately
5,047 square feet of space in 2005 where such assets were not to be utilized.
Total Other Income (Expense), Net.
Interest expense increased 99.2%, from $1.8 million for
the year ended December 31, 2004 to $3.5 million for the year ended December 31, 2005. This
increase was due primarily to recognizing interest expense relative to the debt discount and
interest accretion associated with the November 13, 2003 secured convertible promissory note and
warrant financing and the loans from Toucan Capital and Toucan Partners. Interest income increased
from $3,000 for the year ended December 31, 2004 to $5,000 for the year ended December 31, 2005.
This increase was primarily due to having comparable higher average cash balances during the year
ended 2005.
Warrant valuation.
Our total committed outstanding obligations for shares of common stock
exceeded our authorized shares on July 30, 2004, when an additional $2.0 million loan, convertible
into shares of common stock, was received from Toucan Capital and a warrant was issued. The fair
value of the warrant in excess of the authorized shares was approximately $2.8 million and was
recognized as a liability on July 30, 2004. This liability must be revalued at each reporting date
with any change in valuation included in other income/(expense) until such time as enough shares
are authorized to cover all potentially convertible instruments. Our stock price had declined from
$0.04 at July 30, 2004 to $0.03 at September 30, 2004, resulting in a warrant valuation gain of
approximately $717,000 recognized for the quarter ending September 30, 2004. Additional warrant
liability of approximately $1.5 million was recognized for the respective fair market valuations of
the additional loans, convertible into shares, received from Toucan Capital, with warrants, on
October 22, November 10 and December 27, 2004, for the year ended December 31, 2004. The aggregate
shares by which we exceeded our authorized shares were required to be re-valuated when our
stockholders approved an increase in our authorized shares, from 125 million to 300 million shares,
which was recorded on December 29, 2004 with the Delaware Secretary of State. The approximate $1.0
million change in fair market valuation during the fourth quarter was recognized in other income as
additional expense. The aggregate warrant liability of approximately $4.7 million was reclassified
to equity upon approval of the additional authorized shares on December 29, 2004. As of December
31, 2005 our total committed outstanding obligations for shares of common stock exceeded our
authorized shares. We have recognized a liability totaling $604,000 representing the fair value of
our obligations for shares of common stock in excess of our authorized shares. As we exceeded our
authorized shares on December 31, 2005, no corresponding charges to the statement of operations
were recorded for the year ended December 31, 2005.
Liquidity and Capital Resources
General Discussion
Since 2004, we have undergone a significant recapitalization pursuant to which Toucan Capital
loaned us an aggregate of $6.75 million and Toucan Partners loaned us an aggregate of $4.825
million (excluding $225,000 in proceeds from a demand note that was received on June 13, 2007 and
repaid on June 27, 2007).
On January 26, 2005, we entered into a securities purchase agreement with Toucan Capital
pursuant to which it purchased 32.5 million shares of our Series A cumulative convertible preferred
stock (the Series A Preferred Stock) at a purchase price of $0.04 per share, for a net purchase
price of $1.276 million, net of offering related costs of approximately $24,000. In April 2006, the
$6.75
27
million of notes payable plus all accrued interest due to Toucan Capital were converted into
shares of our Series A-1 cumulative convertible preferred stock (the Series A-1 Preferred Stock).
Toucan Partners has loaned us an aggregate of $4.825 million in a series of transactions. From
November 14, 2005 through March 9, 2006, we issued three promissory notes to Toucan Partners,
pursuant to which Toucan Partners loaned us an aggregate of $950,000. In April 2007, these notes
were amended and restated to conform to the 2007 Convertible Notes described below. Payment is due
under the notes upon written demand on or after June 30, 2007. Interest accrues at 10% per annum,
compounded annually, on a 365-day year basis. The principal amount of, and accrued interest on,
these notes, as amended, is convertible at Toucan Partners election into common stock on the same
terms as the 2007 Convertible Notes described below.
In addition to the $950,000 of promissory notes described above, Toucan Partners provided
$3.15 million in cash advances from October 2006 through April 2007, which were converted into
convertible notes (the 2007 Convertible Notes) and related warrants (the 2007 Warrants) in
April 2007. Toucan Partners also entered into two promissory notes with us to fix the terms of two
additional cash advances provided by Toucan Partners to us on May 14, 2007 and May 25, 2007 in the
aggregate amount of $725,000, and we issued warrants to purchase shares of our capital stock to
Toucan Partners in connection with each such note. These notes and warrants are on the same terms
as the 2007 Convertible Notes and 2007 Warrants and enabled us to continue to operate and advance
programs, while raising additional equity financing.
The aggregate outstanding principal of $4.825 million and related accrued interest under the
2007 Convertible Notes owed to Toucan Partners may be converted by Toucan Partners (in whole or in
part) into common stock at a conversion price of $0.60 per share.
On March 30, 2006, we completed the PIPE Financing pursuant to which we raised aggregate gross
proceeds of approximately $5.5 million.
On June 22, 2007, we placed 15,789,473 shares of our common stock with foreign institutional
investors at a price of £0.95 per share. The gross proceeds from the placement were approximately
£15.0 million, or $29.9 million, while net proceeds from the offering, after deducting commissions
and expenses, were approximately £13.0 million, or $25.9 million. The net proceeds from the
placement are being used to fund clinical trials, product and process development, working capital
needs and repayment of certain existing debt.
We have also submitted an application to the FDA for cost recovery for our Phase II pivotal
trial in brain cancer. If this application is approved, we will be permitted to charge patients or
their insurers for the direct costs of manufacturing DCVax
®
-Brain during this clinical trial. We
consider our cost recovery application to the FDA to be an important factor in our plans for moving
forward with our product development programs. The FDA has responded to our submission and
requested further information, which we are in the process of compiling.
We estimate that our available cash is sufficient to enable us to proceed with our pivotal
DCVax
®
-Brain trial, begin treating patients with the DCVax
®
-Brain vaccine pursuant to the BAG
Authorisation, and complete the submission of the Swissmedic application for approval of this
product candidate. Although we believe that we have funding available to pursue the activities
described above, its adequacy will depend on many factors, including the speed with which we are
able to identify and hire people to fill key positions, the speed of patient enrollment in our
pivotal brain cancer trial, whether (and when) the cost recovery application is approved, timing of
final approval and the potential adoption of DCVax
®
-Brain in the selected hospitals in Switzerland,
timing of any requested repayments of indebtedness under our demand notes payable, and
unanticipated developments, including adverse developments in pending litigation matters. However,
without additional capital, we will not be able to move forward with any of our other product
candidates for which investigational new drug applications have been cleared by the FDA. We will
also be constrained in developing our second generation manufacturing processes, which offer
substantial product cost reductions.
As of September 30, 2007, we had approximately $16.9 million of cash. We intend to use this
cash to fund current operations and reduce our current liabilities, including our liabilities to
related parties. Approximately $5.8 million of our $6.8 million of current liabilities at September
30, 2007 were payable to related parties, including the costs associated with preparing to
manufacture our DCVax
®
product candidates and notes payable to Toucan Partners. As of September 20,
2007, the $4.825 million in notes payable to Toucan Partners plus accrued interest of approximately
$0.4 million was due upon written demand. In October, November, and December 2007, Toucan Partners
demanded and was repaid principal and interest in the aggregate amount of $5.3 million. In
addition, Toucan Capital is entitled to approximately $563,000 which has been accrued with respect
to costs incurred by Toucan Capital on behalf of the Company through September 30, 2007.
28
Despite our improved cash position, we expect to require additional funding before we achieve
profitability and there can be no assurance that our efforts to seek such funding will be
successful. If our capital raising efforts are unsuccessful, our inability to obtain additional
cash as needed could have a material adverse effect on our financial position, results of
operations and our ability to continue our existence. Our independent registered public accounting
firm has indicated in its report on our financial statements included in the Annual Report on Form
10-K for the year ended December 31, 2006 that there is substantial doubt about our ability to
continue as a going concern.
Sources of Cash
During the nine months ending September 30, 2007, we received $2.375 million in cash advances
from Toucan Partners, which were converted into the 2007 Convertible Notes and 2007 Warrants
discussed above. Additionally, we received $225,000 from Toucan Partners on June 13, 2007 in the
form of a $225,000 demand note bearing interest of 10% (Demand Note). The Demand Note was repaid
on June 27, 2007.
On June 22, 2007, we placed 15,789,473 shares of our common stock with foreign institutional
investors at a price of £0.95 per share. The gross proceeds from the placement were approximately
£15.0 million, or $29.9 million, while net proceeds from the offering, after deducting commissions
and expenses, were approximately £13.0 million, or $25.9 million.
During the nine months ended September 30, 2006, we received net proceeds of $5.1 million from
the sale of common stock as part of the PIPE Financing and $300,000 from the issuance of a
convertible promissory note (and related warrants) to Toucan Partners, which were converted into
the 2007 Convertible Notes and 2007 Warrants discussed above.
We generated $6.9 million in cash from financing activities for the year ended December 31,
2006, primarily from the loans from Toucan Capital and the sale of approximately 2.6 million shares
of our common stock (and the issuance of warrants to purchase an additional 1.3 million shares of
common stock at $2.10 per share) to a group of accredited investors at a price of $2.10 per share.
We generated $4.2 million in cash from financing activities during the year ended December 31,
2005 consisting of (i) the January 26, 2005 sale of our newly designated series A preferred stock
to Toucan Capital at a purchase price of $0.04 per share, for a net purchase price of $1.276
million, net of issue related costs of approximately $24,000, (ii) loans in the aggregate amount of
$2.4 million from Toucan Capital, and (iii) loans in the aggregate amount of $650,000 from Toucan
Partners.
Uses of Cash
We used $10.4 million in cash for operating activities during the nine months ended September
30, 2007, compared to $5.1 million for the nine months ended September 30, 2006. The increase in
cash used in operating activities from 2006 to 2007 occurred as a result of the significant
increase in our pre-manufacturing activities and decrease in accounts payable balances at September
30, 2007, as we had funds available to repay vendors on a timely basis.
We generated $16,000 in cash from investing activities during the nine months ended September
30, 2006 compared to $15,000 used in investing activities during the nine months ended September
30, 2007. The cash provided during the nine months ended September 30, 2006 consisted of net
proceeds from the sale of property and equipment and the cash used during the nine months ended
September 30, 2007 consisted of purchases of property and equipment.
We used $4.2 million in cash for operating activities during the year ended December 31, 2005,
compared to $6.9 million for the year ended December 31, 2006. The increase of approximately 65.7%
reflects the increased level of expenditures and business activity associated with identifying
future clinical trial sites, research and development expenditures related to preclinical
activities, and gradual re-implementation of the contract manufacturing process for our two
DCVax
®
clinical trial vaccines.
29
Overview of Contractual Obligations
On November 4, 2005, we entered into a lease agreement with The International Union of
Operating Engineers Local 302 for 2,325 square feet of administrative space in a building located
in Bothell, Washington. The initial lease term was for 12 months commencing January 1, 2006 and
terminating December 31, 2006. This lease has been extended through June 30, 2008.
The following table reflects our significant contractual obligations as of December 31, 2006:
|
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|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
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|
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|
|
Less
|
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|
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|
|
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|
|
|
|
|
|
|
|
|
Than
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
Contractual Obligation(1)
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
Loans
|
|
$
|
2,450,000
|
|
|
$
|
2,450,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Capital Lease Obligations
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Lease Obligations
|
|
|
19,000
|
|
|
|
19,000
|
|
|
|
|
|
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|
|
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|
|
|
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|
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|
|
|
|
Total
|
|
$
|
2,472,000
|
|
|
$
|
2,472,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
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|
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|
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|
|
|
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|
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|
|
(1)
|
|
We have also entered into other collaborative arrangements under which
we may be obligated to pay royalties or milestone payments if product
development is successful. We do not anticipate that the aggregate
amount of any royalty or milestone obligations under these
arrangements will be material.
|
Recent Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48),
Accounting for
Uncertainty in Income Taxesan interpretation of FASB Statement No. 109, Accounting for Income
Taxes
, which clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. The interpretation
requires that we recognize in the financial statements the impact of a tax position if it is more
likely than not that such tax position will be sustained on audit, based on the technical merits of
the position. FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods and disclosure. The provisions of FIN 48 were effective
beginning January 1, 2007 with the cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. We adopted FIN 48 effective January 1, 2007 and
there was no impact on our financial statements.
In September 2006, the SEC issued SAB No. 108 (SAB 108). Due to diversity in practice among
registrants, SAB 108 expresses SEC staff views regarding the process by which misstatements in
financial statements are evaluated for purposes of determining whether financial statement
restatement is necessary. SAB 108 is effective for fiscal years ending after November 15, 2006. We
adopted SAB 108 effective January 1, 2007 and there was no impact on our financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,
Fair
Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements, but does not require any new fair
value measurements. SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. We are evaluating
the possible impact of SFAS 157 on our financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. SFAS 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. We have not yet determined
the impact of adopting SFAS 159 on our financial position.
In June 2007, the EITF issued EITF Issue No. 07-3,
Accounting for Nonrefundable Advance
Payments for Goods or Services to be Used in Future Research and Development Activities
(EITF
07-3), which is effective for fiscal years beginning after December 15, 2007. EITF 07-3 requires
that nonrefundable advance payments for future research and development activities be deferred and
30
capitalized. Such amounts will be recognized as an expense as the goods are delivered or the
related services are performed. The Company does not expect the adoption of EITF 07-3 to have a
material impact on the financial results of the Company.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Interest Rate Risk
Our exposure to market risk is presently limited to the interest rate sensitivity of our cash
and cash equivalents which is affected by changes in the general level of U.S. and U.K. interest
rates. We are exposed to interest rate changes primarily as a result of our investment activities.
The primary objective of our investment activities is to preserve principal while at the same time
maximizing the income we receive without significantly increasing risk. To minimize risk, we
maintain our cash and cash equivalents in interest-bearing instruments, primarily money market
funds. Our interest rate risk management objective with respect to our borrowings is to limit the
impact of interest rate changes on earnings and cash flows. Due to the nature of our cash and cash
equivalents, we believe that we are not subject to any material market risk exposure. We do not
have any other derivative financial instruments.
Foreign Currency Exchange Rate Risk
As a corporation with contractual arrangements overseas, we are exposed to changes in foreign
exchange rates. These exposures may change over time and could have a material adverse impact on
our financial results. At this time we do not have a program to hedge this exposure as we do not
anticipate any material effect on our financial position given the current level of payments in
foreign currencies.
31
BUSINESS
Overview
Northwest
Biotherapeutics, Inc. was formed in 1996 and incorporated in Delaware in July 1998. We are a
development stage biotechnology company focused on discovering, developing, and commercializing
immunotherapy products that safely generate and enhance immune system responses to effectively
treat cancer. Currently approved cancer treatments are frequently ineffective, can cause
undesirable side effects and provide marginal clinical benefits. Our approach in developing cancer
therapies utilizes our expertise in the biology of dendritic cells, which are a type of white blood
cells that activate the immune system. Our primary activities since incorporation have been focused
on advancing a proprietary dendritic cell immunotherapy for prostate and brain cancer together with
strategic and financial planning, and raising capital to fund our operations.
We have two basic technology platforms applicable to cancer therapeutics: dendritic cell-based
cancer vaccines, which we call DCVax
®
, and monoclonal antibodies for cancer
therapeutics. DCVax
®
is our registered trademark. Our DCVax
®
dendritic
cell-based cancer vaccine program is our main technology platform.
We completed an initial public offering of our common stock on the NASDAQ market in December
2001 and an initial public offering of our common stock on AIM in June 2007.
As described in further detail elsewhere in this prospectus, since 2004 we have undergone a
significant recapitalization pursuant to which (i) Toucan Capital loaned us an aggregate of $6.75
million, which notes payable and accrued interest thereon were converted into shares of our Series
A-1 Preferred Stock in April 2006 and subsequently converted into common stock in June 2007; and
(ii) Toucan Partners loaned us an aggregate of $4.825 million (excluding $225,000 in proceeds from
a demand note that was received on June 13, 2007 and repaid on June 27, 2007), which borrowings
have, in a series of transactions, been converted into convertible notes with an aggregate
outstanding principal of $4.825 million and related warrant coverage. In October, November and
December 2007, we repaid principal and interest in the aggregate amount of $5.3 million to Toucan
Partners. The remaining outstanding accrued interest totaling approximately $14,000 thereon may be
converted by Toucan Partners (in whole or in part) into common stock at a conversion price of $0.60
per share.
In addition, on January 26, 2005, Toucan Capital purchased 32.5 million shares of our Series A
Preferred Stock at a purchase price of $0.04 per share, for a net purchase price of $1.276 million,
net of offering related costs of approximately $24,000. In June 2007, this Series A Preferred
Stock was converted into common stock.
On March 30, 2006, we raised aggregate gross proceeds of approximately $5.5 million in our
PIPE Financing.
See Managements Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources for additional information regarding our financings.
32
Industry Background
Incidence of Cancer in the United States
The American Cancer Society estimates that in the U.S., men have a one in two lifetime risk of
developing cancer, while women have a one in three lifetime risk of developing cancer. Doctors are
expected to diagnose approximately 1.44 million new cases of cancer in the U.S. during 2007. It is
the second leading cause of death in the U.S. after heart disease and is estimated to result in
approximately 559,650 deaths, or 1,533 per day, in 2007. The direct medical costs related to
treating cancer in the U.S. were estimated to be $78.2 billion in 2006. The Companys initial
therapeutic targets, brain and prostate cancers, cause approximately 7.1 percent of cancer deaths
in the U.S. each year. The American Cancer Society has estimated that the incidence of new
diagnosis and deaths resulting from several common cancers during 2007 would be as follows:
|
|
|
|
|
|
|
|
|
Type of Cancer
|
|
New Cases
|
|
Deaths
|
Breast
|
|
|
180,510
|
|
|
|
40,910
|
|
Prostate
|
|
|
218,890
|
|
|
|
27,050
|
|
Colorectal
|
|
|
153,760
|
|
|
|
52,180
|
|
Lung
|
|
|
213,380
|
|
|
|
160,390
|
|
Liver
|
|
|
19,160
|
|
|
|
16,780
|
|
Melanoma
|
|
|
59,940
|
|
|
|
8,110
|
|
Brain
|
|
|
20,500
|
|
|
|
12,740
|
|
Incidence of Cancer in Europe
Globocan estimates that the incidence of new diagnosis and deaths resulting from several
cancers during 2002 (the last year for which estimates are available) would be as follows:
|
|
|
|
|
|
|
|
|
Type of Cancer
|
|
Estimated New Cases in 2002
|
|
|
Estimated Deaths in 2002
|
|
Breast
|
|
|
360,749
|
|
|
|
129,013
|
|
Prostate
|
|
|
230,627
|
|
|
|
83,066
|
|
Colorectal
|
|
|
371,706
|
|
|
|
203,296
|
|
Lung
|
|
|
374,764
|
|
|
|
341,595
|
|
Liver
|
|
|
53,618
|
|
|
|
57,486
|
|
Melanoma
|
|
|
62,367
|
|
|
|
16,633
|
|
Brain
|
|
|
48,385
|
|
|
|
39,061
|
|
Cancer
Cancer is characterised by aberrant cells that multiply uncontrollably. As cancer progresses,
the cancer cells may invade other tissues throughout the body producing additional cancers, called
metastases. Cancer growth can cause tissue damage, organ failure and, ultimately, death. Many
immunologists believe that cancer cells occur frequently in the human body, yet are effectively
controlled by the immune system because these cells are recognized as aberrant. Cancer growth
occurs if this natural process fails.
Cancer cells produce abnormal kinds and amounts of substances called antigens, which may be
distinguishable from those produced by healthy cells. The use of these cancer-associated antigens
is essential to the successful development of products capable of stimulating the immune system to
seek and destroy cancer cells marked by these antigens.
The Human Immune System
The immune system is the bodys defence mechanism responsible for recognising and eliminating
cancer cells, viruses, bacteria and other disease-causing organisms. This system consists of
populations of white blood cells whose components are responsible for initiating the cellular
immune response, and the humoral, or antibody-based, immune response.
Dendritic cells, a component of white blood cells, initiate the cellular immune response by
processing and displaying disease-associated antigen fragments on their outer cell surface, where
they are recognized by white blood cells, known as naive T-cells, that have not yet been exposed to
antigens. Upon exposure to these antigen fragments, naive T-cells become disease-specific Helper
T-cells or Killer T-cells. Helper T-cells then induce Killer T-cells to locate and potentially
destroy the cells marked by the disease- associated antigen.
33
B-cells direct the immune response by binding to disease-associated antigens on the surface of
various cell types, producing disease-specific antibodies. Helper T-cells also enhance B-cell
production of disease- specific antibodies. These antibodies bind to and initiate the destruction
of cells marked by the associated disease-specific antigens.
A small population of activated Helper T-cells, Killer T-cells, and antibody-producing B-cells
survive for long periods of time, retaining the memory of what the disease fragment looks like.
These cells can respond very rapidly to subsequent exposure to disease-specific antigens and
fragments. The most effective natural immune response is one in which both Killer T-cells and
antibody-producing B-cells are activated.
The immune system response to cancer can be generally characterized by the following sequence:
|
|
Step 1.
Dendritic cells ingest cancer antigens, break them into small fragments and display them on their
outer cell surfaces.
|
|
|
|
Step 2.
Dendritic cells bearing these cancer antigen fragments bind to and activate naive T-cells, which
become disease-specific Helper T-cells and Killer T-cells.
|
|
|
|
Step 3.
The activated Helper T-cells produce factors that greatly enhance the cell division of Killer
T-cells and mature their cancer-killing properties.
|
|
|
|
Step 4.
Cancer cells and their cancer-associated antigens are also recognized by antibody-producing B-cells.
|
|
|
|
Step 5.
The activated Helper T-cells produce factors that greatly enhance antibody production by B-cells
that in turn are specific for the cancer-associated antigens.
|
|
|
|
Step 6.
The Killer T-cells and antibodies, acting alone or in combination, destroy cancer cells.
|
Limitations of Current Cancer Therapies
Traditional treatments for cancer include:
|
|
Surgery.
Surgery may be used to remove cancer cells,
but not all cancer cells can be removed surgically.
Surgery may also result in significant adverse side
effects such as collateral damage to healthy tissue,
bleeding and infection.
|
|
|
|
Radiation Therapy.
Radiation therapy may be used to
treat cancers, but it can cause significant damage
to healthy tissue surrounding the targeted cancer
cells. Recurrent cancers may not be treatable with
further radiation therapy. Radiation therapy may
also cause additional significant adverse side
effects such as burns to treated skin, organ damage
and hair loss.
|
|
|
|
Chemotherapy.
Chemotherapy may be used to treat
cancer, but involves the use of toxic chemical
agents. These toxic chemical agents affect both
healthy and diseased cells and may cause additional
significant adverse side effects such as hair loss,
immune suppression, nausea and diarrhea.
|
|
|
|
Hormone Therapy.
Hormone therapy may be used to
treat cancer, but involves the use of substances
that chemically inhibit the production of growth and
reproductive hormones and is also limited in
effectiveness. Hormone therapy may cause significant
adverse side effects such as bone loss, hot flushes,
impotence and blood clots.
|
Current Cancer Immunotherapy Approaches
Immunotherapy offers a new approach to be used as an adjuvant in combination with traditional
therapies. It can stimulate and enhance the bodys natural mechanism for destroying pathogens, such
as cancer cells, and may overcome many of the limitations of traditional cancer therapies. In
recent years, two cancer immunotherapy approaches have emerged to address the limitations of
traditional therapies, which have resulted in a number of FDA-approved products:
34
|
|
Antibody-Based Therapies.
Currently approved antibody-based cancer
therapies have modestly improved survival rates with partially reduced
side effects when compared with traditional therapies. However, these
antibody-based therapies can elicit an immune response against
themselves because they often contain mouse proteins or fragments of
such proteins. This can limit their effectiveness and potentially
cause toxic side effects.
|
|
|
|
Immune-Modulating Agents.
Currently approved immune-modulating agents,
such as IL-2 and alpha-interferon, are known to have some ability to
enhance the immune system and limited efficacy to control cancer
growth. However, these therapies involve delivery of the immune
modulating agent through the blood system and therefore cannot be
directed exclusively to cancer cells. This lack of selectivity may
result in significant toxicity to healthy tissue.
|
Our Approaches
We have developed two proprietary approaches, DCVax
®
and therapeutic antibodies, for stimulating
and enhancing a patients natural cellular and humoral or antibody immune response to cancer. Given
appropriate funding for future development, we believe that DCVax
®
and CXCR4 antibody
products may overcome certain limitations of current cancer therapies and offer cancer patients
safe and effective treatment alternatives, alone or in combination with other therapies. Based on
these technology platforms, we have developed the following product pipeline:
The DCVax
®
Technology
DCVax
®
is a platform technology which we believe is applicable to
most cancers. It combines a patients own dendritic cells with a patients own cancer-related
biomarkers, or off-the-shelf antigens, to induce immune responses against a patients cancer cells.
The Companys early-stage clinical trial data, and those of its collaborators, suggest that
DCVax
®
-Brain and DCVax
®
-Prostate may have the ability to significantly delay disease progression
and significantly prolong patient survival, while maintaining a superior quality of life when
compared with current therapies.
The natural immune response starts with activation of a single master immune cell type, the
dendritic cell (DC). This cell functions like the General of an army, in that it directs all
ensuing activities of all components of the immune response. The immune system is like an army with
many divisions, and multiple soldiers with various types of weapons. When an invader, which could
be a virus, bacteria, or a cancer cell, encounters a DC the result is that the DC consumes or eats
the invader and chops it into small pieces. In the process, the DC becomes activated and starts
travelling to the lymph node. In the lymph node, the DC elicits a cascade of events, eventually
involving the entire army, that leads to an immune response. Importantly, the nature of the invader
and the nature of the DC activation dictate the type of immune response: the DC is the General of
the army who directs all the soldiers to work in synchrony, and who determines which weapons to use
to best defeat the enemy. Preparing the DC outside the body, as is done for DCVax
®
products, is intended to allow the greatest degree of control and to begin the immune
response in the natural fashion leading to an enhanced response against the foreign invader.
In cancer patients, the signaling through which the master immune cells are activated is
impaired. Our technology, therefore, involves delivering the necessary signals to activate the
master immune cells outside the patients body. We believe that after receiving these signals, the
master immune cells will be able to function normally and mobilize the full immune response in the
natural manner.
35
THE IMMUNE SYSTEM
Different Approaches
Most traditional immunization approaches, including traditional virus, specific antigen or
peptide vaccines, as well as some that are used for immunotherapy of cancer, rely upon signaling
inside the patients body to try to activate and mobilize the already existing DC in the body, or
try to modulate only one arm of the immune system. These approaches have worked well to address
infectious diseases, but have generally failed to work in cancer patients because such approaches
are reliant upon signaling in the patients bodies which, as discussed above, is impaired in cancer
patients.
In addition, the immunogen, i.e. the virus, specific antigen, peptide or the cancer cells used
to prepare the vaccine, is in those cases injected into the body in a formulation that aims at
targeting and activating local DC. Examples are viral, specific antigen or peptide vaccines
formulated with adjuvant, or killed tumor cells alone or modified to produce the DC mobilizing
protein GM-CSF. In these instances, it is left to chance as to whether the immunogen arrives at the
DC, and whether the DC are properly activated and effectively migrate to lymph nodes to produce an
effective immune response.
Treatments that use only a single arm of the immune system may employ large amounts of
T-cells, or a single (monoclonal) antibody. We believe that the DCVax
®
products have a
clear advantage compared to this approach in that they are designed to activate all aspects of the
immune response, both cellular and antibody, thereby potentially providing a broader and longer
lasting immune and clinical response. Our DCVax
®
products consist of pure, activated DC loaded
with the immunogen as would naturally occur, and that are capable of migrating to lymph nodes. The
intended result is a full immune response consisting of both a specific cellular T-cell response
and a specific antibody response against the cancer-associated antigen consistent with our Phase I
and Phase II clinical trial results for DCVax
®
-Brain and DCVax
®
-Prostate, respectively, and that is
translated into a potential clinical benefit in this case, a delay in disease recurrence and an
extension of overall survival of the patient.
Cancer and the Immune System
Cancer cells produce many substances that shut down the immune response, as well as substances
that suppress or block the DC that are resident in the body. The optimal time for controlling
cancer growth by activating the immune system is, therefore, at the time when tumor burden is low.
Our DCVax
®
products target patients with brain cancer following surgery, radiation and
chemotherapy, and hormone independent prostate cancer patients with no detectable tumor. This
approach is designed to allow induction of powerful immune responses to control progression of the
disease. However, in clinical trials, delays in cancer progression and extension of survival have
also been seen in late stage patients treated with DCVax
®
-Brain and DCVax
®
-Prostate.
The DCVax
®
Process
The DCVax
®
platform uses our proprietary process to efficiently produce and
activate DCs outside a patients body. The clinical trials with DCVax
®
-Brain and DCVax
®
-Prostate
suggest that these cells can generate an effective immune system response when
36
administered
therapeutically. Manufacture of a DCVax
®
product takes approximately 30 days to complete for
DCVax
®
-Prostate and approximately 10 days for DCVax
®
-Brain, and is characterized by the following
sequence:
|
|
Collection.
A sample of a patients white blood cells is collected in
a single and simple outpatient procedure called leukapheresis.
|
|
|
|
Isolation of Precursors.
These cells are sent to a manufacturing
facility, where DC precursors are isolated from the patients white
blood cells.
|
|
|
|
Differentiation by Growth Factors.
DC precursors are transformed in a
manner that mimics the natural process in a healthy persons body,
through the application of specific growth factors, into highly pure
populations of immature DCs during a six-day culture period.
|
|
|
|
Maturation.
Immature DCs are exposed to a proprietary maturation
factor or maturation method in order to maximize Helper T-cell, Killer
T-cell, and B-cell activation.
|
|
|
|
Antigen Display.
Cancer-associated antigens, fragments of
cancer-associated antigens or deactivated whole cancer cells are added
to, ingested, and processed by the maturing DCs, causing the DCs to
display fragments of cancer-associated antigens on their outer cell
surfaces.
|
|
|
|
Harvest.
These DCs are harvested and separated into standardized
single-use DCVax
®
administration vials, frozen and stored.
|
|
|
|
Quality Control.
DCVax
®
product lot undergoes, according to current
industry standards, rigorous quality control testing, including
sterility testing for bacterial and mycoplasma contamination, and
potency testing prior to shipment to the administration site for
injection.
|
DCVax
®
-Brain Manufacturing Steps:
DCVax
®
Characteristics
The DCVax
®
platform combines our expertise in dendritic cell biology, immunology
and antigen discovery with our proprietary process of activating DCs outside a patients body to
develop therapeutic products intended to stimulate beneficial immune responses
37
to treat cancer in a
cost-effective manner. DCVax
®
has the following significant characteristics, the
combination of which we believe makes it a highly attractive alternative to current therapies.
Activation of the Natural Immune System
Our DCVax
®
product candidates are designed to elicit a natural immune response.
Pre-clinical and clinical trials suggest that our DCVax
®
product candidates can train a
patients own Killer T-cells to locate and destroy specifically targeted cancer cells. These same
clinical trials also suggest that DCVax
®
-Prostate stimulates the body to produce antibodies and/or
Killer T-cells that bind to cancer-associated antigens and potentially destroy cancer cells marked
by these antigens. Moreover, the clinical trials show that this immune response may be effective in
delaying time to disease progression in brain and prostate cancer, and both may prolong survival
and improve the quality of life for brain and prostate cancer patients.
Intended Impact of One Educated Dendritic Cell on Anti-Cancer Cells
Multiple Cancer Targets
We believe that our DCVax
®
platform can be applied towards the treatment of a wide
variety of cancers. The platform affords the flexibility to target many different forms of cancer
through the pairing of dendritic cells with cancer-associated antigens, fragments of
cancer-associated antigens or deactivated whole cancer cells as well as possible direct
intra-tumoral injection of partially mature dendritic cells.
Targeting of Serious Cancers with No Effective Treatments
DCVax
®
-Prostate targets men with rising PSA levels while on hormone therapy, but before
metastases develop. There is currently no effective treatment for this growing population of
patients who invariably go on to develop complications from the spread of their cancer to the bone
and, eventually, succumb to their disease. DCVax
®
-Brain targets patients with GBM, a highly lethal
form of brain cancer. In two Phase I trials carried out at UCLA from 1999 to the present day,
patients treated with DCVax
®
-Brain have survived more than twice as long without relapse compared
to matched concurrent controls not receiving DCVax
®
-Brain (under matched concurrent controls
patients received standard of care treatment at the same time clinical trial patients were treated
with standard of care treatment together with DCVax
®
-Brain; these control patients have been
matched for the major prognostic factors for GBM).
Low Incidence of Significant Adverse Side Effects or Toxicity
Our initial two DCVax
®
-Brain Phase I trials, and DCVax
®
-Prostate Phase I/II clinical trial
have shown no significant adverse side effects in over 250 administered injections. Some patients
had moderate injection site reactions, and we observed some severe
38
injection site reactions that we
believe to be a result of immune activiation. Patients treated with DCVax
®
-Brain or
DCVax
®
-Prostate therefore might not need to take additional prescription drugs to manage
undesirable side effects as is often the case with certain current cancer treatments. We minimize
the potential for toxicity by using the patients own cells to create its DCVax
®
product
candidates. Additionally, because our DCVax
®
products are designed to target the cancer- associated
antigens in the patient, collateral damage to healthy cells is minimized.
Efficient and Cost-Effective Manufacturing
We have developed a second generation closed and automated device based on tangential flow
filtration (TFF-Cell Separation System) for manufacturing DC from patient leukapheresis material.
We have a contract with Cognate for the manufacture of DCVax
®
-Brain product for clinical use. This
TFF-Cell Separation System is currently undergoing validation.
Ease of Administration
We initially collect a sample of a patients white blood cells in a single standard outpatient
procedure called leukapheresis. After patient-specific manufacturing and quality control testing,
each small dose of a DCVax
®
product candidate is administered by a simple intradermal injection in
an outpatient setting.
Complementary with Other Treatments
Our DCVax
®
product candidates are designed to stimulate the patients own immune system to
safely target cancer cells. Consequently, we believe these products may be used as an adjuvant to
standard therapies such as chemotherapy, radiation therapy, hormone therapy and surgery.
Our Clinical and Pre-clinical Development Programs
We have obtained FDA clearance of a Phase II clinical trial powered as a pivotal trial for
DCVax
®
-Brain for patients with GBM. This Phase II pivotal trial, which commenced recruiting
patients in December 2006, aims at recruiting approximately 141 patients with newly diagnosed GBM.
We obtained FDA clearance in January 2005 of a Phase III clinical trial powered as a pivotal
trial for our prostate cancer product, DCVax
®
-Prostate. This Phase III clinical trial is based on
clinical data from a previously conducted Phase I/II clinical trial. The Phase III clinical trial
will focus on non-metastatic hormone-independent prostate cancer patients.
The following table summarizes the targeted indications and status of our product candidates:
|
|
|
|
|
Product Candidate
|
|
Target Indications
|
|
Status
|
DCVax
®
Platform
|
|
|
|
|
DCVax
®
-Prostate
|
|
Prostate Cancer
|
|
Phase III clinical trial cleared by the
FDA for recruitment of patients for
non-metastatic hormone independent
prostate cancer
|
DCVax
®
-Brain
|
|
Glioblastoma Multiforme
|
|
Phase II pivotal clinical trial
initiated. Orphan Drug designation granted
in the U.S. in 2006 and in the E.U. in
2007
|
DCVax
®
-LB
|
|
Non-small Cell Lung Cancer
|
|
Phase I clinical trial cleared by the FDA
|
DCVax
®
-Direct
|
|
Solid Tumors
|
|
Phase I clinical trial cleared by the
FDA for ovarian cancer, head and neck
cancer and two other indications (expected
to be liver and pancreatic cancers)
|
DCVax
®
-L
|
|
Resectable Solid Tumors
|
|
Phase I clinical trial cleared by the
FDA for ovarian cancer
|
Pre-clinical means that a product candidate is undergoing efficacy and safety evaluation in disease
models in preparation for human clinical trials. Phase I-III clinical trials denote safety and
efficacy tests in humans as follows:
Phase
I: Evaluation of safety and dosing.
Phase II: Evaluation of safety and efficacy.
Phase III: Larger scale evaluation of safety and efficacy.
39
DCVax
®
Product Candidates
DCVax
®
-Brain
DCVax
®
-Brain uses our DCVax
®
platform in combination with the patients own
glioblastoma tumor cell lysate antigens. Our clinical collaborators at UCLA conducted two Phase I
clinical trials to assess the safety and efficacy of dendritic cell-based immunotherapy for GBM. In
the first Phase I clinical trial, DCVax
®
-Brain was administered to 12 patients and in the second
Phase I clinical trial it was administered to 17 patients. The patients in both trials were treated
with DCVax
®
-Brain being administered as an adjuvant to standard of care.
|
|
|
Progression Free Survival
|
|
Overall
|
|
|
|
|
|
|
The data from progression and survival Kaplan Meier curves of both of these trials together
(see figure above) show that newly diagnosed GBM patients treated at UCLA, and matched for the
major prognostic factors, with DCVax
®
-Brain had a delay in the median time to recurrence or
progression of disease from 8.1 months with standard of care treatments in matched concurrent
control patients to 18.1 months in patients treated with DCVax
®
-Brain (p = 0.00001). DCVax
®
-Brain
increased median overall survival from 17.0 months with standard of care in matched concurrent
control patients treatments to 33.8 months in patients treated (and continuing as the median is not
yet reached) for DCVax
®
-Brain treated patients, again matched for the major prognostic factors (p
< 0.0015). The p value measures the likelihood that the difference between the treated and
non-treated patients is due to chance. A `p value less than or equal to 0.05 (meaning there is a 5
percent or lower possibility that the observed clinical effect is due to chance) is required for
product approval by the FDA and European regulatory authorities. The p value of 0.0015 observed
with DCVax
®
-Brain means that there is only a 0.15 percent possibility that the observed effect
between standard of care and DCVax
®
-treated patients is due to chance. Nine of the 19 patients
remained alive for periods ranging, to date, from 10 to 82 months, with four patients having lived
for over 45 months without cancer recurrence. Similarly, in recurrent (late stage) patients,
DCVax
®
-Brain has increased median survival from 6.4 months for those receiving standard of care to
12.2 months for patients receiving DCVax
®
-Brain.
We intend to file with the FDA for the approval of DCVax
®
-Brain in approximately two years. In
December 2006, we commenced recruiting patients with newly diagnosed GBM for a clinical trial for
DCVax
®
-Brain, which aims at recruiting approximately 141 patients in total. This trial is designed
and powered as a pivotal clinical trial (i.e. a trial from which a sponsor can go directly to
product approval). The Phase II pivotal clinical trial for DCVax
®
-Brain will be carried out at 12
to 15 clinical centers. We also intend to apply for product approval of DCVax
®
-Brain with certain
European regulatory authorities within the next two years.
In February 2007, we, through our legal representative, applied to the Bundesamt für
Gesundheit (BAG or Office Fédéral de la Santé Publique) in Switzerland for an Authorization for
Use (Autorisation). In June 2007, we, through our legal representative, received such
Autorisation from the BAG to make DCVax
®
-Brain available at limited selected medical centers in
Switzerland, as well as an authorization (Autorisation pour activités transfrontalières avec des
transplants) to export patients cells and tissues from Switzerland, for vaccine manufacturing in
the United States, and to import patients DCVax
®
-Brain finished vaccines into Switzerland. These
authorizations are conditional upon certain implementation commitments which must be fulfilled to
the satisfaction of Swissmedic (Institut Suisse des Agents Thérapeutiques) before the product may
be made available (e.g., finalizing
40
our pending arrangements for a clean-room suite for processing of patients immune cells).
Implementation of these commitments is underway.
In the BAGs processing of and decision on our application and data with respect to the
authorizations described above, Swissmedic conducted an inspection of our facilities. A
comprehensive evaluation of DCVax
®
-Brain will be conducted by Swissmedic within the assessment of a
Marketing Authorization Application (MAA). We plan to submit an MAA to Swissmedic by the end of
this year. The assessment by Swissmedic of our MAA will include a full review by Swissmedic of the
safety and efficacy data generated in our DCVax
®
-Brain clinical studies to date. This review could
take up to one year from the date the MAA is submitted. If Marketing Authorization is granted for
DCVax
®
-Brain by Swissmedic we would have the right to fully market and commercialize the product in
Switzerland. However, if and until such a Market Authorization is granted, and assuming the Company
completes its implementation committments to the satisfaction of Swissmedic, DCVax
®
-Brain may only
be made available at the selected Medical Centers in Switzerland under the Autorisation granted by
the BAG. The term of the BAG Autorisation is five years from June 2007.
Standard of Care:
The current standard of care for GBM was established in a 573 patient study as
set out by Stupp
et al
. in
N Engl J Med 352;10,
and resulted in a median time to progression of 6.9
months and a median overall survival rate of 14.6 months in patients receiving a standard of care
treatment regimen. The standard of care established in the Stupp trial for GBM patients consists of
surgery followed two weeks later by radiation therapy with concomitant Temodar chemotherapy,
followed by six monthly cycles of Temodar chemotherapy. The DCVax
®
-Brain treatment regimen fits
between the steps of this current standard of care, and does not require a change in clinical
practices, other than one 30-day delay after the first chemotherapy treatment.
Target
Market:
The American Cancer Society estimated that about 20,500 new cases of brain cancer
would be diagnosed in the U.S. during 2007. Deaths from newly diagnosed malignant primary brain
cancer in the U.S. are estimated at approximately 12,740 per year. Globocan has estimated that
about 48,385 new cases of brain cancer would be diagnosed in Europe in 2002 (the last year for
which estimates are available). Deaths from brain cancer in Europe were estimated at 39,061 in
2002.
Current
Treatments:
Existing treatments for GBM include surgery, radiation and chemotherapy. Such
treatments are often used in various combinations and/or sequences and have significant adverse
side effects such as bleeding, seizures, nausea and collateral tissue damage. Following initial
treatment, virtually all cases of this cancer recur, with a life expectancy of approximately six
months following recurrence. Few, if any, effective therapies exist for these patients. We believe
that DCVax
®
-Brain will address this critical unmet medical need.
Cost Recovery:
We have submitted an application to the FDA for cost recovery for our Phase II
pivotal trial in brain cancer. If this application is approved, we will be permitted to charge
patients or their insurers for the direct costs of manufacturing DCVax
®
-Brain during this clinical
trial. We consider our cost recovery application to the FDA to be an important factor in our plans
for moving forward with our product development programs. The FDA has responded to our submission
and requested further information, which we are in the process of compiling.
DCVax
®
-Prostate
DCVax
®
-Prostate targets hormone independent (i.e. late stage) prostate cancer. DCVax
®
-Prostate
combines our DCVax
®
platform with the cancer-associated antigen prostate specific
membrane antigen or PSMA. PSMA is located on the surface of prostate cells. It is expressed at
very low levels on benign or healthy prostate cells, and at much higher levels on prostate cancer
cells. Because PSMA is over-expressed in virtually all prostate cancers, it represents an effective
target for prostate cancer therapeutics. In addition, since PSMA is over-expressed in virtually all
prostate cancer tissues, we do not have to screen patients. DCVax
®
-Prostate is designed to be used
in the whole patient population. In contrast, the use of other cancer vaccines in development may
be limited to part of the patient population and require screening of patients.
In September 1999, we filed an application to conduct a Phase I/II clinical trial for
DCVax
®
-Prostate to treat late-stage prostate cancer patients for whom hormone therapy was no longer
effective. This trial, which was carried out at the M.D. Anderson Cancer Centre and at UCLA,
involved the administration of DCVax
®
-Prostate to 33 evaluable patients in order to establish the
safety of three different dosage levels of DCVax
®
-Prostate.
Additional data from our Phase I/II DCVax
®
-Prostate clinical trial in 33 patients with
non-metastatic and metastatic hormone independent prostate cancer indicates the following. Of a
total of 33 patients who have been treated in this trial, 11 were non-metastatic hormone
independent prostate cancer patients (group A) and 22 were metastatic hormone independent prostate
cancer patients (group B). In group A, there has been an increase in survival from 36 months for
the natural course of the disease to >54
41
months for DCVax
®
-Prostate treated patients. The median had not yet been reached as of the end
of 2005 (the latest date to which long-term data is so far available. In this group there has been
a delay in time to metastases from 28 to 36 weeks, for the natural course of the disease to 59
weeks with DCVax
®
-Prostate treated patients. In group A, none of the 11 patients had progressed at
28 weeks and only five had progressed at 59 weeks. The group A patient population is the patient
population that we will focus on in our Phase III clinical trial.
In group B (hormone independent patients with metastases), there was an increase in median
overall survival from 18.9 months for standard of care to 38.7 months for DCVax
®
-Prostate treated
patients. Patients in this study had a six-times greater chance of being alive at 36 months
compared to patients treated with the standard of care.
Many cancer therapeutics elicit a clinical response in only a small fraction of patients. In
clinical trials, DCVax
®
-Prostate has been shown to elicit a specific PSMA antibody response and a
specific and strong T-cell response in about 80 percent of patients. The Company believes that the
administration of DCVax
®
-Prostate may enhance progression free survival relative to placebo, delay
the development of symptomatic disease and increase overall survival.
DCVax
®
-Prostate has been cleared by the FDA for a Phase III clinical trial in about 600
patients in 50 centers. The patient population is non-metastatic hormone independent prostate
cancer. We currently intend to separate the 600 patient Phase III trial into two single Phase III
clinical trials in non- metastatic hormone independent prostate cancer patients with about 300
patients per trial. We also plan to seek a Special Protocol Assessment from the FDA in relation to
the trials.
Standard of Care.
The standard of care for metastatic hormone independent prostate cancer was
established in a 674 patient study as set out by Petrylak et al. in
N Engl J Med 351;15
and
resulted in a median overall survival rate of 18.9 months. This standard of care consists of
Taxotere (chemotherapy) being administered as a single dose every three weeks or in a weekly
regime. Other drugs, such as mitoxantrone and prednisone, are also administered to patients for
pain derived from bone metastasis. The DCVax
®
-Prostate treatment regimen fits between the steps of
current standard of care, and does not require a change in clinical practices. There is no
established standard of care for non-metastatic hormone independent prostate cancer as there is no
FDA approved therapeutic product for this type of prostate cancer.
Target Market.
The American Cancer Society estimated that 218,890 new cases of prostate cancer
would be diagnosed in the U.S. during 2007. Deaths from prostate cancer in the U.S. are estimated
at 27,050 for 2007. We estimate that there is an initial DCVax
®
-Prostate target population in the
U.S. consisting of approximately 100,000 patients per year with non-metastatic hormone independent
prostate cancer. Globocan has estimated that 230,627 new cases of prostate cancer would be
diagnosed in Europe in 2002 (the last year for which estimates are available). Deaths from prostate
cancer in Europe were estimated at 83,066 in 2002.
Current Treatments.
Existing treatments for localized (i.e. newly-diagnosed) prostate cancer
include surgery and/or various forms of radiation therapy. The current standard of care for
treating patients who fail primary therapy is hormone therapy through which the effect of male
hormones is blocked. Although this therapy achieves temporary tumor control, prostate cancer
patients eventually fail hormone treatments, meaning that blocking of hormones no longer keeps the
cancer under control. The United States National Cancer Institutes 1989-1996 five-year survival
rate for metastatic prostate cancer is only 32 percent. Moreover, hormone therapy may cause
significant adverse side effects, including bone loss, hot flushes and impotence. Disease
progression despite hormone therapy occurs on average in two years, and is then classified as
hormone independent prostate cancer. Approximately 55 percent of patients with hormone independent
prostate cancer will die within two years of its onset. Currently, the only FDA approved treatments
for hormone independent prostate cancer are chemotherapy and radioactive pharmaceuticals, which can
alleviate cancer-related symptoms but may cause significant toxic side effects and only prolong
survival by approximately two and a half months. A large proportion of hormone independent patients
do not have objective metastatic disease as measured by bone and CT scans. We believe that
DCVax
®
-Prostate will address this critical unmet medical need.
DCVax
®
-LB/ DCVax
®
-Lung
DCVax
®
-Lung targets non-small cell lung cancer, the largest cause of cancer deaths in both the
U.S. and Europe. DCVax
®
-LB combines our DCVax
®
platform with isolated and killed lung cancer cells
as antigens. The autologous dendritic cells used to formulate DCVax
®
-LB are activated through a
process similar to that used in the manufacturing of DCVax
®
-Prostate. We had an IND cleared by the
FDA in May 2006 for a Phase I clinical trial using DCVax
®
-LB in non-small cell lung cancer. If the
cost recovery application in respect of our pivotal Phase II clinical trial for DCVax
®
-Brain is
approved, we intend to commence this process in 2008.
Target Market.
The American Cancer Society estimated that 213,380 new cases of lung cancer would be
diagnosed in the U.S. during 2007. Approximately 80 percent of these cases are expected to be
attributable to non-small cell lung cancer, the indication that we are
42
targeting. Deaths from all forms of lung cancer are estimated at 160,390 for 2007. Globocan
has estimated that 374,764 new cases of lung cancer would be diagnosed in Europe in 2002 (the last
year for which estimates are available). Deaths from lung cancer in Europe were estimated at
341,595 in 2002.
Current Treatments.
Existing treatments for non-small cell lung cancer include surgery and
radiation therapy, which are used in various combinations. These treatments have significant toxic
side effects and have limited clinical benefit. The American Cancer Society has reported that only
16 percent of patients diagnosed with non-small cell lung cancer survive after five years.
Following initial treatment, virtually all cases of this cancer recur, with a life expectancy of
approximately one year following recurrence.
DCVax
®
-L
DCVax
®
-L targets any kind of solid tumor cancer and it combines our DCVax
®
platform with
patient specific tumor lysate. Following surgery, the tumor is prepared as a lysate (i.e. the tumor
tissue is finely chopped) for loading into autologous dendritic cells. The patients tumor lysate
contains cancer specific biomarkers which will be added to the patients own dendritic cells and
subsequently injected back into the patient to elicit a cancer specific immune response. The
Company has filed an IND for a Phase I clinical trial treating ovarian cancer with DCVax
®
-L which
received FDA clearance in the second quarter of 2006.
Target Market:
The American Cancer Society estimated that 22,430 new cases of ovarian cancer were
diagnosed in 2007 and that there were approximately 16,210 deaths from the disease. Globocan has
estimated that 63,467 new cases of ovarian cancer were diagnosed in Europe in 2002 (the last year
for which estimates are available). Once ovarian cancer has recurred, there are currently no
effective treatments for the disease. Thus, new treatment modalities that prevent or delay cancer
recurrence are of importance in prolonging survival in women with ovarian cancer.
Current Treatments:
Standard therapy includes surgical debulking, followed by chemotherapy with a
taxane/platinum combination for six to eight cycles. Of the patients who present with advanced
stage disease (III or IV), 70 percent will have an initial clinical remission following surgery and
chemotherapy, with no evidence of disease by physical examination, radiographic imaging (such as CT
or MRI) or normalisation of the CA125 tumor marker. However, for most of these patients, the
ovarian cancer will recur within two years. The median time to progression is approximately 20
months even for patients who received total or near-total surgical removal of the initial tumor and
is approximately 14 months for patients with less complete surgical removal of the initial tumor.
Once ovarian cancer has recurred, it is not considered curable and progression to death is usually
inevitable, despite aggressive chemotherapy strategies. The overall five year survival for advanced
ovarian cancer remains at only 20 to 30 percent.
DCVax
®
-Direct
DCVax
®
-Direct uses our DCVax
®
platform to activate dendritic cells suitable for direct
injection into solid tumors. DCVax
®
-Direct is designed to treat cancer patients whose tumor tissue
is not available or whose tumors are considered to be inoperable. Several scientific studies have
shown that dendritic cells injected into solid tumors in animal models can result in tumor
regression. We have demonstrated in pre-clinical animal studies the ability of activated dendritic
cells, when injected directly into just a single tumor of mice bearing multiple tumors, to cause
all tumors to regress. In these studies, subsequent challenge of these now tumor-free mice with the
injection of additional tumor cells was met with total rejection of tumor growth demonstrating an
immunisation of the mouse against regrowth of the tumor. The dendritic cells used in the
formulation of DCVax
®
-Direct are activated through a process similar to that used for DCVax
®
-Brain
and DCVax
®
-Prostate (i.e. using heat-killed and formalin-fixed BCG mycobacteria and interferon
gamma), although they are not loaded with tumor antigens prior to injection. Rather, the antigen
loading takes place
in vivo
after injection of the DCVax
®
-Direct dendritic cells into the tumor
tissue, typically following radiation therapy, chemotherapy, or other treatments that kill tumor
cells.
We have filed with the FDA an IND containing a Phase I clinical trial protocol for the
treatment of ovarian cancer and three additional cancers, at our election, with DCVax
®
-Direct. This
IND was cleared to proceed with respect to ovarian cancer in the second quarter of 2006. The
clinical trial for ovarian cancer is in the process of design and consultation with clinicians and
has not yet been initiated. We have submitted an additional Phase I clinical trial protocol under
the DCVax
®
-Direct IND for the treatment of head and neck cancer. This clinical trial protocol was
cleared by the FDA in the third quarter of 2006. We intend to identify the most appropriate cancers
for the remaining two available trials under the DCVax
®
-Direct IND at the appropriate time,
although our present intention is to pursue liver and pancreatic cancers.
Target markets
: The American Cancer Society estimated that 22,430 new cases of ovarian cancer and
34,360 new cases of head and neck cancer would be diagnosed in the U.S. during 2007. Globocan has
estimated that 63,467 new cases of ovarian cancer and 98,175 new cases of head and neck cancer were
diagnosed in Europe in 2002 (the last year for which estimates are available). Deaths from ovarian
cancer and head and neck cancer in Europe were estimated at 41,024 and 43,273 respectively. Deaths
from all solid tumors are
43
estimated at approximately 450,000 per year for 2007. Deaths from all solid tumors are
estimated at approximately 815,000 in the E.U. in 2002 (the last year for which estimates are
available).
Current treatments
: Current treatments for solid tumors typically involve cytotoxic therapy aimed
at killing tumor cells. Such treatments include radiation therapy, chemotherapy, or other cell
killing treatments such as cryotherapy. These treatments can still be used along with DCVax
®
-Direct
as they can potentially prepare the tumor tissue for the injection of DCVax
®
-Direct. The ability to
still use conventional cytotoxic agents along with DCVax
®
-Direct will enable DCVax
®
-Direct to be
adopted in the market without requiring any change of existing clinical practice if so desired.
44
Therapeutic Antibody Product Candidates
We have been issued patent coverage by the U.S. Patent and Trademark Office which gives us
broad rights to the use of CXCR4 antibodies to treat cancer. CXCR4 is a protein that plays a key
role in the progression of primary cancers and in the metastatic process. CXCR4 is over-expressed
in more than 75 percent of cancers including non-small cell lung cancer, breast cancer, GBM, colon
cancer, melanoma, prostate, pancreatic, kidney, ovarian, and certain blood cancers. In all of these
cancers CXCR4 is centrally involved in all three phases of disease progression: proliferation of
the primary tumor, migration of cancer cells out of the primary tumor, and establishment of distant
metastatic sites.
We have completed substantial research and pre-clinical testing phases with two versions of
CXCR4 antibodies. We intend to identify the most appropriate cancers for clinical trial or multiple
clinical trials using CXCR4 antibodies at the appropriate time.
Multiple Therapeutic Applications
Therapeutic antibodies may be used as stand-alone products that bind to cancer-associated
antigens and potentially destroy cancer cells marked by these antigens. Therapeutic antibodies may
also enable the targeted delivery of existing therapies such as radiation and cytotoxic agents. The
inherent toxic effects of cytotoxic agents and radioactive materials on normal tissue could be
minimized by coupling these agents to antibodies that have a high degree of specificity to cancer
cells.
Manufacturing
We have developed a proprietary manufacturing system that enables us to produce vaccines for
an entire course of treatments in a single manufacturing run using the cancer patients own DCs and
the patients own tumor biomarkers. This manufacturing process results in sufficient
patient-specific DCVax
®
product for at least a course of 11 injections of DCVax
®
, which
is sufficient for three years of treatment. The product thus becomes like an off-the-shelf drug
after the initial manufacturing run. The advantage of this method includes not only the
off-the-shelf feature of drug delivery to clinics and patients, but also the significant
reduction in product cost due to the fact that the product does not have to be separately
manufactured for each and every treatment injection.
We have entered into a services agreement with Cognate pursuant to which Cognate will provide
certain consulting and, when needed, manufacturing services for our DCVax
®
-Brain Phase
II clinical trial. In this process, DC precursor cells are isolated from the patients blood and
matured into new functional DCs. These DCs are combined with a patients own cancer biomarkers from
the patients tumor tissue removed in surgery. The finished vaccine is then frozen in single-dose
vials where they can remain for many years until required for treatment of the patient.
The current capacity of Cognates existing cGMP (clean room manufacturing under current Good
Manufacturing Practices) facility is approximately 300 patients per year, which we believe will be
sufficient for our Phase II clinical trial for DCVax
®
-Brain. We have a plan with Cognate to
accommodate an increase in production capacity based on demand and have detailed plans and cost
analysis for four modular expansions which should afford the capacity of the current facility
increase from approximately 300 patients to over 5,000 patients per year. We believe that Cognates
current facility is sufficient to cover additional agreements for our initial commercialization
efforts in Switzerland, and potentially in the United States and/or Europe, as well as to meet
demands of clinical trial activity once commenced.
We intend to commence use of the TFF-Cell Separation System in our upcoming DCVax
®
Phase I
clinical trials which may start in early 2008. The TFF-Cell Separation System is also targeted to
be implemented into the DCVax
®
-Brain product after bioequivalence studies have been completed.
Since the product economics are favorable even with the existing first generation manufacturing
process, the Company intends to only implement the TFF-Cell Separation System at a time and in a
manner that does not interfere with the pivotal Phase II clinical trial for DCVax
®
-Brain, or
product approval or launch.
45
Marketing
In the event that we secure adequate funding and develop an approved product, we plan to
market that product in partnership with one or more established pharmaceutical companies. Our
collaboration with these companies may take the form of royalty agreements, licensing agreements or
other co-marketing arrangements. The oncology market in the United States is characterized by
highly concentrated distribution channels. To be successful in producing a commercially viable
product, we may need to develop a direct sales force to market that product in the United States.
Intellectual Property
We protect our proprietary technologies through patents issued and licensed throughout the
world. We have 27 issued and licensed patents (10 in the U.S. and 17 in other jurisdictions) and
133 patent applications pending (15 in the U.S. and 118 in other jurisdictions) which cover the use
of DCs in DCVax
®
as well as targets for either the Companys DC or monoclonal antibody
therapy candidates and isolation and manufacturing, handling and administration of DCVax
®
. The
issued patents expire at various dates between 2015 and 2026. We intend to continue using our
scientific expertise to pursue and patent new developments with respect to uses, methods, and
compositions to enhance our position in the field of cancer treatment.
We have received orphan designation in the U.S. and the E.U. for our DCVax
®
- Brain product
candidate applicable to gliomas, which comprise most primary brain cancers, including GBM. Orphan
designation in the U.S. entitles us to seven years of market exclusivity for the particular
indication and active ingredient provided that the product is the first such orphan to be approved
for that indication. Orphan designation in the E.U. entitles us to ten years of market exclusivity
on a similar basis.
Any patents that we obtain may be circumvented, challenged or invalidated by our competitors.
Our patent applications may not result in the issuance of any patents, and any patents that may be
issued may not offer any protection against others who seek to practice the claimed inventions. We
have obtained licenses for certain technologies that we use, but we may be unable to maintain those
licenses and may be unable to secure additional licenses in the future. Thus, we may be forced to
abandon certain product areas or develop alternative methods for operating in those areas.
In addition to patents, we rely on copyright protection, trade secrets, proprietary know-how
and trademarks to maintain our competitive position. Our future success will depend in part on our
ability to preserve our copyrights and trade secrets. Although our officers, employees,
consultants, contractors, manufacturers, outside scientific collaborators, sponsored researchers
and other advisors are required to sign agreements obligating them not to disclose our confidential
information, these parties may nevertheless disclose such information and compromise our
confidential data. We may not have adequate remedies for any such breach. It is also possible that
our trade secrets or proprietary know-how will otherwise become known or be independently
replicated or otherwise circumvented by competitors.
Our technologies may infringe the patents or violate other proprietary rights of third
parties. In the event of infringement or violation, we may be prevented from pursuing further
licensing, product development or commercialization. Such a result would materially adversely
affect our business, financial condition and results of operations.
If we become involved in any litigation, interference or other administrative proceedings, we
will incur substantial expenses and the efforts of our technical and management personnel will be
significantly diverted. An adverse determination may subject us to significant liabilities or
require us to seek licenses, which may not be available. We may also be restricted or prevented
from manufacturing and selling our products, if any, in the event of an adverse determination in a
judicial or administrative proceeding, or if we fail to obtain necessary licenses. In addition, any
potential litigation or dispute may, as a result of our lack of funding, require us to further
reduce or even curtail our operations entirely.
Competition
The biotechnology and biopharmaceutical industries are characterized by rapidly advancing
technologies and a strong emphasis on proprietary products. Several companies, such as Cell
Genesys, Inc., Dendreon Corporation, Immuno-Designed Molecules, Inc., Celldex Therapeutics, Inc.,
Ark Therapeutics plc, Oxford Biomedica plc, Argos Therapeutics, Inc. and Antigenics, are actively
involved in the research and development of immunotherapies or cell-based cancer therapeutics.
Of these companies, we believe that only Dendreon and Cell Genesys are carrying out Phase III
clinical trials with a cell-based therapy. These clinical trials target patients with prostate
cancer, although their patient populations are different from those targeted by our Phase III
DCVax
®
-Prostate product candidate. Celldex Therapeutics is commencing a Phase II clinical trial,
which could become
46
a Phase II/III trial, with a peptide immunotherapy for newly diagnosed GBM. Ark Therapeutics
is in a Phase III trial with a gene therapy for operable high grade gliomas. The clinical trial
data reported to date by these companies for brain and prostate cancer have not shown as long a
delay in disease progression, or as long an extension of survival, as have our clinical data to
date. As far as we are aware, no cell-based therapeutic product for cancer is currently available
for commercial sale.
Additionally, several companies, such as Medarex, Inc., Amgen, Inc., Agensys, Inc., and
Genentech, Inc. are actively involved in research and development of monoclonal antibody-based
cancer therapies. Currently, at least seven antibody-based products are approved for commercial
sale for cancer therapy. Genentech is also engaged in several Phase III clinical trials for
additional antibody-based therapeutic products for a variety of cancers, and several other
companies are in early stage clinical trials for such products. Many other third parties compete
with us in developing alternative therapies to treat cancer, including:
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biotechnology companies;
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pharmaceutical companies;
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academic institutions; and
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other research organizations.
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Most of our competitors have significantly greater financial resources and expertise in
research and development, manufacturing, pre-clinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing. In addition, many of these competitors have become
more active in seeking patent protection and licensing arrangements in anticipation of collecting
royalties for use of technology they have developed. Smaller or early-stage companies may also
prove to be significant competitors, particularly through collaborative arrangements with large and
established companies. These competitors may prevent us from recruiting and retaining qualified
scientific and management personnel, or from acquiring technologies complementary to our programs.
We expect that our ability to compete effectively will be dependent upon our ability to:
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secure the necessary funding to continue our development efforts with respect to our
product candidates;
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successfully complete clinical trials and obtain all requisite regulatory approvals;
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maintain a proprietary position in our technologies and products;
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attract and retain key personnel; and
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maintain existing or enter into new partnerships.
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Governmental Regulation
Governmental authorities in the United States and other countries extensively regulate the
pre-clinical and clinical testing, manufacturing, labeling, storage, record-keeping, advertising,
promotion, export, marketing and distribution, among other things, of immunotherapeutics. In the
United States, the FDA subjects pharmaceutical and biologic products to rigorous review. Even if we
ultimately receive FDA approval for one or more of our products, if we or our partners do not
comply with applicable requirements, we may be fined, our products may be recalled or seized, our
production may be totally or partially suspended, the government may refuse to approve our
marketing applications or allow us to distribute our products and we may be criminally prosecuted.
The FDA also has the authority to revoke previously granted marketing authorizations.
In order to obtain approval of a new product from the FDA, we must, among other requirements,
submit proof of safety and efficacy as well as detailed information on the manufacture and
composition of the product. In most cases, this proof requires documentation of extensive
laboratory tests, and pre-clinical and clinical trials. This testing, and the preparation of
necessary applications and processing of those applications by the FDA, are expensive and typically
take several years to complete. The FDA may not act quickly or favorably in reviewing these
applications, and we may encounter significant difficulties or costs in our efforts to obtain FDA
approvals that could delay or preclude us from marketing any products we may develop. The FDA also
may require
47
post-marketing testing and surveillance to monitor the effects of approved products or place
conditions on any approvals that could restrict the commercial applications of these products.
Regulatory authorities may withdraw product approvals if we fail to comply with regulatory
standards or if we encounter problems following initial marketing. With respect to patented
products or technologies, delays imposed by the governmental approval process may materially reduce
the period during which we might have the exclusive right to exploit the products or technologies.
After an IND application becomes effective, a sponsor may commence human clinical trials in
the United States. The sponsor typically conducts human clinical trials in three sequential phases,
but these phases may overlap. In Phase I clinical trials, the product is tested in a small number
of patients or healthy volunteers, primarily for safety at one or more doses. In Phase II, in
addition to safety, the sponsor evaluates the efficacy of the product in a patient population
somewhat larger than Phase I clinical trials. Phase III clinical trials typically involve
additional testing for safety and clinical efficacy in an expanded population at geographically
dispersed test sites. The sponsor must submit to the FDA a clinical plan, or protocol, accompanied
by the approval of a clinical site responsible for ongoing review of the investigation, prior to
commencement of each clinical trial. The FDA or a clinical site may order the temporary or
permanent discontinuation of a clinical trial at any time, if the trial is not being conducted in
accordance with FDA or clinical site requirements or presents a danger to its subjects.
The sponsor must submit to the FDA the results of the pre-clinical and clinical trials,
together with, among other data, detailed information on the manufacture and composition of the
product, in the form of a new drug application or, in the case of a biologic, a biologics license
application. The FDA is regulating our therapeutic vaccine product candidates as biologics and,
therefore, we must submit biologics license applications, or BLA, to the FDA to obtain approval of
our products. The clinical trial process generally takes several years, and the FDA reviews the BLA
and, when and if it decides that adequate data is available to show that the new compound is both
safe and effective and that all other applicable requirements have been met, the FDA approves the
drug or biologic for marketing. The amount of time taken for this approval process is a function of
a number of variables, including the quality of the submission and studies presented, the potential
contribution that the compound will make in improving the treatment of the disease in question, and
the workload at the FDA. It is possible that our product candidates will not successfully proceed
through this approval process or that the FDA will not approve them in any specific period of time.
The FDA may, during its review of a new drug application or biologics license application, ask
for additional test data. If the FDA does ultimately approve a product, it may require
post-marketing testing, including potentially expensive Phase IV studies, and surveillance to
monitor the safety and effectiveness of the drug. In addition, the FDA may in some circumstances
impose restrictions on the use of an approved drug, which may be difficult and expensive to
administer, and may require prior approval of promotional materials.
Before approving a new drug application or biologics license application, the FDA also will
inspect the facilities at which the product is manufactured and will not approve the product unless
the manufacturing facilities are in compliance with guidelines for the manufacture, holding and
distribution of a product. Following approval, the FDA periodically inspects drug and biologic
manufacturing facilities to ensure continued compliance with manufacturing guidelines.
Manufacturers must continue to expend time, money and effort in the areas of production, quality
control, record keeping and reporting to ensure full compliance with those requirements. The
labeling, advertising, promotion, marketing and distribution of a drug or biologic product must
also be in compliance with FDA regulatory requirements. Failure to comply with applicable
requirements can lead to the FDA demanding that production and shipment cease, and, in some cases,
that the manufacturer recall products, or to FDA enforcement actions that can include seizures,
injunctions and criminal prosecution. These failures can also lead to FDA withdrawal of approval to
market the product.
We, and our partners, are also subject to regulation by the Occupational Safety and Health
Administration, the Environmental Protection Agency, the Nuclear Regulatory Commission and other
foreign, federal, state and local agencies under various regulatory statutes, and may in the future
be subject to other environmental, health and safety regulations that may affect our research,
development and manufacturing programs. We are unable to predict whether any agency will adopt any
regulation which could limit or impede on our operations.
Sales of pharmaceutical products outside the United States are subject to foreign regulatory
requirements that vary widely from country to country. Whether or not we have obtained FDA
approval, we must obtain approval of a product by comparable regulatory authorities in foreign
countries prior to the commencement of marketing the product in those countries. The time required
to obtain this approval may be longer or shorter than that required for FDA approval. The foreign
regulatory approval process includes all the risks associated with FDA regulation set forth above,
as well as country-specific regulations.
48
Employees
Beginning in September 2002, we reduced our research and administrative staff approximately
94%, from 67 employees to a remaining staff of four full-time employees, as of December 5, 2007.
Each of our employees has signed a confidentiality and invention assignment agreement, and none are
covered by a collective bargaining agreement. We have never experienced employment-related work
stoppages and consider our employee relations to be positive.
49
Properties
Prior
to September 2007, we maintained our headquarters in Bothell, Washington where we currently sublease approximately
2,325 square feet of general administration space. Our current lease expires on December 31, 2007.
In September 2007, the Company announced that, effectively immediately, it was moving its corporate
headquarters to leased space at 7600 Wisconsin Avenue, Suite 750, Bethesda, Maryland 20814. The
Company is currently finalizing the terms of the lease which it expects to enter into before the
end of 2007.
Legal Proceedings
From time to time, we are involved in claims and suits that arise in the ordinary course of
our business. Although management currently believes that resolving any such claims against us will
not have a material adverse impact on our business, financial position or results of operations,
these matters are subject to inherent uncertainties and managements view of these matters may
change in the future. In addition to any such claims and suits, we are involved in the following
legal proceedings.
Soma Arbitration
We signed an engagement letter, dated October 15, 2003, with Soma Partners, LLC, or Soma, a
New Jersey-based investment bank, pursuant to which we engaged them to locate potential investors.
Pursuant to the terms of the engagement letter, any disputes arising between the parties would be
submitted to arbitration in the New York metropolitan area. A dispute arose between the parties.
Soma filed an arbitration claim against us with the American Arbitration Association in New York,
NY claiming unpaid commission fees of $186,000 and seeking declaratory relief regarding potential
fees for future transactions that may be undertaken by us with Toucan Capital. We vigorously
disputed Somas claims on multiple grounds. We contended that we only owed Soma approximately
$6,000.
Soma subsequently filed an amended arbitration claim, claiming unpaid commission fees of
$339,000 and warrants to purchase 6% of the aggregate securities issued to date, and seeking
declaratory relief regarding potential fees for future financing transactions which may be
undertaken by us with Toucan Capital and others, which could potentially be in excess of $4
million. Soma also requested the arbitrator award its attorneys fees and costs related to the
proceedings. We strongly disputed Somas claims and defended ourselves.
The arbitration proceedings occurred from March 8-10, 2005 and on May 24, 2005, the arbitrator
ruled in our favor and denied all claims of Soma. In particular, the arbitrator decided that we did
not owe Soma the fees and warrants sought by Soma, that we would not owe Soma fees in connection
with future financings, if any, and that we had no obligation to pay any of Somas attorneys fees
or expenses. The arbitrator agreed with us that the only amount we owed Soma was $6,702.87, which
payment we made on May 27, 2005.
On August 29, 2005, Soma filed a notice of petition to vacate the May 24, 2005 arbitration
award with the Supreme Court of the State of New York. On December 30, 2005, the Supreme Court of
the State of New York dismissed Somas petition.
On February 3, 2006, Soma filed another notice of appeal with the Supreme Court of the State
of New York. On December 6, 2006, we filed our brief for this appeal and on December 12, 2006, Soma
filed its reply brief. On June 19, 2007, the Appellate Division, First Department of the Supreme
Court of the State of New York, reversed the December 30, 2005 decision and ordered a new
arbitration proceeding. On July 26, 2007, we filed a Motion for Leave to Appeal with the Court of
Appeals of the State of New York and on August 3, 2007 Soma filed its reply brief. On October 16,
2007 the Court of Appeals of the State of New York denied our motion to appeal. We intend to
continue to vigorously defend ourselves against the claims of Soma.
Lonza Patent Infringement Claim
On July 27, 2007, Lonza Group AG filed a complaint against us in the United States District
Court for the District of Delaware alleging patent infringement relating to recombinant DNA
methods, sequences, vectors, cell lines and host cells. The complaint seeks temporary and permanent
injunctions enjoining us from infringing Lonzas patents and unspecified damages. On November 27,
2007, the complaint was dismissed from the United States District Court for the District of
Delaware. Also on November 27, 2007, a new complaint was filed in the United States District Court
for the District of Maryland. The new complaint alleges patent infringement relating to recombinant
DNA methods, sequences, vectors, cell lines and host cells by the Companys DCVax
®
-Prostate
product. We believe that Lonzas claims are meritless and intend to file a response and vigorously
defend this action.
50
Stockholder Class Action Lawsuits
On
August 13, 2007, a complaint was filed in the U.S. District Court for the Western District
of Washington naming the Company, the Chairperson of its Board of Directors, Linda Powers, and its
Chief Executive Officer, Alton Boynton, as defendants in a class action for violation of federal
securities laws. After this complaint was filed, five additional complaints were filed in other
jurisdictions alleging similar claims. The complaints were filed on behalf of purchasers of the
Companys common stock between July 9, 2007 and July 18, 2007 and allege violations of Section
10(b) of the Exchange Act and Rule 10b-5 thereunder. The complaints seek unspecified compensatory
damages, costs and expenses. The Company disputes these claims and intends to vigorously defend
these actions. Motions are currently pending to consolidate the complaints into a single action and
to designate a lead plaintiff.
SEC Inquiry
On August 13, 2007, we received a letter of non-public informal inquiry from the SEC regarding
the events surrounding our application for Swiss regulatory approval and related press releases
dated July 9, 2007 and July 16, 2007. The Company is co-operating with the inquiry.
Management Warrants
On November 13, 2003, we borrowed an aggregate of $335,000 from certain members of our
management. As part of the consideration for this loan, the lenders received warrants exercisable
to acquire an aggregate of 0.25 million shares of our common stock. From March 2006 through May
2006, all of these warrants were exercised for common stock on a net exercise basis, pursuant to
the terms of the warrants.
Two former members of management who had participated as lenders in our management loans have
claimed that they are entitled to receive, for no additional cash consideration, an aggregate of up
to approximately 0.63 million additional shares of our common stock due to the alleged triggering
of an anti-dilution provision in the warrant agreements. We do not believe that these claims have
merit and, in the event such claims are pursued, we intend to vigorously defend against them.
51
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, and their ages and positions as of December 5, 2007, are
as follows.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
Alton L. Boynton, Ph.D.
|
|
|
63
|
|
|
President, Chief Executive Officer, Secretary and Director
|
Marnix L. Bosch, Ph.D.
|
|
|
47
|
|
|
Chief Technical Officer
|
Anthony P. Deasey
|
|
|
58
|
|
|
Senior Vice President of Finance, Chief Financial Officer
and Director
|
R. Steve Harris
|
|
|
64
|
|
|
Director
|
Linda F. Powers
|
|
|
51
|
|
|
Director, Chairperson
|
Alton L. Boynton, Ph.D.
Dr. Boynton co-founded the Company, has served as Secretary since
August 2001, has served as our Executive Vice President since July 2000, has served as our Chief
Scientific Officer and a director since our inception in 1998, was appointed our Chief Operating
Officer in August 2001, was appointed President in May 2003 and was appointed Chief Executive
Officer in June 2007. Dr. Boynton has also served as Director of the Department of Molecular
Medicine of Northwest Hospital from 1995-2003 where he coordinated the establishment of a program
centered on carcinogenesis. Prior to moving to Seattle, Dr. Boynton was Associate Director of the
Cancer Research Center of Hawaii, The University of Hawaii, where he also held the positions of
Director of Molecular Oncology of the Cancer Research Center and Professor of Genetics and
Molecular Biology. Dr. Boynton received his Ph.D. in Radiation Biology from the University of Iowa
in 1972.
Marnix L. Bosch, Ph.D, M.B.A.
Dr. Bosch joined the Company in 2000 and has served as our
Chief Technical Officer since January 2007. Dr. Bosch previously served as our Vice President for
Vaccine R&D from 2001-2006. Prior to joining us, Dr. Bosch was a member of the faculty of the
Department of Pathobiology at the University of Washington and he continues to serve that
Department as an Affiliate Associate Professor. He worked at the National Institutes of Health
(Bethesda, MD) and the National Institutes of Health and Environmental Protection (Bilthoven, the
Netherlands) prior to joining the University of Washington. He has authored more than 40 research
publications in virology and immunology, and is an inventor on several patent applications on
dendritic cell product manufacturing. Dr. Bosch obtained his Ph.D. in Medicine at the University of
Leiden, the Netherlands, in 1987 and earned an MBA from the University of Washington in 2003.
Anthony P. Deasey.
Mr. Deasey was elected to the Board on September 28, 2007. Mr. Deasey was
appointed Senior Vice President of Finance, Chief Financial Officer of the Company on October 2,
2007. Prior to joining the Company, from November 2000 to September 2007 Mr. Deasey served as
Executive Vice President, Chief Financial Officer of Celsion Corporation and oncology drug
development company. From 1998 to 2000, he was Senior Vice President and Chief Financial Officer of
World Kitchen Inc. From 1996 to 1998 he served as Senior Vice President and Chief Financial
Officer of Rollerblade Inc. and from 1988 to 1995 he served as Vice President Finance and Chief
Financial Officer of Church and Dwight Co. Inc. Mr Deasey is a Chartered Accountant who gained his
early experience in the international operations of Chesebrough Ponds and Price Waterhouse.
R. Steve Harris
. Mr. Harris has served as our director since June 2007. Mr. Harris is
currently the non-executive Chairman of Proteome Sciences plc, Convé plc and Sinclair Pharma plc.
He is also a non-executive director of SkyePharma plc, Advanced Medical Solutions plc and Premier
Research plc. Mr. Harris holds a Bachelor of Pharmacy Degree (University of London) and was elected
a Fellow of the Royal Pharmaceutical Society in 2000. Mr. Harris is also a member of the Audit
Committee, Compensation Committee and Nominations Committee.
Linda F. Powers.
Ms. Powers has served as the Chairperson of our Board of Directors since her
appointment on May 17, 2007. Ms. Powers has served as managing director of Toucan Capital
Corporation, a provider of venture capital since 2001. She has over 15 years experience in
corporate finance and restructurings, mergers and acquisitions joint ventures and intellectual
property licensing. Ms. Powers is a board member of Moffitt Technology Corporation, a for-profit
arm of Moffitt Cancer Center (the third largest cancer center in U.S.), a board member of the
Trudeau Institute, well known for its specialization in immunology, and the Chair of the Maryland
Stem Cell Research Commission, administering the states stem cell funding program. Ms. Powers has
been appointed to three Governors commissions created to determine how to build the respective
states biotech and other high-tech industries. She served as the Deputy Assistant Secretary of
Commerce in the George H. W. Bush, Sr. administration. She was co-lead negotiator for the U.S. on
the North American Free Trade Agreement financial sector agreement, which opened banking,
securities, insurance, pension fund and related opportunities in Canada and Mexico. Ms. Powers
serves on the steering committee of the National Academy of Sciences evaluating Federal grant
programs, and on the Advisory Board of the US Department of Commerce NIST Advanced Technology
Program. Ms. Powers also serves on the boards of directors of six private biotechnology companies.
52
Ms. Powers holds a B.A. from Princeton University, where she graduated magna cum laude and Phi
Beta Kappa. She also earned a JD degree, magna cum laude, from Harvard Law School. Mrs. Powers is
also a member of the Audit Committee, Compensation Committee and Nominations Committee.
Board of Directors
Our Board of Directors consists of two non-employee directors and two directors who are
currently employed by us. The Board has established the following committees:
Audit Committee
The Audit Committee has responsibility for recommending the appointment of our independent
accountants, supervising our finance function (which includes, among other matters, our
investment activities), reviewing our internal accounting control policies and procedures, and
providing the Board such additional information and materials as it may deem necessary to make
the Board aware of significant financial matters which require the attention of the Board. The
Audit Committee provides the opportunity for direct contact between our independent registered
public accounting firm and the Board. The Board has adopted a written charter for the Audit
Committee and its current members are two non-employee directors.
Compensation Committee
The Compensation Committee is responsible for determining the overall compensation levels of our
executive officers and administering our stock option plans. The Board has adopted a written
charter for the Compensation Committee and its current members are two non-employee directors.
Nominations Committee
The Nominations Committee is responsible for identifying and nominating members of the Board,
recommending directors to be appointed to each committee of the Board and the chair of such
committees, and overseeing the evaluation of the Board. The Board has adopted a written charter
for the Nominations Committee and its current members are two non-employee directors.
It is the Boards intention to appoint additional independent non-executive directors to these
committees in due course following recruitment of such persons to the Board.
We have adopted a code of ethics meeting the definition of Code of Ethics as defined in Item
406 of Regulation S-K . Our Code of Ethics is applicable to the chief executive officer, the chief
financial officer, the principal accounting officer or persons performing similar functions.
One of our directors is an independent director as defined by the National Association of
Securities Dealers, Inc. None of our directors meet the definition of an audit committee financial
expert as defined by the SEC. We intend to recruit one or more additional non-executive
directors, but may not be able to do so.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Compensation Discussion and Analysis
Our Process
Typically, our executive compensation is comprehensively assessed and analyzed annually;
however, given our limited funding since 2002, our executives have received infrequent increases in
their compensation. During 2006, our executives did not receive an increase in their base salaries.
Furthermore, no equity-based incentives were granted to our executives in 2006. Normally, the
review process includes, but is not limited to, the following steps:
|
|
|
The Compensation Committee reviews the performance of the Chief Executive Officer and
other senior executives;
|
|
|
|
|
The current annual compensation of senior management and long-term compensation grants
made over the past few years are reviewed;
|
|
|
|
|
The appropriate performance metrics and attributes of annual and long-term programs for
the next year are considered and discussed;
|
53
|
|
|
The entirety of our compensation program is considered;
|
|
|
|
|
For our top officers, if peer group compensation is available for their position, we use
a blend of survey and peer compensation for comparison, as we compete not only in our own
market, but nationally and across industries, for talent;
|
|
|
|
|
The compensation practices of our peer companies are reviewed, including their practices
with respect to equity and other grants, benefits and perquisites;
|
|
|
|
|
The compensation of our management team from the standpoint of internal equity,
complexity of the job, scope of responsibility and other factors is assessed; and
|
|
|
|
|
Managements stock ownership is reviewed.
|
Management has the following involvement with the executive compensation process:
|
|
|
The Chief Executive Officer reviews recommendations from the Chief Financial Officer
regarding salaries, annual and long-term incentive targets, and plan amendments and design
before recommendations are submitted to the Compensation Committee for approval; and
|
|
|
|
|
The Chief Executive Officer and Chief Financial Officer are both involved in establishing
and recommending to the Compensation Committee financial goals for the incentive programs
based on managements operational goals and strategic plans.
|
Compensation Goals
Our philosophy regarding executive compensation is to attract and retain highly qualified
people by paying competitive salaries, and to link the financial interests of our senior management
to those of our stockholders by tying compensation to the achievement of operational and financial
objectives. Our compensation package for our officers includes both short-term and long-term
features in the forms of base salary and equity-based incentives in the form of stock options,
which are granted periodically at the discretion of the Compensation Committee.
Elements of Executive Compensation
Base Salaries
Base salaries for all executive officers are reviewed annually. The Compensation Committee
reviews the compensation of the President. The President reviews the compensation of the other
executive officers. The Compensation Committee also consults with the President with respect to the
compensation package for all other executive officers. In evaluating salaries, each officers
individual performance during the prior year, as well as salary levels in the biotechnology
industry for comparable positions, are considered. In determining how the respective officer
contributes to the Company, current corporate performance, as well as the potential for future
performance gains, are considered. No specific weight is attributed to the foregoing for purposes
of determining base salaries.
Equity-Based Incentives
The Company provides its executive officers with long-term incentives through its 1998 Plan,
1999 Plan, 2001 Plan, Employee Plan and beginning in 2007, its 2007 Stock Option Plan (each, as
defined under Equity Plans below), all described in more detail below. On June 22, 2007, the
Company amended the 1998 Plan, 1999 Plan, 2001 Plan and Employee Plan such that no further stock
option grants may be made under any of such plans. The primary objective of these plans is to
provide an incentive for employees, including our executive officers, to make decisions and take
actions that maximize long-term stockholder value. The plans are designed to promote this long-term
focus by using discretionary grants and long-term vesting periods. Subject to the terms of the
plans, the Compensation Committee determines the terms and conditions of options granted under the
plans, including the exercise price, which is based on fair value of our stock on the date of
grant. For various motivation and retention considerations, option awards granted subsequent to the
Companys initial public offering in December 2001 generally vest over four years. The Compensation
Committee believes that stock options provide an incentive for employees, allowing the Company to
attract and retain
54
high quality management and staff. However, we did not issue any options to our executives
during the three years ended December 31, 2006.
Employee and Executive Benefits
The Companys executives participate in many of the same employee benefit programs as other
employees. The core employee benefit programs include a tax-qualified retirement plan, medical
coverage, dental coverage, life insurance, disability coverage, and vacation. The tax qualified
retirement plan is a 401(k) plan. We made matching contributions to each employees 401(k) plan
account of $1.00 for each dollar contributed on the first $3,000 of compensation contributed to the
plan. The Companys matching contribution policy was terminated effective March 2006. All of these
matching contribution amounts to our Named Executive Officers are shown in the
All Other
Compensation
footnote to the Summary Compensation Table following this section.
Perquisites
Historically, the Company has offered only a very limited number of perquisites to its
executives as an incremental benefit to recognize their position within the Company. No perquisites
of any kind have been offered to executives in 2006.
Compensation of the President and Chief Executive Officer
In assembling the compensation package for the President and Chief Executive Officer, the
Compensation Committee considers the annual and long-term performance of the Company, the
performance of the President and Chief Executive Officer, and the cash resources and needs of the
Company. Although the Committees overall goal is to set the President and Chief Executive
Officers salary at the median base for competitors that are similar in industry size and
performance, the actual level approved by the Committee may be higher or lower based upon the
Committees subjective evaluation of the foregoing. Consistent with the foregoing, the Compensation
Committee set the base salary for the President and Chief Executive Officer at $331,260 for fiscal
2006. The President and Chief Executive Officer did not receive a bonus and was not granted stock
options to purchase shares of the Companys common stock during fiscal 2006.
Accounting for Stock-based Compensation
Effective January 1, 2006, we measure and recognize compensation expense in accordance with
Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment
(SFAS
123(R)), which requires that compensations expense relating to share-based payment transactions be
recognized in the financial statements based on the fair value of the equity or liability
instruments issued.
Prior to January 1, 2006, we accounted for our stock-based compensation plans under the
measurement and recognition provision of Accounting Principles Board Opinion No. 25,
Accounting for
Stock Issued to Employees
, and related interpretations. Under this method, stock option awards
generally did not result in compensation expense, since their exercise price was typically equal to
the market price of our common stock on the date of grant.
The Compensation Committee considers the accounting treatment of equity and performance based
compensation when approving awards.
Summary Compensation
We did not issue any option or stock awards to our executives in the year ended December 31,
2006. The Company granted options to its newly appointed Chief Financial Officer in October 2007,
and plans to grant options to its executive officers and management in 2007.
55
Summary Compensation Table
The following table sets forth certain information concerning compensation paid or accrued to
the Companys named executive officers (the Named Executive Officers) during the year ended
December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Compensation
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
(3)
|
|
(1)
|
|
Total
|
Alton L. Boynton, Ph.D.
|
|
|
2006
|
|
|
$
|
330,802
|
|
|
|
|
|
|
|
|
|
|
$
|
2,993
|
|
|
$
|
333,795
|
|
President, Chief Operating
Officer, Chief Scientific
Officer and Secretary (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marnix L. Bosch, Ph.D., M.B.A.
|
|
|
2006
|
|
|
$
|
167,021
|
|
|
|
|
|
|
$
|
1,344
|
|
|
$
|
982
|
|
|
$
|
168,003
|
|
Chief Technical Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
All Other Compensation for the year ended December 31, 2006 consisted
of Company-paid premiums on term life insurance coverage up to 1.5
times the employees annual salary, earned but unpaid accrued vacation
payments, matching contribution on 401(k) up to a maximum of $3,000,
and Company-paid medical benefits. During 2006, the Company ceased
providing matching contributions to
401(k).
|
|
(2)
|
|
Mr. Boynton was appointed as our Chief Executive Officer in June 2007.
Mr. Boynton served as our principal executive officer during 2006.
|
|
(3)
|
|
Represents the amount recognized for financial statement reporting
purposes for 2006 in respect of outstanding option awards in
accordance with SFAS No. 123R, excluding any impact of assumed
forfeiture rates. The assumptions made in valuing option awards
reported in this column are discussed in Note 3, Stock-Based
Compensation Plans to the Companys condensed consolidated financial
statements for the year ended December 31, 2006, included elsewhere in
this prospectus.
|
Given the Companys financial status, there are no regularly scheduled increases in
compensation.
Grants of Plan-Based Awards
There were no stock options or other plan-based awards granted to executive employees during
the year ended December 31, 2006.
Outstanding Equity Awards at Fiscal Year-End
The following table shows outstanding stock option awards classified as exercisable and
unexercisable as of December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
(c)(1)
|
|
(e)
|
|
(f)
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Option
|
|
|
(#)
|
|
(#)
|
|
Price
|
|
Expiration
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
($)
|
|
Date
|
Alton L. Boynton (1)
|
|
|
11,014
|
|
|
|
0
|
|
|
$
|
12.85
|
|
|
|
11/16/09
|
|
|
|
|
5,286
|
|
|
|
0
|
|
|
|
18.75
|
|
|
|
04/18/11
|
|
|
|
|
6,666
|
|
|
|
0
|
|
|
|
1.35
|
|
|
|
2/18/13
|
|
Marnix L. Bosch (2)
|
|
|
1,000
|
|
|
|
0
|
|
|
|
12.75
|
|
|
|
5/16/10
|
|
|
|
|
333
|
|
|
|
0
|
|
|
|
18.75
|
|
|
|
11/14/10
|
|
|
|
|
333
|
|
|
|
0
|
|
|
|
18.75
|
|
|
|
09/20/11
|
|
|
|
|
833
|
|
|
|
0
|
|
|
|
75.00
|
|
|
|
01/10/12
|
|
|
|
|
3,194
|
|
|
|
139
|
|
|
|
1.35
|
|
|
|
2/18/13
|
|
|
|
|
4,000
|
|
|
|
1,333
|
|
|
|
1.80
|
|
|
|
12/01/13
|
|
|
|
|
(1)
|
|
Mr. Boyntons options were granted under the 1999 Plan, the 2001 Plan
and under his previous employment agreement. Each of Mr. Boyntons
option grants vests over a four year period. One-fourth of each
option grant vests on the first anniversary of the grant date and the
remaining three-fourths of each grant vests in equal monthly
installments over the remaining three year vesting period.
|
|
(2)
|
|
Mr. Boschs options were granted under the 1999 Plan and the 2001
Plan. Each of Mr. Boschs option grants vests over a four year
period. One-fourth of each option grant vests on the first
anniversary of the grant date and the remaining three-fourths of each
grant vests in equal monthly installments over the remaining three
year vesting period.
|
56
Option Exercises and Stock Vested
No options were exercised by and no stock awards vested for the Named Executive Officers
during 2006. During 2006, certain stock options vested for the Named Executive Officers resulting
in compensation expense to the Company of $1,344, as reported in the summary compensation table
above.
Arrangements with Executives
Pension Plans, Deferred Compensation and Severance Agreements
The Company does not currently offer any such plans or compensation or have any such
agreements in place.
Directors Compensation
Only non-employee directors receive director fees. During 2006, there were no non-employee
directors. Accordingly, the Company did not make any payments to directors. Effective June 22,
2007, we are required to pay Linda Powers as Chairperson and a non-executive member of the Board of
Directors £50,000 (approximately $100,000) per annum for her services. Also effective June 22,
2007, the Company is required to pay R. Steve Harris, as a non-executive member of the Board of
Directors, £25,000 (approximately $50,000) per annum for his services. Anthony P. Deasey, the
Companys Senior Vice President of Finance and Chief Financial Officer was appointed to the board
on September 28, 2007. Mr. Deasey does not receive any additional compensation for his duties as a
director.
Compensation Committee Interlocks and Insider Participation
During the 2006 fiscal year Dr. Boynton, the sole member of our Compensation Committee, served as
our President, Chief Operating Officer and Chief Scientific Officer. In addition, as discussed
further under Transactions with Related Persons below, in 2006, Mr. Boynton exercised warrants
and convertible loans covering 126,365 and 146,385 shares of our common stock, respectively. In
June 2007, Dr. Boynton was replaced by Linda Powers and R. Steve Harris as members of the
Compensation Committee. During 2006, none of our executive officers served as a member of the
compensation committee (or other committee serving an equivalent function) of any other entity, one
of whose executive officers served as a director on our Board or as a member of our Compensation
Committee. None of our executive officers served during 2006 as a director of any other entity, one
of whose executive officers served as a director on our Board or as a member of our Compensation
Committee.
Equity Plans
The Company maintains several plans under which our directors and employees may be granted
equity awards, generally in the form of stock options. A brief description of these plans follows.
The Company amended its then existing equity plans effective June 22, 2007 such that no further
option grants may be made under those plans.
1998 Stock Plan
The 1998 Stock Plan (the 1998 Plan) was adopted by our Board of Directors in July 1998 and
approved by our Stockholders in February 1999. This plan provided for the grant to our employees,
including officers and employee directors, of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the Code), and for the grant of
non-statutory stock options to our employees, officers, directors, including non-employee
directors, and consultants. To the extent an optionee would have the right in any calendar year to
exercise for the first time one or more incentive stock options for shares having an aggregate fair
market value, under all of our plans and determined as of the grant date, in excess of $100,000,
any such excess options will be treated as non-statutory options. A total of 27,535 shares of our
common stock have been reserved for issuance under this plan and, as of December 31, 2006, net of
forfeitures, a total of 23,783 of such shares remained available for additional option grants.
The Compensation Committee of our Board of Directors serves as the administrator of our 1998
Stock Plan. Subject to the terms of this plan, the administrator determines the terms of options
granted, including the number of shares subject to the option, exercise price, term and
exercisability. The exercise price of all incentive stock options granted under this plan must be
at least equal to the fair market value of our common stock on the date of grant. The exercise
price of any incentive stock option granted to an optionee who owns stock representing more than
10% of the total combined voting power of our outstanding capital stock, or a 10% Stockholder, must
be at least equal to 110% of the fair market value of our common stock on the date of grant. The
exercise price of all non-
57
statutory stock options cannot be less than 85% of the fair market value of our common stock
on the date of grant, and in the case of 10% Stockholders, the exercise price cannot be less than
110% of the fair market value of our common stock. The term of options granted under this plan may
not exceed 10 years, and the term of an incentive stock option granted to a 10% Stockholder may not
exceed five years. An option may not be transferred by the optionee other than by will or the laws
of descent or distribution. Each option may be exercised during the lifetime of the optionee only
by such optionee. Generally, each option granted under this plan becomes exercisable as to 25% of
the total number of shares subject to the option after the first anniversary following the date of
grant, with subsequent equal monthly vesting over three years, subject to the optionees continued
relationship with us as an employee, director or consultant, as the case may be.
Our Board of Directors has the authority to amend or terminate this plan, but such action will
not adversely affect any outstanding option without the optionees consent. If not terminated
earlier, this plan will terminate in July 2008.
1999 Executive Stock Plan
The 1999 Executive Stock Plan (the 1999 Plan) was adopted by our Board of Directors in
November 1999. This plan provided for the grant of non-statutory stock options to our employees,
officers, directors, including non-employee directors, and consultants. A total of 39,078 shares of
our common stock have been reserved for issuance under this plan, and, as of December 31, 2006, net
of forfeitures, a total of 28,064 shares remained available for granting under this plan.
The Compensation Committee of our Board of Directors serves as the administrator of this plan.
Subject to the terms of this plan, the administrator determines the terms of options granted,
including the number of shares subject to the option, exercise price, term and exercisability. The
exercise price of options under this plan cannot be less than 85% of the fair market value of our
common stock on the date of grant and, in the case of 10% Stockholders, the exercise price cannot
be less than 110% of the fair market value of our common stock on the date of grant. The term of
options granted under this plan may not exceed 10 years. An option may not be transferred by the
optionee other than by will or the laws of descent or distribution. Each option may be exercised
during the lifetime of the optionee only by such optionee. Each option granted under this plan
becomes exercisable as to 25% of the total number of shares subject to the option on the first
anniversary following the date of grant, with subsequent equal monthly vesting over three years,
subject to the optionees continued relationship with us as an employee or consultant.
Our Board of Directors has the authority to amend or terminate this plan, but such action will
not adversely affect any outstanding option without the optionees consent. If not terminated
earlier, this plan will terminate in November 2009.
2001 Stock Plan
The 2001 Stock Plan (the 2001 Plan) was both adopted by our Board of Directors and approved
by our stockholders in June 2001. A total of 120,000 shares of our common stock have been initially
reserved for issuance under this plan. This plan was intended to provide for the grant to our
employees, including officers and employee directors, of incentive stock options within the
meaning of Section 422 of the Code and for the grant of non-statutory stock options to our
employees and consultants. The number of shares available for grant under this plan is subject to
an automatic annual increase in an amount equal to the lesser of (i) 15% of the aggregate number of
shares available for granting for the immediately preceding year; or (ii) 20,000 shares. As of
December 31, 2006, net of forfeitures, a total of 162,603 shares remained available under this
plan.
The Compensation Committee of our Board of Directors serves as the administrator of this plan.
Subject to the terms of this plan, the administrator determines the terms of options granted,
including the number of shares subject to the option, exercise price, term and exercisability. The
exercise price of all incentive stock options granted under this plan must be at least equal to the
fair market value of our common stock on the date of grant. The term of incentive stock options
granted under this plan generally may not exceed 10 years.
Our Board of Directors has the authority to amend or terminate this plan, but such action may
not adversely affect any outstanding option previously granted under the plan. If this plan is not
terminated earlier, no incentive stock options can be granted under the plan on or after the later
of June 2011 or the 10th anniversary of the date when our Board of Directors adopted, subject to
approval by our stockholders, the most recent increase in the number of shares available for grant
under the plan.
58
2001 Non-employee Director Stock Incentive Plan
The 2001 Non-employee Director Stock Incentive Plan (the Directors Plan) was adopted by our
Board of Directors in June 2001. This plan provided for the automatic grant to each of our
nonemployee directors of a nonstatutory stock option to purchase 333 shares of our common stock on
the third business day following each annual meeting of our stockholders. A total of 13,333 shares
of common stock have been reserved for issuance under this plan and, as of December 31, 2006, net
of forfeitures, a total of 10,500 shares remained available under this plan.
This plan is administered by the Compensation Committee of our Board of Directors. The
exercise price of each option granted pursuant to this plan is the fair market value of the
underlying shares of our common stock on the date of grant. Each option granted pursuant to this
plan generally becomes exercisable upon six months after the date of grant, subject to certain
limitations. Our Board of Directors has the authority to amend or terminate this plan, but such
action may not adversely affect any outstanding option without the optionees consent.
Employee Stock Purchase Plan
Our Employee Stock Purchase Plan (the Employees Plan) was adopted by our Board of Directors
and approved by our stockholders in June 2001. A total of 33,333 shares of common stock have been
reserved for issuance under this plan and, as of December 31, 2006, 958 shares have been issued
under this plan.
This plan is administered by the Compensation Committee of our Board of Directors and provides
a mechanism for eligible employees to purchase shares of our common stock. To facilitate these
purchases, eligible participants are assigned plan accounts, to which they may contribute funds via
payroll deduction. The purchases are accomplished through the use of six-month offering periods.
Purchases pursuant to this plan are made at a price equal to the lower of (i) 85% of the fair
market value of our common stock on the last trading day in the offering period; or (ii) 85% of the
fair market value of our common stock on the last trading day before the commencement of such
offering period. No participant may purchase more than 67 shares of our common stock during any
offering period. Additionally, purchases under the plan are limited such that no participant may
purchase under the plan, in any offering period that commenced in that calendar year, shares with a
fair market value in excess of $25,000 minus the fair market value of any shares that the
participant previously purchased in that calendar year. In the case of shares purchased during an
offering period that commenced in the preceding calendar year, the limitation is $50,000 minus the
fair market value of any shares that the participant purchased during the calendar year of the
purchase and the calendar year immediately preceding such purchase.
Our Board of Directors has the authority to amend or terminate this plan at any time.
Amendments to the plan are subject to approval by our stockholders to the extent required by
applicable law.
2007 Stock Option Plan
The Company has established a new stock option plan, which became effective on June 15, 2007
(the 2007 Stock Option Plan). The Company has reserved a total of 5,480,868 shares of common
stock for issuance in respect of options granted under the plan. The plan provides for the grant to
employees of the Company, its parents and subsidiaries, including officers and employee directors,
of incentive stock options within the meaning of Section 422 of the Code and for the grant of
non-statutory stock options to the employees, officers, directors, including non-employee
directors, and consultants of the Company, its parents and subsidiaries. To the extent an optionee
would have the right in any calendar year to exercise for the first time one or more incentive
stock options for shares having an aggregate fair market value, under all of the Companys plans
and determined as of the grant date, in excess of $100,000, any such excess options will be treated
as non-statutory options.
Employment Agreements
On October 1, 2007, an employment agreement between the Company and Anthony P. Deasey became
effective. Under the terms of the agreement, Mr. Deasey is employed as the Chief Financial Officer
and Senior Vice President of Finance of the Company for four years of service. Pursuant to the
terms of the agreement, Mr. Deasey is paid annual compensation of $275,000 for his services. The
agreement provides for standard benefits, including coverage under the Companys medical, dental,
vision, life and disability polices. Mr. Deasey is eligible to participate in the Companys 401(k)
plan and to receive a bonus at the discretion of the Board. In connection with his employment with
us, Mr. Deasey is subject to a noncompetition obligation for one year following the termination of
his employment with the Company.
59
Except as relates to the vesting of Mr. Deaseys stock options, Mr. Deasey is not entitled to
any benefits upon the termination of his employment or a change-in-control of the Company under his
employment agreement. With respect to Mr. Deaseys stock options,
|
|
|
if his employment with the Company is terminated for Cause (as defined below), Mr.
Deaseys unvested stock options as of the date of termination will be forfeited, and Mr.
Deaseys stock options that have vested as of the date of termination will expire 24 hours
after such termination date. Cause is defined under Mr. Deaseys employment agreement
as, but is not limited to, malfeasance, material non-performance or materially inadequate
performance by Mr. Deasey of his duties to the Company following written notice or other
communication from the Board of such inadequate performance and a one-time reasonable cure
period.
|
|
|
|
|
if his employment with the Company is terminated without Cause, Mr. Deaseys unvested
stock options will continue to vest in accordance with their respective vesting schedules
until the last day of employment and will be exercisable for up to 120 days following
termination.
|
|
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|
|
if Mr. Deasey resigns from his employment with the Company for any reason, Mr. Deaseys
unvested stock options as of the last date of employment will be forfeited. If Mr. Deasey
resigns upon (i) at least 60 days advance notice if his resignation is prior to October 1,
2009 and (ii) at least 30 days advance notice if his resignation is subsequent to October
1, 2009, and during the period between the giving of his resignation notice and the
effective date of his resignation, devotes his best efforts, in good faith, to the
Companys business and any personnel transition, then his stock options which have vested
as of the effective date of his resignation will be exercisable for 60 days following the
last day of his employment with the Company. If Mr. Deaseys resignation does not comply
with the notice, best efforts and good faith requirements described above, then his stock
options which have vested as of the effective date of his resignation will be exercisable
for one business day following the last day of his employment with the Company.
|
On June 22, 2007, an employment agreement between the Company and Alton L. Boynton, Ph.D.
became effective. Under the terms of the agreement, Dr. Boynton is employed as Chief Executive
Officer and President of the Company. Pursuant to the terms of the agreement, Dr. Boynton is paid
annual compensation of $331,250 for his services. The agreement provides for standard benefits,
including coverage under the Companys medical, dental, vision, life and disability polices. Dr.
Boynton is eligible to participate in the Companys 401(k) plan and to receive a bonus at the
discretion of the Board. In connection with his employment with us, Mr. Boynton is subject to a
noncompetition obligation for one year following the termination of his employment with the
Company.
Except as relates to the vesting of Dr. Boyntons stock options, Dr. Boynton is not entitled
to any benefits upon the termination of his employment or a change-in-control of the Company under
his employment agreement. With respect to Dr. Boyntons stock options,
|
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|
if his employment with the Company is terminated for Cause (as defined below), Dr.
Boyntons unvested stock options as of the date of termination will be forfeited, and Dr.
Boyntons stock options that have vested as of the date of termination will expire 24 hours
after such termination date. Cause is defined under Dr. Boyntons employment agreement
as, but is not limited to, malfeasance, material non-performance or materially inadequate
performance by Dr. Boynton of his duties to the Company following written notice or other
communication from the Board of such inadequate performance and a one-time reasonable cure
period.
|
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|
|
if his employment with the Company is terminated without Cause, Dr. Boyntons unvested
stock options will continue to vest in accordance with their respective vesting schedules
and will be exercisable during their full exercise period,
if
Dr. Boynton (a) executes a
separation and release agreement reasonably acceptable to the Company and (b) agrees not to
do not work for or with a company that is developing immunotherapies for cancer in any
capacity (including as an employee, director, adviser or collaborator) while any vesting
period is continuing.
|
|
|
|
|
if Dr. Boynton resigns from his employment with the Company for any reason, Dr.
Boyntons unvested stock options as of the date of resignation will be forfeited. If Dr.
Boynton resigns upon at least 90 days advance notice, and during the period between the
giving of his resignation notice and the effective date of his resignation, devotes his
best efforts, in good faith, to the Companys business and any personnel transition, then
his stock options which have vested as of the effective date of his resignation will be
exercisable for 90 days following the last day of his employment with the Company. If Dr.
Boyntons resignation does not comply with the notice, best efforts and good faith
requirements described above, then his stock options which have vested as of the effective
date of his resignation will be exercisable for 15 days following the last day of his
employment with the Company.
|
60
On June 22, 2007, the employment agreement between the Company and James D. Johnston became
effective. Under the terms of the agreement, Mr. Johnston was employed as Chief Financial Officer
and General Counsel of the Company. Pursuant to the terms of the agreement, Mr. Johnston was to be
paid annual compensation of $180,000 for his services. Mr. Johnston was required to devote 60
percent of his time to the Companys business. The agreement provided for standard benefits,
including coverage under the Companys medical, dental, vision, life and disability polices. Mr.
Johnston was eligible to participate in the Companys 401(k) plan and to receive a bonus at the
discretion of the Board. On August 23, 2007, Mr. Johnston notified the Company of his resignation
from his positions of Chief Financial Officer and General Counsel of the Company, and as a member
of the Board of Directors and all committees thereof, each effective on August 28, 2007. Mr.
Johnston is not subject to a noncompetition obligation following the termination of his employment
with the Company.
The vesting and exerciseability of Mr. Johnstons stock options following the termination of
his employment with the Company are subject to the same restrictions as are applicable to stock
options held by Mr. Boynton, except that in connection with Mr. Johnstons resignation from the
Company, Mr. Johnstons stock options which vested as of the effective date of his resignation were
exercisable for 45 days following the last day of his employment with the Company if he complied
with the notice, best efforts and good faith requirements described above. Mr. Johnston did not
receive any stock option grants while employed by the Company.
TRANSACTIONS WITH RELATED PERSONS
Recapitalization
In the beginning of 2002, we recognized that we did not have sufficient working capital to
fund our operations beyond 12 months and needed to raise additional capital from third parties in
order to continue our clinical and research programs. In April 2002, we retained an investment bank
to assist us in raising capital. Due to the economic climate in 2002 and declining stock prices of
biotechnology companies in general, as well as our own stock price, we were unable to raise
additional capital. In July 2002, we retained an additional investment banking firm to assist us in
exploring various strategic options including raising additional capital, licensing our technology
to a third party, or merging with another company. We contacted over 50 biotechnology companies and
over 20 large pharmaceutical companies in an attempt to explore these options without success.
From September 2002 through approximately September 2003, we reduced our staff from 67 to 8
employees, withdrew our investigational new drug application, or IND, for our Phase III clinical
trial for hormone refractory prostate cancer and our IND for our Phase I trial for non-small cell
lung cancer from the FDA and inactivated our Phase II clinical trial for brain cancer, which
remained open with the FDA. In addition, we moved our corporate headquarters several times, each
time to smaller facilities in order to reduce our monthly rent expense. During this time, we
attempted to obtain capital from various sources, but were not successful. On November 13, 2003, we
borrowed $335,000 from members of our management, including Alton L. Boynton and Marnix Bosch, our
President and Chief Technology Officer, respectively, pursuant to a series of convertible
promissory notes (and associated warrants to purchase an aggregate of approximately 0.2 million
shares of our stock at $0.60 per share).
Since 2004, the Company has undergone a significant recapitalization pursuant to which Toucan
Capital loaned the Company an aggregate of $6.75 million and Toucan Partners loaned the Company an
aggregate of $4.825 million (excluding $225,000 in proceeds from a demand note that was received on
June 13, 2007 and repaid on June 27, 2007). Our Chairperson, Linda Powers, is the managing
director of Toucan Capital and the managing member of Toucan Partners.
On January 26, 2005, the Company entered into a securities purchase agreement with Toucan
Capital pursuant to which it purchased 32.5 million shares of the Companys Series A cumulative
convertible preferred stock (the Series A Preferred Stock) at a purchase price of $0.04 per
share, for a net purchase price of $1.276 million, net of offering related costs of approximately
$24,000. In April 2006, the $6.75 million of notes payable plus all accrued interest due to Toucan
Capital were converted into shares of the Companys Series A-1 cumulative convertible Preferred
Stock (the Series A-1 Preferred Stock).
Simultaneously with Toucan Capitals notes payable conversion, Alton Boynton, the Companys
President, and Marnix Bosch, the Companys Chief Technical Officer, each elected to convert the
principal and accrued interest on their respective convertible loans into 146,385 and 32,796
shares, respectively, of our common stock, and in conjunction with the PIPE Financing, exercised
their warrants (200% warrant coverage) on a net exercise basis for 126,365 and 28,311 shares of our
common stock, respectively.
61
The $4.825 million loaned to the Company by Toucan Partners was advanced in a series of
transactions. From November 14, 2005 through March 9, 2006, the Company issued three promissory
notes to Toucan Partners, pursuant to which Toucan Partners loaned the Company an aggregate of
$950,000. In April 2007, these notes were amended and restated to conform to the 2007 Convertible
Notes. Payment was due under the notes upon written demand on or after June 30, 2007. Interest
accrued at 10% per annum, compounded annually, on a 365-day year basis. The principal amount of,
and accrued interest on, these notes, as amended, was convertible at Toucan Partners election into
common stock on the same terms as the 2007 Convertible Notes.
In addition to the $950,000 of promissory notes described above, Toucan Partners provided
$3.15 million in cash advances from October 2006 through April 2007, which were converted into the
2007 Convertible Notes and 2007 Warrants in April 2007. The Company and Toucan Partners also
entered into two promissory notes to fix the terms of two additional cash advances provided by
Toucan Partners to the Company on May 14, 2007 and May 25, 2007 in the aggregate amount of
$725,000, and issued warrants to purchase shares of the Companys capital stock to Toucan Partners
in connection with each such note. These notes and warrants are on the same terms as the 2007
Convertible Notes and 2007 Warrants and the proceeds of these notes enabled the Company to continue
to operate and advance programs while raising additional equity financing.
During October through December 2007, the Company repaid $5.3 million in principal and related
accrued interest due to Toucan Capital pursuant to the convertible notes. Subsequent to these
repayments, the aggregate outstanding accrued interest of approximately $14,000 on the formerly
outstanding convertible notes owed to Toucan Partners may be converted by Toucan Partners (in whole
or in part) into common stock at a conversion price of $0.60 per share.
Conversion of Preferred Stock and Related Matters
On June 1, 2007, the Company issued to Toucan Capital a new warrant to purchase the Companys
Series A-1 Preferred Stock (Toucan Capital Series A-1 Warrant) in exchange for the cancellation
of all previously issued warrants to purchase Series A-1 Preferred Stock (or, at the election of
Toucan Capital, any other equity or debt security of the Company) held by Toucan Capital. The new
Toucan Capital Series A-1 Warrant is exercisable for 6,471,333 shares of Series A-1 Preferred Stock
plus shares of Series A-1 Preferred Stock attributable to accrued dividends on the shares of Series
A-1 Preferred Stock held by Toucan Capital, (with each such Series A-1 Preferred Share convertible
into 2.67 shares of common stock at $0.60 per share) as compared to the 3,062,500 shares of Series
A-1 Preferred Stock (with each such Series A-1 Preferred Share convertible into 2.67 shares of
common stock at $0.60 per share) that were previously issuable to Toucan Capital upon exercise of
the warrants being cancelled.
Also on June 1, 2007, the Company and Toucan Capital amended Toucan Capitals warrant to
purchase Series A Preferred Stock (the Toucan Capital Series A Warrant) to increase the number of
shares of Series A Preferred Stock that are issuable upon exercise of the warrant to 32,500,000
shares of Series A Preferred Stock (plus shares of Series A Preferred Stock attributable to accrued
dividends on the shares of Series A Preferred Stock held by Toucan Capital) from 13,000,000 shares
of Series A Preferred Stock.
In connection with the modifications of the Series A and Series A-1 Preferred Stock warrants,
the Company recognized reductions in earnings applicable to common stockholders in June 2007 of
$2.3 million and $16.4 million, respectively. The fair value of the warrant modifications were
determined using the Black-Scholes option pricing model with the following assumptions: expected
dividend yield of 0%, risk-free interest rate of 5.0% volatility of 398%, and a contractual life of
seven years.
On June 15, 2007, the Company, Toucan Capital, and Toucan Partners entered into a conversion
agreement (Conversion Agreement) which became effective on June 22, 2007 upon the admission of
the Companys common stock to trade on AIM (Admission).
Pursuant to the terms of the Conversion Agreement (i) Toucan Capital agreed to convert and has
converted all of its shares of the Companys Series A Preferred Stock and Series A-1 Preferred
Stock (in each case, excluding any accrued and unpaid dividends) into common stock and agreed to
eliminate a number of rights, preferences and protections associated with the Series A Preferred
Stock and Series A-1 Preferred Stock, including the liquidation preference entitling Toucan Capital
to certain substantial cash payments and (ii) Toucan Partners agreed to eliminate all of its
existing rights to receive Series A-1 Preferred Stock under certain notes and warrants (and
thereafter to receive shares of common stock rather than shares of Series A-1 Preferred Stock), and
the rights, preferences and protections associated with the Series A-1 Preferred Stock, including
the liquidation preference that would entitle Toucan Partners to certain substantial cash payments,
in return for issuance by the Company of an aggregate of 6,860,561 additional shares of common
stock, to be apportioned between Toucan Capital and Toucan Partners as to 4,287,851 and 2,572,710
shares of common stock, respectively. In connection with the issuance of these shares, the Company
recognized a further reduction of earnings applicable to common stockholders of $12.3 million in
June 2007.
62
Under the terms of the Conversion Agreement (i) the Toucan Capital Series A Warrant is
exercisable for 2,166,667 shares of common stock rather than shares of Series A Preferred Stock
(plus shares of common stock, rather than shares of Series A Preferred Stock, attributable to
accrued dividends on the shares of Series A Preferred Stock previously held by Toucan Capital that
were converted into common stock upon Admission, subject to the further provisions of the
Conversion Agreement as described below) and (ii) the Toucan Capital Series A-1 Warrant is
exercisable for an aggregate of 17,256,888 shares of common stock rather than shares of Series A-1
Preferred Stock (plus shares of common stock, rather than shares of Series A-1 Preferred Stock,
attributable to accrued dividends on the shares of Series A-1 Preferred Stock previously held by
Toucan Capital that were converted into common stock upon Admission), subject to further provisions
of the Conversion Agreement as described below.
As noted above, the 32,500,000 shares of Series A Preferred Stock held by Toucan Capital
converted, in accordance with their terms, into 2,166,667 shares of common stock and the 4,816,863
shares of Series A-1 Preferred Stock held by Toucan Capital converted, in accordance with their
terms, into 12,844,968 shares of common stock, and the convertible promissory notes issued by the
Company to Toucan Partners in aggregate principal amount of $4.825 million and associated warrants
became convertible and exercisable solely for shares of common stock.
Under the terms of the Conversion Agreement, Toucan Capital also agreed to temporarily defer
receipt of the accrued and unpaid dividends on its shares of Series A Preferred Stock and Series
A-1 Preferred Stock of an amount equal to $334,340 and $917,451, respectively, until not later than
September 30, 2007. In September 2007, we paid these dividends in full to Toucan Capital.
As a result of the financings described above, as of December 5, 2007 Toucan Capital holds:
|
|
|
an aggregate of 19,299,486 shares of common stock;
|
|
|
|
|
warrants to purchase 14,150,732 shares of common stock at an exercise price of $0.60 per
share; and
|
|
|
|
|
warrants to purchase 7,884,357 shares of common stock at an exercise price of $0.15 per
share.
|
As a result of the financings described above, as of December 5, 2007 Toucan Partners holds:
|
|
|
an aggregate of 2,572,710 shares of common stock;
|
|
|
|
|
convertible promissory notes on which accrued interest of approximately $14,000 remains
outstanding, which are convertible into 23,205 shares of common stock at $0.60 per share;
and
|
|
|
|
|
8,832,005 warrants associated with the above-described notes to purchase common stock at
an exercise price of $0.60 per share.
|
The investments made by Toucan Capital and Toucan Partners were made pursuant to the terms and
conditions of a Recapitalization Agreement originally entered into on April 26, 2004 with Toucan
Capital. The Recapitalization Agreement, as amended, originally contemplated the investment of up
to $40 million through the issuance of new securities to Toucan Capital and a syndicate of other
investors to be determined.
We and Toucan Capital amended the Recapitalization Agreement in conjunction with each
successive loan agreement. The amendments generally (i) updated certain representations and
warranties of the parties made in the Recapitalization Agreement, and (ii) made certain technical
changes in the Recapitalization Agreement in order to facilitate the bridge loans described
therein.
In accordance with the Recapitalization Agreement, the Company accrued and paid certain legal
and other administrative costs on Toucan Capitals behalf. During the three and nine months ending
September 30, 2007, respectively, the Company recognized approximately zero and $493,000 of general
and administrative costs related to this recapitalization agreement and to certain other costs
incurred by Toucan Capital on the Companys behalf. Approximately $220,000 of these costs relate to
activities which took place prior to 2007. During the three and nine months ending September 30,
2006, respectively, the Company recognized approximately $12,000 and $151,000 of general and
administrative costs related to the recapitalization agreement. Pursuant to the terms of the
Conversion Agreement, the Recapitalization Agreement was terminated on June 22, 2007.
As of December 5, 2007, Toucan Capital, including the holdings of Toucan Partners,
beneficially owns of 21,872,196 shares of our capital stock, representing approximately 51.7% of
our outstanding common stock.
63
Cognate Therapeutics
On July 30, 2004, the Company entered into a service agreement with Cognate Therapeutics, Inc.
(now known as Cognate BioServices, Inc., or Cognate), a contract manufacturing and services
organization in which Toucan Capital has a majority interest. In addition, two of the principals of
Toucan Capital are members of Cognates board of directors and, on May 17, 2007, the managing
director of Toucan Capital, Linda Powers, was appointed to serve as a director of the Company and
to serve as the non-executive Chairperson of the Companys Board of Directors. Under the service
agreement, the Company agreed to utilize Cognates services for an initial two-year period, related
primarily to manufacturing DCVax
®
product candidates, regulatory advice, research and development
preclinical activities and managing clinical trials. The agreement expired on July 30, 2006;
however, the Company continued to utilize Cognates services under the same terms as set forth in
the expired agreement. On May 17, 2007, the Company entered into a new services agreement with
Cognate pursuant to which Cognate will provide certain consulting and, when needed, manufacturing
services to the Company for its DCVax
®
-Brain Phase II clinical trial. Under the terms of the new
contract, the Company paid a non-refundable contract initiation fee of $250,000 and committed to
pay budgeted monthly service fees of $400,000, subject to quarterly true-ups, and monthly facility
fees of $150,000. The Company may terminate this agreement with 180 days notice and payment of all
reasonable wind-up costs and Cognate may terminate the contract in the event that the brain cancer
clinical trial fails to complete enrollment by July 1, 2009. However, if such termination by the
Company occurs at any time prior to the earlier of the submission of an FDA biological license
application/new drug application on the Companys brain cancer clinical trial or July 1, 2010 or,
such termination by Cognate results from failure of the brain cancer clinical trial to complete
patient enrollment by July 1, 2009, the Company is obligated to make an additional termination fee
payment to Cognate equal to $2 million.
During the three and nine months ending September 30, 2007, respectively, the Company
recognized approximately $1.7 million and $4.1 million of research and development costs related to
these service agreements. During the three and nine months ending September 30, 2006, respectively,
the Company recognized approximately $0.7 million and $1.7 million of research and development
costs related to these service agreements. As of September 30, 2007 and December 31, 2006, the
Company owed Cognate approximately $0 and $2.2 million, respectively.
64
Review, Approval or Ratification of Transactions with Related Persons
Our policy with respect to any transaction between the Company and any related person
requiring disclosure under Item 404(a) of Regulation S-K, is that such transaction is consummated
only if the Audit Committee approves such transaction or if the transaction involves compensation
approved or ratified by the Compensation Committee. The Board of Directors has not adopted a
written policy reflecting the policy and procedures described above; it intends to do so, but may
not.
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND SELLING STOCKHOLDERS
On June 19, 2007, we implemented a one-for-fifteen reverse stock split of our common stock. Unless
otherwise noted, all share amounts and per share data reflect the effect of this reverse split.
Security Ownership of Beneficial Owners
The following table presents information regarding the beneficial ownership of our common stock as
of December 5, 2007 by:
|
|
|
each person, or group of affiliated persons, who is known by us to own beneficially 5%
or more of any class of our equity securities;
|
|
|
|
|
our directors;
|
|
|
|
|
each of our named executive officers, as defined in Item 402(a)(3) of Regulation S-K;
and
|
|
|
|
|
our directors and executive officers as a group.
|
The applicable percentages of ownership are based on an aggregate of 42,346,088 shares of common
stock issued and outstanding on December 5, 2007. In computing the number of shares of common
stock beneficially owned by a person and the percentage ownership of that person, we deemed shares
of common stock subject to options, warrants, convertible preferred stock or convertible notes held
by that person that are currently exercisable or exercisable within 60 days of December 5, 2007 as
outstanding. We did not deem these shares outstanding, however, for the purpose of computing the
percentage ownership of any other person.
We have determined beneficial ownership in accordance with the rules of the SEC. Except as
indicated by the footnotes below, we believe, based on the information furnished to us, that the
persons and the entities named in the table have sole voting and investment power with respect to
all shares of common stock that they beneficially own, subject to applicable community property
laws.
Except as otherwise noted, the address of the individuals in the following table below is c/o
Northwest Biotherapeutics, Inc., 7600 Wisconsin Avenue, Suite 750, Bethesda, MD 20814.
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
Beneficially
|
|
Percentage
|
Name of Beneficial Owner
|
|
Owned
|
|
(1)
|
Officers and Directors
|
|
|
|
|
|
|
|
|
Alton L. Boynton, Ph.D.(2)
|
|
|
203,067
|
|
|
|
0.5
|
|
Anthony P. Deasey
|
|
|
|
|
|
|
|
|
Marnix L. Bosch, Ph.D., M.B.A.(3)
|
|
|
76,597
|
|
|
|
0.2
|
|
Linda F. Powers (4)
|
|
|
52,762,495
|
|
|
|
72.0
|
|
R. Steve Harris
|
|
|
|
|
|
|
|
|
All executive officers and directors as a group (5 persons)(5)
|
|
|
279,664
|
|
|
|
0.7
|
|
5% Security Holders
|
|
|
|
|
|
|
|
|
Toucan Capital Fund II, L.P.(6)
|
|
|
41,334,575
|
|
|
|
64.2
|
|
7600 Wisconsin Avenue, Suite 700, Bethesda, MD 20814
|
|
|
|
|
|
|
|
|
Toucan Partners, LLC (7)
|
|
|
11,427,920
|
|
|
|
22.3
|
|
7600 Wisconsin Avenue, Suite 700, Bethesda, MD 20814
|
|
|
|
|
|
|
|
|
Al Rajhi Holdings
|
|
|
4,500,000
|
|
|
|
10.6
|
|
Rue Maurice 3
1204 Geneve Switzerland
|
|
|
|
|
|
|
|
|
IS Partners
Investment Solutions AG
Helium Special Situations Fund
Limmatquai 2 8001 Zurich
|
|
|
2,302,632
|
|
|
|
5.4
|
|
PO Box 463 8024 Zurich Switzerland
|
|
|
|
|
|
|
|
|
65
|
|
|
(1)
|
|
Percentage represents beneficial ownership percentage of common stock
calculated in accordance with SEC rules and does not equate to voting
percentages.
|
|
(2)
|
|
Includes 22,968 shares of common stock issuable upon exercise of
options that are exercisable within 60 days of December 5
,
2007.
|
|
(3)
|
|
Includes 11,170 shares of common stock issuable upon exercise of
options that are exercisable within 60 days of December 5
,
2007.
|
|
(4)
|
|
Includes (i) 19,299,486 shares of common stock held by Toucan Capital;
(ii) 22,035,089 shares of common stock currently issuable upon
exercise of warrants that are exercisable within 60 days of December
5, 2007 held by Toucan Capital; (iii) 8,855,210 shares of common stock
currently issuable upon exercise of warrants that are exercisable
within 60 days of December 5, 2007 held by Toucan Partners and
conversion of accrued interest in the amount of approximately $14,000
on convertible promissory notes; and (iv) 2,572,710 shares of common
stock held by Toucan Partners. Ms. Powers is a managing member of
Toucan Management, LLC, which is the manager of Toucan Capital, and is
a managing member of Toucan Partners. Ms. Powers disclaims beneficial
ownership as to all such shares of common stock.
|
|
(5)
|
|
Includes 34,138 shares issuable to officers and directors upon
exercise of options that are exercisable within 60 days of December 5
,
2007. Excludes 52,762,495 shares of common stock as to which Ms.
Powers disclaims beneficial ownership. See Note 4 above.
|
|
(6)
|
|
Includes 22,035,089 shares of common stock currently issuable upon
exercise of warrants that are exercisable within 60 days of December
5, 2007 held by Toucan Capital.
|
|
(7)
|
|
Includes 8,855,210 shares of common stock currently issuable upon
exercise of warrants that are exercisable within 60 days of December
5, 2007 held by Toucan Partners and conversion of accrued interest in
the amount of approximately $14,000 on convertible promissory notes.
|
Selling Stockholders
The beneficial ownership amounts requested in the following table include
shares of common stock certain selling stockholders will receive upon exercise of warrants for
cash. None of the selling stockholders has had any position, office or other material relationship
with us within the past three years other than as a result of the ownership of our shares or other
securities. Because the selling stockholders may offer some or all of their shares, no definitive
estimate as to the number of shares that will be held by the selling stockholders after such
offering can be provided and the following table has been prepared on the assumption that all
shares of common stock offered hereby will be sold.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock
|
|
|
|
|
|
Shares of Common Stock
|
|
|
Beneficially Owned
|
|
Shares
|
|
Beneficially Owned
|
|
|
Before the Offering(1)
|
|
Being
|
|
After the Offering(3)
|
Beneficial Owner
|
|
Number
|
|
Percentage
|
|
Offered(2)
|
|
Number
|
|
Percentage
|
Bluegrass Growth Fund, L.P.(4)
|
|
|
59,523
|
|
|
|
*
|
|
|
|
59,523
|
|
|
|
0
|
|
|
|
*
|
|
Andrew M. Blum(5)
|
|
|
1,191
|
|
|
|
*
|
|
|
|
1,191
|
|
|
|
0
|
|
|
|
*
|
|
Bristol Investment Fund, Ltd(6)
|
|
|
35,714
|
|
|
|
*
|
|
|
|
35,714
|
|
|
|
0
|
|
|
|
*
|
|
C.E. Unterberg Towbin Capital Partners I LP(7)
|
|
|
119,166
|
|
|
|
*
|
|
|
|
119,166
|
|
|
|
0
|
|
|
|
*
|
|
Cranshire Capital, LP(8)
|
|
|
67,523
|
|
|
|
*
|
|
|
|
67,523
|
|
|
|
0
|
|
|
|
*
|
|
John H. Gutfreund(9)
|
|
|
13,249
|
|
|
|
*
|
|
|
|
13,249
|
|
|
|
0
|
|
|
|
*
|
|
Smithfield Fiduciary LLC(10)
|
|
|
17,998
|
|
|
|
*
|
|
|
|
108,992
|
|
|
|
0
|
|
|
|
*
|
|
Iroquois Masterfund Ltd(11)
|
|
|
119,047
|
|
|
|
*
|
|
|
|
119,047
|
|
|
|
0
|
|
|
|
*
|
|
Joseph Reda(12)
|
|
|
8,333
|
|
|
|
*
|
|
|
|
8,333
|
|
|
|
0
|
|
|
|
*
|
|
Stoc*Doc Partners, L.P.(13)
|
|
|
8,666
|
|
|
|
*
|
|
|
|
8,666
|
|
|
|
0
|
|
|
|
*
|
|
Ellen U Celli Emily U Satloff TTEE T.I.
Unterberg(14)
|
|
|
11,916
|
|
|
|
*
|
|
|
|
11,916
|
|
|
|
0
|
|
|
|
*
|
|
Declaration of Trust by Thomas I. Unterberg(15)
|
|
|
23,833
|
|
|
|
*
|
|
|
|
23,833
|
|
|
|
0
|
|
|
|
*
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock
|
|
|
|
|
|
Shares of Common Stock
|
|
|
Beneficially Owned
|
|
Shares
|
|
Beneficially Owned
|
|
|
Before the Offering(1)
|
|
Being
|
|
After the Offering(3)
|
Beneficial Owner
|
|
Number
|
|
Percentage
|
|
Offered(2)
|
|
Number
|
|
Percentage
|
Thomas I. Unterberg(16)
|
|
|
47,666
|
|
|
|
*
|
|
|
|
47,666
|
|
|
|
0
|
|
|
|
*
|
|
Thomas I. Unterberg TTEE Ellen U. Celli Family
Trust /25/93(17)
|
|
|
23,833
|
|
|
|
*
|
|
|
|
23,833
|
|
|
|
0
|
|
|
|
*
|
|
Ellen U. Celli(18)
|
|
|
23,833
|
|
|
|
*
|
|
|
|
23,833
|
|
|
|
0
|
|
|
|
*
|
|
Emily Satloff(19)
|
|
|
11,916
|
|
|
|
*
|
|
|
|
11,916
|
|
|
|
0
|
|
|
|
*
|
|
Marjorie & Clarence Unterberg Foundation(20)
|
|
|
35,733
|
|
|
|
*
|
|
|
|
35,733
|
|
|
|
0
|
|
|
|
*
|
|
NFS/ FINTC IRA FBO Thomas I. Unterberg(21)
|
|
|
23,833
|
|
|
|
*
|
|
|
|
23,833
|
|
|
|
0
|
|
|
|
*
|
|
Thomas I. Unterberg TTEE. Emily U. Satloff
Family Trust U/ A 03/25/93(22)
|
|
|
23,833
|
|
|
|
*
|
|
|
|
23,833
|
|
|
|
0
|
|
|
|
*
|
|
Ann Unterberg(23)
|
|
|
11,916
|
|
|
|
*
|
|
|
|
11,916
|
|
|
|
0
|
|
|
|
*
|
|
67
|
|
|
*
|
|
Less than 1%
|
|
(1)
|
|
Calculated based on Rule 13d-3(d)(i) under the Exchange Act. In calculating this amount
for each selling stockholder, we treated as outstanding the number of shares of common
stock issuable upon exercise for cash of that selling stockholders warrants but we did
not assume exercise of any other selling stockholders warrants.
|
|
(2)
|
|
In calculating this amount for each selling stockholder, we included the number of
shares of common stock issuable upon exercise for cash of that selling stockholders
warrants.
|
|
(3)
|
|
Assumes sale of all shares offered by the selling stockholder.
|
|
(4)
|
|
Includes 59,523 shares of common stock currently issuable upon the exercise of warrants.
|
|
(5)
|
|
Includes 1,191 shares of common stock currently issuable upon the exercise of warrants.
|
|
(6)
|
|
Includes 35,714 shares of common stock currently issuable upon the exercise of warrants.
|
|
(7)
|
|
Includes 119,166 shares of common stock currently issuable upon the exercise of warrants.
|
|
(8)
|
|
Includes 59,523 shares of common stock currently issuable upon the exercise of warrants.
|
|
(9)
|
|
Includes 11,916 shares of common stock currently issuable upon the exercise of warrants.
|
|
(10)
|
|
Includes 17,998 shares of common stock currently issuable upon the exercise of warrants.
|
|
(11)
|
|
Includes 119,047 shares of common stock currently issuable upon the exercise of warrants.
|
|
(12)
|
|
Includes 8,333 shares of common stock currently issuable upon the exercise of warrants.
|
|
(13)
|
|
Includes 6,666 shares of common stock currently issuable upon the exercise of warrants.
|
|
(14)
|
|
Includes 11,916 shares of common stock currently issuable upon the exercise of warrants.
|
|
(15)
|
|
Includes 23,833 shares of common stock currently issuable upon the exercise of warrants.
|
|
(16)
|
|
Includes 47,666 shares of common stock currently issuable upon the exercise of warrants.
|
|
(17)
|
|
Includes 23,833 shares of common stock currently issuable upon the exercise of warrants.
|
|
(18)
|
|
Includes 23,833 shares of common stock currently issuable upon the exercise of warrants.
|
|
(19)
|
|
Includes 11,916 shares of common stock currently issuable upon the exercise of warrants.
|
|
(20)
|
|
Includes 35,733 shares of common stock currently issuable upon the exercise of warrants.
|
|
(21)
|
|
Includes 23,833 shares of common stock currently issuable upon the exercise of warrants.
|
|
(22)
|
|
Includes 23,833 shares of common stock currently issuable upon the exercise of warrants.
|
|
(23)
|
|
Includes 11,916 shares of common stock currently issuable upon the exercise of warrants.
|
68
DESCRIPTION OF CAPITAL STOCK
As of the date of this prospectus, we are authorized to issue 800,000,000 shares of common
stock par value $0.001 per share, and 300,000,000 shares of preferred stock, par value $0.001 per
share.
Pursuant to an amendment of the Companys Certificate of Incorporation approved by a majority
of the Companys stockholders on June 13, 2007, the Company has approved an amendment to its
Certificate of Incorporation, reducing the number of authorized shares of common stock from
800,000,000 to 100,000,000 and the number of authorized shares of preferred stock from 300,000,000
to 20,000,000. The information statement is expected to be mailed on or about December 21, 2007.
This amendment will take effect approximately 20 days following the mailing of an information
statement to the Companys stockholders setting out the details of such amendment.
Effective June 19, 2007, all shares of the Companys common stock issued and outstanding were
combined and reclassified on a one-for-fifteen basis (the Reverse Stock Split).
As of December 5, 2007, we had 42,346,088 shares of common stock issued and outstanding, and
had reserved an additional:
|
|
|
22,869,493 shares of common stock for issuance upon exercise of outstanding warrants,
|
|
|
|
|
820,114 shares of common stock for issuance upon exercise of outstanding stock options,
|
|
|
|
|
4,711,660 shares of common stock for issuance under our 2007 Stock Option Plan, and
|
|
|
|
|
8,855,210 shares of common stock for issuance upon conversion of outstanding convertible
debt and related warrants.
|
As of December 5, 2007, we did not have any shares of preferred stock outstanding.
Common Stock
Voting Rights.
Each holder of shares of our common stock is entitled to one vote for each
share of such common stock held by such holder. Under our Bylaws, the holders of a majority of the
voting power of our issued and outstanding stock entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum for the transaction of business at all meetings of
stockholders, except as otherwise provided by statute or by our certificate of incorporation. When
a quorum is present at any meeting, the vote of the holders of a majority of the voting power of
our issued and outstanding stock entitled to vote thereon, present in person or represented by
proxy, shall decide any questions brought before such meeting, unless the question is one upon
which by express provision of statute or of the certificate of incorporation or of the Bylaws, a
different vote is required, in which case such express provision shall govern and control the
decision of such question.
Dividends.
Subject to the dividend rights of the outstanding shares of issued and outstanding
preferred stock, if any, holders of common stock are entitled to receive dividends, when, as and if
declared by the Board of Directors out of assets lawfully available for such purposes. No dividends
will be paid on any shares of common stock unless the same dividend is paid on all shares of common
stock outstanding at the time of such payment.
Rights upon Liquidation, Dissolution or Winding Up.
In the event of any distribution of
assets upon liquidation, dissolution or winding up of our affairs, holders of common stock will be
entitled to share ratably and equally all of our assets and funds remaining after payment to the
holders of our preferred stock, if any, of the specific amounts which they are entitled to receive
upon such liquidation, dissolution or winding up as herein provided.
Other Rights.
Holders of common stock have no subscription, redemption or conversion rights,
nor do they have any preemptive or other rights to acquire or subscribe for additional, unissued or
treasury shares, except as expressly provided for in our stockholder rights plan. Accordingly, if
we were to elect to sell additional shares of common stock, persons acquiring common stock in this
offering would have no right to purchase additional shares and, as a result, their percentage
equity interest in the Company would be reduced.
69
Registration Rights
In addition to the rights of the selling stockholders to require us to file the registration
statement of which this prospectus is a part for the purpose of registering the resale of the
shares offered hereby, holders of approximately 52.8 million shares of our common stock (issued or
issuable upon exercise of warrants or conversion of promissory notes), which shares we refer to as
registrable securities, have the following registration rights with respect to those shares:
Demand Registration Rights.
The holders of 20% or more of the registrable securities, or
their transferees, may require us on not more than two occasions in a twelve month period
(exclusive of registration on Form S-3), to file a registration statement under the Securities
Act with respect to their shares of common stock, provided that the anticipated aggregate
offering price to the public of at least $2.0 million. These registration rights are subject to
specified conditions and limitations. Under the terms of the registration pursuant to which
these rights are granted, we will be required to register for resale these shares if we receive
a written request from holders of at least a majority of all such shares then outstanding.
Piggyback Registration Rights.
If we propose to register any of our securities under the
Securities Act either for our own account or for the account of other stockholders, the holders
of the registrable securities will be entitled to notice of the registration and will be
entitled to include their shares of common stock in the registration statement. These
registration rights are subject to specified conditions and limitations, including the right of
the underwriters to limit the number of shares included in any such registration under some
circumstances. The holders of the registrable securities have waived their right to have their
shares included in this offering.
Registration on
Form S-3
.
The holders of the registrable securities are entitled, upon
written request from holders of registrable securities, to have such shares registered by us on
a Form S-3 registration statement at our expense provided that such requested registration has
an anticipated aggregate offering price to the public of at least $1.0 million. These
registration rights are subject to specified conditions and limitations.
Expenses of Registration.
We will pay all expenses relating to any demand, piggyback or
Form S-3 registrations, other than underwriting discounts and commissions.
Certain Provisions of Delaware Law and Our Certificate of Incorporation and Bylaws
A number of provisions of our Certificate of Incorporation and Bylaws concern matters of
corporate governance and the rights of stockholders. Certain of these provisions, as well as the
ability of our Board of Directors to issue shares of preferred stock and to set the voting rights,
preferences and other terms thereof, may be deemed to have an anti-takeover effect and may
discourage takeover attempts not first approved by the Board of Directors (including takeovers
which certain stockholders may deemed to be in their best interests). To the extent takeover
attempts are discouraged, temporary fluctuations in the market price of the common stock, which may
result from actual or rumored takeover attempts, may be inhibited. These provisions, together with
the ability of our Board to issue preferred stock without further stockholder action, also could
delay or frustrate the removal of incumbent directors or the assumption of control by stockholders,
even if such removal or assumption would be beneficial to stockholders. These provisions also could
discourage or make more difficult a merger, tender offer or proxy contests, even if they could be
favorable to the interests of stockholders, and could potentially depress the market price of the
common stock. The Board of Directors believes these provisions are appropriate to protect the
interests of the Company and all of its stockholders.
Special Meetings of Stockholders.
A special meeting of stockholders may be called at any time
by the Board of Directors or the Chairman of the Board, if one shall have been elected, or the
Chief Executive Officer. Except as otherwise provided by applicable law, or the Certificate of
Incorporation or Bylaws, stockholders are not entitled to call a special meeting.
Number of Directors; Filling Vacancies.
Our Certificate of Incorporation and Bylaws provide
that the number of directors constituting the board of directors will be determined by the
affirmative vote of the entire Board of Directors (the current number of directors constituting the
full Board is five). Any vacancy occurring on the Board of Directors, including any vacancy created
by
70
reason of an increase in the number of directors, may be filled for the unexpired term by the
concurring vote of a majority of the directors then in office, whether or not a quorum, or by the
sole remaining director. Each director so elected shall hold office for the remainder of the full
term of the class of directors in which the new directorship was created or the vacancy occurred
and until such directors successor has been elected and qualified.
Classification of Directors.
Our Bylaws provide that the directors shall be classified in
respect to the time for which they shall severally hold office, by dividing them into three
classes. The number of directors in each class must be as nearly equal as possible. At each annual
election, any vacancy in any class of directors may be filled and successors to the class of
directors whose terms shall expire that year are elected to hold office for a term of three years,
so that the term of office of one class of directors shall expire in each year. In the event the
number of directors is increased, election may be made to a class of directors with terms expiring
in three years or less in order to maintain proportionate equality between the classes. Any
decrease in the number of directors is effective at the time of the next succeeding annual meeting
of stockholders unless there are vacancies in the Board of Directors, in which case such decrease
may become effective at any time prior to the next succeeding annual meeting to the extent of the
number of such vacancies. Each director holds office until the expiration of the term for which he
or she is elected and until his or her successor has been elected and qualified, or until his or
her prior resignation or removal.
71
Amendments to Bylaws.
Our Bylaws provide that they may be amended or repealed or new bylaws
may be adopted by action of the affirmative vote of 66 2/3% of the stockholders entitled to vote
thereon at any annual or special meeting of stockholders or by action of the Board of Directors at
a regular or special meeting thereof.
Section 203 of the DGCL.
We are subject to Section 203 of the DGCL. Under this provision, we
may not engage in any business combination with any interested stockholder for a period of three
years following the date the stockholder became an interested stockholder, unless:
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prior to such time our Board of Directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested stockholder;
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upon consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of our voting stock
outstanding at the time the transaction commenced, excluding for purposes of determining the
voting stock outstanding (but not the outstanding voting stock owned by the interested
stockholder) those shares owned (i) by persons who are directors and also officers and (ii)
employee stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
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at or subsequent to such time the business combination is approved by the Board of
Directors and authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder.
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Section 203 defines business combination to include the following:
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any sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder;
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subject to some exceptions, any transaction that results in the issuance or transfer by
the corporation of any stock of the corporation to the interested stockholder;
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any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation beneficially
owned by the interested stockholder; or
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the receipt by the interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the corporation.
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In general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity
or person affiliated with or controlling or controlled by the entity or person.
Transfer Agent
The transfer agent for our common stock is Bank of New York Mellon Shareowner Services.
SHARES ELIGIBLE FOR FUTURE SALE
Future market sales of shares or the availability of shares for sale may decrease the market
price of our common stock prevailing from time to time. As described below, only a portion of our
outstanding shares of common stock will be available for sale shortly after this offering due to
legal restrictions on resale. Nevertheless, sales of substantial amounts of common stock in the
public market after these restrictions lapse, or the perception that such sales could occur, could
adversely affect the market price of the common stock and could impair our future ability to raise
capital through the sale of our equity securities.
Based on 42,346,088 shares of common stock outstanding as of December 5, 2007, there would be a
total of 79,602,565 shares of common stock outstanding upon the full conversion and exercise of all
currently outstanding options, warrants, and accrued interest on previously outstanding convertible
securities. Of these outstanding shares, upon the effectiveness of the registration statement of
which this prospectus is a part, 3,596,209 shares will be freely tradable, except that any shares
held by our affiliates, as that term is defined under Rule 144 under the Securities Act, may only
be sold in compliance with the Rule 144 limitations described below. A further 15,789,473 shares of
our common stock are tradable only on AIM. The remainder (substantially all of which are
beneficially owned by Toucan Capital and Toucan Partners) would be eligible for resale in
accordance with the resale provisions of Rule 144 or upon our registration of such shares for
resale. However, in connection with the admission of our common stock to trading on AIM
72
on June 22, 2007 (the Admission), each of the directors of the Company, Toucan Capital and
Toucan Partners agreed not to dispose of any common stock (or any interest) held by them (subject
to certain limited exemptions) for a period of 12 months following Admission (the Lock-up).
Rule 144
In general, under Rule 144 under the Securities Act, a person, or group of persons whose
shares are required to be aggregated, who has beneficially owned shares of our common stock for at
least one year would be entitled to sell within any three-month period a number of shares that does
not exceed 1% of the number of shares of our common stock then outstanding, which equals
approximately 423,000 shares based on the number of shares of common stock outstanding as of
December 5, 2007, subject to Rule 144s manner of sale provisions and notice requirements and to
the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time
during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years, including the holding period of any prior owner other than an affiliate (as
defined under the Securities Act), is entitled to sell the shares without complying with the manner
of sale, public information, volume limitation or notice provisions of Rule 144.
On November 15, 2007, the SEC adopted amendments to Rule 144 which will become effective 60
days following their publication in the Federal Register. Under the rule as amended, a person, or
group of persons whose shares are required to be aggregated, who has beneficially owned shares of
our common stock for at least six months and who is not an affiliate of ours at any time during the
90 days preceding a sale, will be entitled to sell such shares without limitation, provided that we
continue to comply with our Exchange Act reporting obligations for a period of one year after the
seller first acquired such shares. Sales by affiliates after the six-month holding period
described above are limited in any three-month period to a number of shares that does not exceed 1%
of the number of shares of our common stock then outstanding, which equals approximately 423,000
shares based on the number of shares of common stock outstanding as of December 5, 2007. In
addition, such sales by affiliates will be subject to the manner of sale provisions and other
existing requirements under Rule 144.
Rule 701
Rule 701, as currently in effect, permits resales of shares in reliance upon Rule 144 but
without compliance with certain restrictions of Rule 144, including the holding period requirement.
Most of our employees, officers, directors or consultants who purchased shares under a written
compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701.
Registration Rights
Toucan Capital and Toucan Partners, which as of December 5, 2007 collectively owned an
aggregate of approximately 21.9 million shares of our common stock, may acquire an additional
approximately 22.0 million shares upon exercise of warrants with exercise prices ranging from $0.15
per share to $0.60 per share, and may acquire approximately 8.9 million shares from the exercise of
warrants and conversion of accrued interest on previously outstanding promissory notes pursuant to
the terms of the 2007 Warrants and 2007 Convertible Notes, or their transferees, are entitled to
rights with respect to the registration of their shares under the Securities Act. Registration of
their shares under the Securities Act would result in the shares becoming freely tradable without
restriction under the Securities Act, except for shares purchased by affiliates. See Description
of Capital Stock Registration Rights.
Stock Options
We have filed with the SEC registration statements under the Securities Act covering the
shares of common stock reserved for issuance under our stock option plans and employee stock
purchase plan. These registration statements are effective. Accordingly, the shares registered
under the registration statements are, subject to Rule 144 volume limitations, applicable to
affiliates and the restrictions of the Lock-up described above, available for sale in the open
market.
PLAN OF DISTRIBUTION
The selling stockholders, which as used herein includes donees, pledgees, transferees or other
successors-in-interest selling shares of common stock or interests in shares of common stock
received after the date of this prospectus from a selling stockholder as a gift, pledge,
partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise
dispose of any or all of their shares of common stock or interests in shares of common stock on any
stock exchange, market or trading facility on which the shares are
73
traded or in private transactions. These dispositions may be at fixed prices, at prevailing
market prices at the time of sale, at prices related to the prevailing market price, at varying
prices determined at the time of sale, or at negotiated prices.
The selling stockholders may use any one or more of the following methods when disposing of
shares or interests therein:
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ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers;
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block trades in which the broker-dealer will attempt to sell the shares as agent, but may
position and resell a portion of the block as principal to facilitate the transaction;
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purchases by a broker-dealer as principal and resale by the broker-dealer for its
account;
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an exchange distribution in accordance with the rules of the applicable exchange;
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privately negotiated transactions;
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short sales effected after the date the registration statement of which this prospectus
is a part is declared effective by the SEC;
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through the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise;
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broker-dealers may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share;
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a combination of any such methods of sale; and
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any other method permitted pursuant to applicable law.
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The selling stockholders may, from time to time, pledge or grant a security interest in some
or all of the shares of common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the shares of common stock,
from time to time, under this prospectus, or under an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus. The selling stockholders also may transfer the shares of common
stock in other circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.
In connection with the sale of our common stock or interests therein, the selling stockholders
may enter into hedging transactions with broker-dealers or other financial institutions, which may
in turn engage in short sales of the common stock in the course of hedging the positions they
assume. The selling stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common stock to broker-dealers
that in turn may sell these securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the creation of one or
more derivative securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).
The aggregate proceeds to the selling stockholders from the sale of the common stock offered
by them will be the purchase price of the common stock less discounts or commissions, if any. Each
of the selling stockholders reserves the right to accept and, together with their agents from time
to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly
or through agents. We will not receive any of the proceeds from this offering. Upon any exercise of
the warrants by payment of cash, however, we will receive the exercise price of the warrants.
The selling stockholders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act, provided that they meet the
criteria and conform to the requirements of that rule.
The selling stockholders and any underwriters, broker-dealers or agents that participate in
the sale of the common stock or interests therein may be underwriters within the meaning of
Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profits they earn
on any resale of the shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are underwriters within the meaning of Section 2(11) of the Securities
Act will be subject to the prospectus delivery requirements of the Securities Act.
74
To the extent required, the shares of our common stock to be sold, the names of the selling
stockholders, the respective purchase prices and public offering prices, the names of any agents,
dealer or underwriter, and any applicable commissions or discounts with respect to a particular
offer will be set forth in an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if applicable, the common stock
may be sold in these jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the common stock may not be sold unless it has been registered or
qualified for sale or an exemption from registration or qualification requirements is available and
is complied with.
We have advised the selling stockholders that the anti-manipulation rules of Regulation M
under the Exchange Act may apply to sales of shares in the market and to the activities of the
selling stockholders and their affiliates. In addition, we will make copies of this prospectus (as
it may be supplemented or amended from time to time) available to the selling stockholders for the
purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling
stockholders may indemnify any broker-dealer that participates in transactions involving the sale
of the shares against certain liabilities, including liabilities arising under the Securities Act.
We have agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the registration of the
shares of common stock offered by this prospectus.
We have agreed with the selling stockholders to keep the registration statement, of which this
prospectus constitutes a part, effective until the earlier of (1) the second anniversary of the
effective date of the registration statement; (2) such time as all of the shares covered by this
prospectus have been disposed of pursuant to and in accordance with the registration statement or
(3) the date on which the shares may be sold pursuant to Rule 144(k) of the Securities Act.
All costs, expenses and fees in connection with this registration will be borne by us.
Brokerage commissions and similar seller expenses, if any, related to the sale of the shares will
be borne by the selling stockholders.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed upon for us by
Covington & Burling LLP, Washington, D.C.
EXPERTS
The financial statements of Northwest Biotherapeutics, Inc. as of December 31, 2006 and 2005
and for each of the years in the three year period ended December 31, 2006 and the period from
March 18, 1996 (inception) through December 31, 2006 have been included in this prospectus and
registration statement in reliance upon the report of Peterson Sullivan PLLC, a registered
independent public accounting firm, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
The report of Peterson Sullivan PLLC covering the December 31, 2006 financial statements
contains an explanatory paragraph that states that the Company has experienced recurring losses
from operations, has a net capital deficiency and, at December 31, 2006, a net working capital
deficit that raise substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the outcome of that
uncertainty.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1, of which this prospectus is a
part, under the Securities Act with respect to the common stock offered hereby. This prospectus
does not contain all of the information included in the registration statement. Statements in this
prospectus concerning the provisions of any document are not necessarily complete. You should refer
to the copies of the documents filed as exhibits to the registration statement or otherwise filed
by us with the SEC for a more complete understanding of the matter involved. Each statement
concerning these documents is qualified in its entirety by such reference.
We are subject to the informational requirements of the Exchange Act, and, accordingly, file
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy
statements and other information with the SEC. The SEC maintains a web site at http://www.sec.gov
that contains reports and information statements and other information regarding registrants that
file electronically with the SEC. You may read and copy the registration statement and the reports
and other information we file with the SEC at the SECs Public Reference Room at 100 F Street,
N.E., Washington, DC 20549. You may obtain information on the operation of the public reference
room by calling the SEC at 1-800-SEC-0330.
Our website address is
www.nwbio.com
. The information available on or through our
website is not part of this prospectus.
75
INDEX TO FINANCIAL STATEMENTS
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Page
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Financial Statements (unaudited)
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F-2
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F-3
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F-4
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F-6
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II FINANCIAL STATEMENTS
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F-16
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F-17
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F-18
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F-19
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F-22
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F-24
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F-1
Part I Financial Information
NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)
Condensed Consolidated Balance Sheets
(in thousands)
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December 31,
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September 30,
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2006
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2007
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(Unaudited)
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Assets
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Current assets:
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Cash
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$
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307
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$
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16,875
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Accounts receivable
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3
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|
Prepaid expenses and other current assets
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145
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440
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Total current assets
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455
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17,315
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Property and equipment:
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Laboratory equipment
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14
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29
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Office furniture and other equipment
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71
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86
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85
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115
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Less accumulated depreciation and amortization
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(70
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)
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(103
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)
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Property and equipment, net
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15
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12
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Restricted cash
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31
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Deposit and other non-current assets
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3
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Total assets
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$
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504
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$
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17,327
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|
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Liabilities And Stockholders Equity
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Current liabilities:
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Note payable to related parties, net of discount
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$
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2,505
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$
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5,243
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Current portion of capital lease obligations
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2
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Accounts payable
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493
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192
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Accounts payable, related party
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2,852
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Accrued expenses
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301
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763
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Accrued expense, related party
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300
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563
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Total liabilities
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6,453
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6,761
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Stockholders equity:
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Preferred stock, $0.001 par value; 300,000,000 shares
authorized at December 31, 2006 and September 30, 2007:
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Series A preferred stock, 50,000,000 and zero shares
designated at December 31, 2006 and September 30, 2007,
respectively, and 32,500,000 and zero shares issued and
outstanding at December 31, 2006 and September 30,
2007, respectively
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33
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Series A-1 preferred stock, 10,000,000 and zero shares
designated at December 31, 2006 and September 30, 2007,
respectively, and 4,816,863 and zero shares issued and
outstanding at December 31, 2006 and September 30,
2007, respectively
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5
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Common stock, $0.001 par value; 800,000,000 shares
authorized at December 31, 2006 and September 30, 2007
and 4,349,419 and 42,346,088 shares issued and
outstanding at December 31, 2006 and September 30,
2007, respectively
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65
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42
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Additional paid-in capital
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78,033
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145,388
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Deficit accumulated during the development stage
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(84,085
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)
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(134,864
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)
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Total stockholders equity
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(5,949
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)
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10,566
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|
Total liabilities and stockholders equity
|
|
$
|
504
|
|
|
$
|
17,327
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
F-2
NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 18, 1996
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
(Inception) to
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research material sales/license fees
|
|
$
|
80
|
|
|
$
|
10
|
|
|
$
|
80
|
|
|
$
|
10
|
|
|
$
|
540
|
|
Contract research and development from related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,128
|
|
Research grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
80
|
|
|
|
10
|
|
|
|
80
|
|
|
|
10
|
|
|
|
2,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of research material sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
382
|
|
Research and development
|
|
|
1,000
|
|
|
|
1,873
|
|
|
|
2,644
|
|
|
|
5,342
|
|
|
|
41,186
|
|
General and administrative
|
|
|
493
|
|
|
|
1,697
|
|
|
|
1,669
|
|
|
|
3,643
|
|
|
|
36,610
|
|
Depreciation and amortization
|
|
|
10
|
|
|
|
2
|
|
|
|
29
|
|
|
|
18
|
|
|
|
2,321
|
|
Accrued loss on facility sublease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
895
|
|
Asset impairment loss
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
2,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,503
|
|
|
|
3,572
|
|
|
|
4,333
|
|
|
|
9,003
|
|
|
|
83,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,423
|
)
|
|
|
(3,562
|
)
|
|
|
(4,253
|
)
|
|
|
(8,993
|
)
|
|
|
(80,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant valuation
|
|
|
|
|
|
|
|
|
|
|
7,127
|
|
|
|
|
|
|
|
6,759
|
|
Gain on sale of intellectual property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,656
|
|
Interest expense
|
|
|
(407
|
)
|
|
|
(697
|
)
|
|
|
(2,246
|
)
|
|
|
(5,561
|
)
|
|
|
(21,262
|
)
|
Interest income and other
|
|
|
21
|
|
|
|
350
|
|
|
|
34
|
|
|
|
738
|
|
|
|
1,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(1,809
|
)
|
|
|
(3,909
|
)
|
|
|
662
|
|
|
|
(13,816
|
)
|
|
|
(90,055
|
)
|
Issuance of common stock in connection with
elimination of Series A and Series A-1 preferred
stock preferences
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,349
|
)
|
|
|
(12,349
|
)
|
Modification of Series A preferred stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,306
|
)
|
|
|
(2,306
|
)
|
Modification of Series A-1 preferred stock
warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,393
|
)
|
|
|
(16,393
|
)
|
Series A preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(334
|
)
|
|
|
(334
|
)
|
Series A-1 preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(917
|
)
|
|
|
(917
|
)
|
Warrants issued on Series A and Series A-1
preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,664
|
)
|
|
|
(4,664
|
)
|
Accretion of Series A preferred stock mandatory
redemption obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,872
|
)
|
Series A preferred stock redemption fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
Beneficial conversion feature of Series D
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common
stockholders
|
|
$
|
(1,809
|
)
|
|
$
|
(3,909
|
)
|
|
$
|
662
|
|
|
$
|
(50,779
|
)
|
|
$
|
(134,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/loss per share applicable to common
stockholders basic
|
|
$
|
(0.42
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.20
|
|
|
$
|
(2.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic
net income/loss per share
|
|
|
4,349
|
|
|
|
42,298
|
|
|
|
3,297
|
|
|
|
18,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/loss per share applicable to common
stockholders diluted
|
|
$
|
(0.42
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
0.02
|
|
|
$
|
(2.76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing
diluted net income/loss per share
|
|
|
4,349
|
|
|
|
42,298
|
|
|
|
29,521
|
|
|
|
18,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
F-3
Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
March 18, 1996
|
|
|
|
Nine Months Ended
|
|
|
(Inception) to
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
662
|
|
|
$
|
(13,816
|
)
|
|
$
|
(90,055
|
)
|
Reconciliation of net income (loss) to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
29
|
|
|
|
18
|
|
|
|
2,321
|
|
Amortization of deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
320
|
|
Amortization debt discount
|
|
|
1,801
|
|
|
|
5,750
|
|
|
|
17,996
|
|
Accrued interest converted to preferred stock
|
|
|
|
|
|
|
|
|
|
|
260
|
|
Accreted interest on convertible promissory note
|
|
|
284
|
|
|
|
307
|
|
|
|
1,428
|
|
Stock-based compensation costs
|
|
|
3
|
|
|
|
4
|
|
|
|
1,116
|
|
Gain on sale of intellectual property and royalty rights
|
|
|
|
|
|
|
|
|
|
|
(3,656
|
)
|
Loss (gain) on sale of property and equipment
|
|
|
(16
|
)
|
|
|
|
|
|
|
273
|
|
Warrant valuation
|
|
|
(7,127
|
)
|
|
|
|
|
|
|
(6,759
|
)
|
Asset impairment loss
|
|
|
|
|
|
|
|
|
|
|
2,056
|
|
Loss on facility sublease
|
|
|
|
|
|
|
|
|
|
|
895
|
|
Increase (decrease) in cash resulting from changes in assets
and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(53
|
)
|
|
|
3
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
82
|
|
|
|
(261
|
)
|
|
|
60
|
|
Accounts payable and accrued expenses
|
|
|
(763
|
)
|
|
|
(2,429
|
)
|
|
|
1,914
|
|
Accrued loss on sublease
|
|
|
|
|
|
|
|
|
|
|
(265
|
)
|
Deferred rent
|
|
|
|
|
|
|
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash used in Operating Activities
|
|
|
(5,098
|
)
|
|
|
(10,424
|
)
|
|
|
(71,676
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment, net
|
|
|
|
|
|
|
(15
|
)
|
|
|
(4,595
|
)
|
Proceeds from sale of property and equipment
|
|
|
16
|
|
|
|
|
|
|
|
250
|
|
Proceeds from sale of intellectual property
|
|
|
|
|
|
|
|
|
|
|
1,816
|
|
Proceeds from sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
Refund of security deposit
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
Transfer of restricted cash
|
|
|
|
|
|
|
|
|
|
|
(1,035
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Cash provided by (used in) Investing Activities
|
|
|
16
|
|
|
|
(15
|
)
|
|
|
(1,567
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of note payable to stockholder
|
|
|
|
|
|
|
2,600
|
|
|
|
5,750
|
|
Repayment of note payable to stockholder
|
|
|
|
|
|
|
(225
|
)
|
|
|
(1,875
|
)
|
Proceeds from issuance of convertible promissory note and
warrants, net of issuance costs
|
|
|
300
|
|
|
|
|
|
|
|
13,099
|
|
Borrowing under line of credit, Northwest Hospital
|
|
|
|
|
|
|
|
|
|
|
2,834
|
|
Repayment of line of credit, Northwest Hospital
|
|
|
|
|
|
|
|
|
|
|
(2,834
|
)
|
Repayment of convertible promissory note
|
|
|
(13
|
)
|
|
|
|
|
|
|
(119
|
)
|
Payment on capital lease obligations
|
|
|
(8
|
)
|
|
|
(2
|
)
|
|
|
(323
|
)
|
Payments on note payable
|
|
|
|
|
|
|
|
|
|
|
(420
|
)
|
Payment of Preferred Stock Dividends
|
|
|
|
|
|
|
(1,252
|
)
|
|
|
(1,252
|
)
|
Proceeds from issuance Series A cumulative preferred stock,
net
|
|
|
|
|
|
|
|
|
|
|
28,708
|
|
Proceeds from exercise of stock options and warrants
|
|
|
7
|
|
|
|
|
|
|
|
227
|
|
Proceeds from issuance common stock, net
|
|
|
5,084
|
|
|
|
25,886
|
|
|
|
48,343
|
|
Mandatorily redeemable Series A preferred stock redemption fee
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
March 18, 1996
|
|
|
|
Nine Months Ended
|
|
|
(Inception) to
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
Deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
(320
|
)
|
|
|
|
|
|
|
|
|
|
|
Net Cash provided by Financing Activities
|
|
|
5,370
|
|
|
|
27,007
|
|
|
|
90,118
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
288
|
|
|
|
16,568
|
|
|
|
16,875
|
|
Cash at beginning of period
|
|
|
352
|
|
|
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
640
|
|
|
$
|
16,875
|
|
|
$
|
16,875
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information Cash paid
during the period for interest
|
|
$
|
58
|
|
|
$
|
8
|
|
|
$
|
1,404
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with elimination of
Series A and Series A-1 preferred stock preferences
|
|
|
|
|
|
|
12,349
|
|
|
|
12,349
|
|
Modification of Series A preferred stock warrants
|
|
|
|
|
|
|
2,306
|
|
|
|
2,306
|
|
Modification of Series A-1 preferred stock warrants
|
|
|
|
|
|
|
16,393
|
|
|
|
16,393
|
|
Warrants issued on Series A and Series A-1 preferred stock
dividends
|
|
|
|
|
|
|
4,664
|
|
|
|
4,664
|
|
Equipment acquired through capital leases
|
|
|
|
|
|
|
|
|
|
|
285
|
|
Common stock warrant liability
|
|
|
6,523
|
|
|
|
|
|
|
|
11,841
|
|
Accretion of mandatorily redeemable Series A preferred stock
redemption obligation
|
|
|
|
|
|
|
|
|
|
|
1,872
|
|
Beneficial conversion feature of convertible promissory notes
|
|
|
|
|
|
|
|
|
|
|
7,242
|
|
Conversion of convertible promissory notes and accrued interest
to Series D preferred stock
|
|
|
|
|
|
|
|
|
|
|
5,324
|
|
Conversion of convertible promissory notes and accrued interest
to Series A-1 preferred stock
|
|
|
7,707
|
|
|
|
|
|
|
|
7,707
|
|
Conversion of convertible promissory notes and accrued interest
to common stock
|
|
|
269
|
|
|
|
|
|
|
|
269
|
|
Issuance of Series C preferred stock warrants in connection with
lease agreement
|
|
|
|
|
|
|
|
|
|
|
43
|
|
Issuance of common stock for license rights
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Issuance of common stock and warrants to Medarex
|
|
|
|
|
|
|
|
|
|
|
840
|
|
Issuance of common stock to landlord
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Deferred compensation on issuance of stock options and
restricted stock grants
|
|
|
|
|
|
|
|
|
|
|
759
|
|
Cancellation of options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
849
|
|
Stock subscription receivable
|
|
|
|
|
|
|
|
|
|
|
491
|
|
Financing of prepaid insurance through note payable
|
|
|
|
|
|
|
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
F-5
Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of
Northwest Biotherapeutics, Inc. and its subsidiary, NW Bio Europe Sarl (collectively, the
Company). All material intercompany balances and transactions have been eliminated. The
accompanying unaudited condensed consolidated financial statements should be read in conjunction
with the financial statements included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2006. The year-end condensed balance sheet data was derived from audited
consolidated financial statements, but does not include all disclosures required by accounting
principles generally accepted in the United States of America (GAAP). All normal recurring
adjustments which are necessary for the fair presentation of the results for the interim periods
are reflected herein. Operating results for the three and nine-month periods ended September 30,
2007 are not necessarily indicative of results to be expected for a full year.
The independent registered public accounting firms report on the financial statements for the
fiscal year ended December 31, 2006 states that because of recurring operating losses, a working
capital deficit, and a deficit accumulated during the development stage, there is substantial doubt
about the Companys ability to continue as a going concern. A going concern opinion indicates
that 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.
2. Summary of Significant Accounting Policies
The significant accounting policies used in the preparation of the Companys condensed
consolidated financial statements are disclosed in our Annual Report on Form 10-K for the year
ended December 31, 2006. Additional significant accounting policies for fiscal 2007 are disclosed
below.
Cash
All liquid investments with maturities of three months or less at the date of purchase are
considered cash. The Company maintains cash deposits in excess of insured limits with certain
financial institutions.
Principles of Consolidation
The 2007 condensed consolidated financial statements include the accounts of the Company and
its subsidiary. All significant intercompany accounts and transactions have been eliminated. During
the third quarter of 2007, the Company established a new subsidiary in Switzerland. The Company
contributed 95% of the initial share capital in this new subsidiary and Cognate BioServices, Inc.,
a related party to the Company, contributed the remaining 5%.
Foreign Currency Translation
For operations outside the U.S. that prepare financial statements in currencies other than
U.S. dollars, we translate the financial statements into U.S. dollars. Results of operations and
cash flows are translated at average exchange rates during the period, and assets and liabilities
are translated at end of period exchange rates, except for equity transactions and advances not
expected to be repaid in the foreseeable future, which are translated at historical cost. The
effects of exchange rate fluctuations on translating foreign currency assets and liabilities into
U.S. dollars are accumulated as a separate component in other comprehensive income (loss).
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48 (FIN 48),
Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No.
109, Accounting for Income Taxes
, which clarifies the accounting for uncertainty in income taxes.
FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. The
interpretation requires that
F-6
we recognize in the financial statements the impact of a tax position if it is more likely
than not that such tax position will be sustained on audit, based on the technical merits of the
position. FIN 48 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods and disclosure. The provisions of FIN 48 were effective beginning
January 1, 2007 with the cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. The Company adopted FIN 48 effective January 1, 2007 and
there was no impact on the Companys financial statements.
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 108 (SAB 108). Due to diversity in practice among registrants, SAB 108 expresses SEC
staff views regarding the process by which misstatements in financial statements are evaluated for
purposes of determining whether financial statement restatement is necessary. SAB 108 is effective
for fiscal years ending after November 15, 2006. The Company adopted SAB 108 effective January 1,
2007 and there was no impact on the Companys financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,
Fair
Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements, but does not require any new fair
value measurements. SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. We are evaluating
the possible impact of SFAS 157 on the Companys financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
(SFAS 159). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. SFAS 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. We have not yet determined
the impact of adopting SFAS 159 on our financial position.
In June 2007, the Emerging Issues Task Force (EITF) of the FASB issued EITF Issue No. 07-3,
Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research
and Development Activities
(EITF 07-3), which is effective for fiscal years beginning after
December 15, 2007. EITF 07-3 requires that nonrefundable advance payments for future research and
development activities be deferred and capitalized. Such amounts will be recognized as an expense
as the goods are delivered or the related services are performed. The Company does not expect the
adoption of EITF 07-3 to have a material impact on the financial results of the Company.
3. Stock-Based Compensation Plans
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No.
123(R),
Share-Based Payment
, (SFAS 123(R)) which establishes accounting for stock-based awards
exchanged for employee services, using the modified prospective transition method. Accordingly,
stock-based compensation cost is measured at the grant date, based on the fair value of the award,
over the requisite service period. Previously, the Company applied APB Opinion No. 25 and related
interpretations, as permitted by SFAS No. 123.
For options and warrants issued to non-employees, the Company recognizes stock compensation
costs utilizing the fair value methodology prescribed in SFAS No. 123(R) over the related period of
benefit.
Determining Fair Value Under SFAS No. 123(R)
Valuation and Amortization Method.
The Company estimates the fair value of stock-based awards
granted using the Black-Scholes option valuation model. The Company amortizes the fair value of all
awards on a straight-line basis over the requisite service periods, which are generally the vesting
periods.
Expected Life
. The expected life of awards granted represents the period of time that they are
expected to be outstanding. The Company determines the expected life based on historical experience
with similar awards, giving consideration to the contractual terms, vesting schedules and
pre-vesting and post-vesting forfeitures.
Expected Volatility
. The Company estimates the volatility of its common stock at the date of
grant based on the historical volatility of its common stock. The volatility factor used in the
Black-Scholes option valuation model is based on the Companys historical stock prices over the
most recent period commensurate with the estimated expected life of the award.
F-7
Risk-Free Interest Rate.
The Company bases the risk-free interest rate used in the
Black-Scholes option valuation model on the implied yield currently available on U.S. Treasury
zero-coupon issues with an equivalent remaining term equal to the expected life of the award.
Expected Dividend Yield.
The Company has never paid any cash dividends on common stock and
does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company
uses an expected dividend yield of zero in the Black-Scholes option valuation model.
Expected Forfeitures.
The Company uses historical data to estimate pre-vesting option
forfeitures. The Company records stock-based compensation only for those awards that are expected
to vest.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model. There were no shares purchased under the Companys employee stock purchase
plan during the three and nine months ended September 30, 2007 and 2006.
The stock-based compensation expense related to stock-based awards under SFAS No. 123(R)
totaled approximately $4,000 for both the three and nine months ended September 30, 2007,
respectively. As of September 30, 2007, the Company had less than $1,000 of total unrecognized
compensation cost related to non-vested stock-based awards granted under all equity compensation
plans.
There were no stock options granted during the three and nine month periods ended September
30, 2007 and 2006.
Stock Option Plans
The Company has established a new stock option plan, which became effective on June 22, 2007
(the 2007 Stock Option Plan). The Company has reserved a total of 5,480,868 shares of its common
stock, par value $0.001 per share (Common Stock) for issuance in respect of options granted under
the plan. The plan provides for the grant to employees of the Company, its parents and
subsidiaries, including officers and employee directors, of incentive stock options within the
meaning of Section 422 of the U.S. Internal Revenue Code of 1986, as amended, and for the grant of
non-statutory stock options to the employees, officers, directors, including non-employee
directors, and consultants of the Company, its parents and subsidiaries. To the extent an optionee
would have the right in any calendar year to exercise for the first time one or more incentive
stock options for shares having an aggregate fair market value, under all of the Companys plans
and determined as of the grant date, in excess of $100,000, any such excess options will be treated
as non-statutory options.
In addition, the Company amended its existing equity plans effective June 22, 2007 such that
no further option grants may be made under those plans.
4. Liquidity
Since 2004, the Company has undergone a significant recapitalization pursuant to which Toucan
Capital Fund II, L.P. (Toucan Capital) loaned the Company an aggregate of $6.75 million and
Toucan Partners, LLC, an affiliate of Toucan Capital (Toucan Partners), loaned the Company an
aggregate of $4.825 million (excluding $225,000 in proceeds from a demand note that was received on
June 13, 2007 and repaid on June 27, 2007).
On January 26, 2005, the Company entered into a securities purchase agreement with Toucan
Capital pursuant to which Toucan Capital purchased 32.5 million shares of the Companys Series A
cumulative convertible preferred stock (the Series A Preferred Stock) at a purchase price of
$0.04 per share, for a net purchase price of $1.267 million, net of offering related costs of
approximately $24,000. In April 2006, the $6.75 million of notes payable plus all accrued interest
due to Toucan Capital were converted into shares of the Companys Series A-1 cumulative convertible
Preferred Stock (the Series A-1 Preferred Stock).
The $4.825 million loaned to the Company by Toucan Partners was loaned in a series of
transactions.
|
(1)
|
|
From November 14, 2005 through March 9, 2006, the Company issued three promissory
notes to Toucan Partners, pursuant to which Toucan Partners loaned the Company an
aggregate of $950,000. In April 2007, these notes were amended and restated to conform to
the 2007 Convertible Notes described in Note 6. Payment is due under the notes upon
written demand. Interest accrues at 10% per annum, compounded annually, on a 365-day year
basis. The principal amount
|
F-8
|
|
|
of, and accrued interest on, these notes, as amended, is convertible at Toucan Partners
election into Common Stock on the same terms as the 2007 Convertible Notes described in
Note 6.
|
|
|
(2)
|
|
From October 2006 through April 2007, Toucan Partners provided $3.15 million in
cash advances, which were converted into convertible notes (the 2007 Convertible Notes)
and related warrants (the 2007 Warrants) in April 2007.
|
|
|
(3)
|
|
The Company and Toucan Partners also entered into two new promissory notes to fix
the terms of two additional cash advances provided by Toucan Partners to the Company on
May 14, 2007 and May 25, 2007 in the aggregate amount of $725,000, and issued warrants,
which are described in Note 6, to purchase shares of the Companys capital stock to
Toucan Partners described in Note 6 in connection with each such note. These notes and
warrants are on the same terms as the 2007 Convertible Notes and 2007 Warrants and the
proceeds of these notes enabled the Company to continue to operate and advance programs
while raising additional equity financing.
|
The aggregate outstanding principal of $4.825 million and related accrued interest owed to
Toucan Partners (including the 2007 Convertible Notes) may be converted (in whole or in part) by
Toucan Partners into Common Stock at a conversion price of $0.60 per share.
On March 30, 2006, the Company entered into a securities purchase agreement with unrelated
investors pursuant to which it raised aggregate gross proceeds of approximately $5.5 million.
Conversion of Preferred Stock and Related Matters
On June 1, 2007, the Company issued to Toucan Capital a new warrant to purchase the Companys
Series A-1 Preferred Stock (the Toucan Capital Series A-1 Warrant) in exchange for the
cancellation of all previously issued warrants to purchase Series A-1 Preferred Stock (or, at the
election of Toucan Capital, any other equity or debt security of the Company) held by Toucan
Capital. The Toucan Capital Series A-1 Warrant was exercisable for 6,471,333 shares of Series A-1
Preferred Stock (plus shares of Series A-1 Preferred Stock attributable to accrued dividends on the
shares of Series A-1 Preferred Stock held by Toucan Capital), (with each such Series A-1 Preferred
Share convertible into 2.67 shares of Common Stock at $0.60 per share) as compared to the 3,062,500
shares of Series A-1 Preferred Stock (with each such Series A-1 Preferred Share convertible into
2.67 shares of Common Stock at $0.60 per share) that were previously issuable to Toucan Capital
upon exercise of the warrants being cancelled.
Also on June 1, 2007, the Company and Toucan Capital amended Toucan Capitals warrant to
purchase Series A Preferred Stock (the Toucan Capital Series A Warrant) to increase the number of
shares of Series A Preferred Stock that were issuable upon exercise of the warrant to 32,500,000
shares of Series A Preferred Stock (plus shares of Series A Preferred Stock attributable to accrued
dividends on the shares of Series A Preferred Stock held by Toucan Capital) from 13,000,000 shares
of Series A Preferred Stock.
In connection with the modifications of the Series A and Series A-1 Preferred Stock warrants,
the Company recognized reductions in earnings applicable to common stockholders in June 2007 of
$2.3 million and $16.4 million, respectively. The fair value of the warrant modifications were
determined using the Black-Scholes option pricing model with the following assumptions: expected
dividend yield of 0%, risk-free interest rate of 5.0% volatility of 398%, and a contractual life of
seven years.
On June 15, 2007, the Company, Toucan Capital, and Toucan Partners entered into a conversion
agreement (Conversion Agreement) which became effective on June 22, 2007 upon the admission of
the Companys Common Stock to trade on the Alternative Investment Market (AIM) of the London
Stock Exchange (Admission).
Pursuant to the terms of the Conversion Agreement (i) Toucan Capital agreed to convert and has
converted all of its shares of the Companys Series A Preferred Stock and Series A-1 Preferred
Stock (in each case, excluding any accrued and unpaid dividends) into Common Stock and agreed to
eliminate a number of rights, preferences and protections associated with the Series A Preferred
Stock and Series A-1 Preferred Stock, including the liquidation preference entitling Toucan Capital
to certain substantial cash payments; and (ii) Toucan Partners agreed to eliminate all of its
existing rights to receive Series A-1 Preferred Stock under certain notes and warrants (and
thereafter to receive shares of Common Stock rather than shares of Series A-1 Preferred Stock), and
the rights, preferences and protections associated with the Series A-1 Preferred Stock, including
the liquidation preference that would entitle Toucan Partners to certain substantial cash payments,
in return for issuance by the Company of an aggregate of 6,860,561 additional shares of Common
Stock, to be apportioned between Toucan Capital and Toucan Partners as to 4,287,851 and 2,572,710
shares of Common Stock, respectively. In connection with the issuance of these shares, the Company
recognized a further reduction of earnings applicable to common stockholders of $12.3 million in
June 2007.
F-9
Following conversion by Toucan Capital of all of its shares of the Companys Series A
Preferred Stock and Series A-1 Preferred Stock, no shares of either series of preferred stock
remained outstanding. Accordingly, as approved by the board of directors of the Company, upon
Admission on June 22, 2007, the Company filed with the Secretary of State of the State of Delaware
Certificates of Elimination of the Series A Preferred Stock and Series A-1 Preferred Stock, to
eliminate the Companys Series A Preferred Stock and Series A-1 Preferred Stock, respectively. In
addition, under the terms of the Conversion Agreement (i) the Toucan Capital Series A Warrant is
exercisable for 2,166,667 shares of Common Stock rather than shares of Series A Preferred Stock
(plus shares of Common Stock, rather than shares of Series A Preferred Stock, attributable to
accrued dividends on the shares of Series A Preferred Stock previously held by Toucan Capital that
were converted into Common Stock upon Admission, subject to the further provisions of the
Conversion Agreement as described below) and (ii) the Toucan Capital Series A-1 Warrant is
exercisable for an aggregate of 17,256,888 shares of Common Stock rather than shares of Series A-1
Preferred Stock (plus shares of Common Stock, rather than shares of Series A-1 Preferred Stock,
attributable to accrued dividends on the shares of Series A-1 Preferred Stock previously held by
Toucan Capital that were converted into Common Stock upon Admission), subject to further provisions
of the Conversion Agreement as described below.
As noted above, the 32,500,000 shares of Series A Preferred Stock held by Toucan Capital
converted, in accordance with their terms, into 2,166,667 shares of Common Stock and the 4,816,863
shares of Series A-1 Preferred Stock held by Toucan Capital converted, in accordance with their
terms, into 12,844,968 shares of Common Stock. In addition, the convertible promissory notes issued
by the Company to Toucan Partners in aggregate principal amount of $4.825 million and associated
warrants became convertible and exercisable solely for shares of Common Stock.
Under the terms of the Conversion Agreement, Toucan Capital also agreed to temporarily defer
receipt of the accrued and unpaid dividends on its shares of Series A Preferred Stock and Series
A-1 Preferred Stock of amounts equal to $334,340 and $917,451, respectively, until not later than
September 30, 2007. During the third quarter of 2007, the Company paid all of the accrued and
unpaid preferred stock dividends in cash.
Placement of Shares of Common Stock with Foreign Institutional Investors
On June 22, 2007, the Company placed 15,789,473 shares of its Common Stock with foreign
institutional investors at a price of £0.95 per share. These shares were admitted to listing on the
AIM of the London Stock Exchange. The gross proceeds from the placement were approximately £15.0
million, or $29.9 million, while net proceeds from the offering, after deducting commissions and
expenses, were approximately £13.0 million, or $25.9 million. The Company plans to use the net
proceeds from the placement to fund clinical trials, product and process development, working
capital needs and repayment of certain existing debt.
Despite the receipt of these proceeds, the Company expects to require additional funding to
achieve profitability and there can be no assurance that the Companys efforts to seek such funding
will be successful. If the Companys capital raising efforts are unsuccessful, its inability to
obtain additional cash as needed could have a material adverse effect on the Companys financial
position, results of operations and its ability to continue its existence. The Companys
independent registered public accounting firm has indicated in their report on the financial
statements, included in our Annual Report on Form 10-K for the year ended December 31, 2006, that
there is substantial doubt about the Companys ability to continue as a going concern.
5. Net Income (Loss) Per Share Applicable to Common Stockholders
Effective June 19, 2007, all shares of the Companys Common Stock issued and outstanding were
combined and reclassified on a one-for-fifteen basis (the Reverse Stock Split). The effect of the
Reverse Stock Split has been retroactively applied to all periods presented in the accompanying
condensed consolidated financial statements and notes thereto.
In addition, as more fully discussed in Note 4 above, the Companys Series A and Series A-1
Preferred Stock converted into Common Stock effective June 22, 2007 and accrued and unpaid
dividends on its shares of Series A Preferred Stock and Series A-1 Preferred Stock in an amount
equal to $334,340 and $917,451, respectively, have been recorded. Under the terms of the Toucan
Capital Series A Warrant and the Toucan Capital Series A-1 Warrant described above, Toucan Capital
also received warrants associated with these dividends with an aggregate fair value of $4.67
million, which entitle Toucan Capital to purchase an additional 1,345,057 shares of Common Stock at
$0.60 per share and 1,266,477 shares of Common Stock at $0.15 per share, respectively. The fair
value of the warrants was determined using the Black-Scholes option pricing model with the
following assumptions: expected dividend yield of 0%, risk-free interest rate of 5.0% volatility of
205%, and contractual lives ranging from 4.5 to 6 years. The
F-10
aggregate value of the preferred stock dividends and the dividend-related warrants has been
recorded as a reduction in earnings applicable to common stockholders.
The following Common Stock equivalents on an as-converted basis were excluded from the
calculation of diluted net income (loss) per share, as the effect would be antidilutive (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
September 30,
|
|
|
2007
|
|
2006
|
Common stock options
|
|
|
51
|
|
|
|
19
|
|
Common stock warrants
|
|
|
834
|
|
|
|
38
|
|
Preferred stock warrants
|
|
|
19,424
|
|
|
|
|
|
Warrants on preferred stock dividends
|
|
|
2,612
|
|
|
|
|
|
Convertible promissory notes
|
|
|
8,739
|
|
|
|
|
|
Convertible promissory note warrants
|
|
|
8,739
|
|
|
|
|
|
For the nine months ended September 30, 2006, options to purchase 18,533 shares of Common
Stock and warrants to purchase approximately 1.1 million shares of Common Stock were included in
the computation of diluted net income (loss) per share because they were dilutive. Convertible debt
having a face value of $950,000 is also considered to be dilutive for purposes of computing diluted
net income (loss) per share. The conversion of the convertible debt increases the number of shares
outstanding for purposes of computing diluted net income (loss) per share by approximately 1.7
million shares for the nine month period ended September 30, 2006. The Series A Preferred Stock and
Series A-1 Preferred Stock, which is convertible into approximately 15.0 million shares of Common
Stock, is also considered to be dilutive for purposes of computing diluted net income per share for
the nine months ended September 30, 2006, and is included in such computation. In determining the
amount of net income used to compute diluted earnings per share, the Company applied the if
converted method. Accordingly, net income for the nine months ended September 30, 2006, has been
increased by approximately $65,000, representing interest expense that would have been avoided if
the debt had been converted as of January 1, 2006. Additionally, net income for nine months ended
September 30, 2006, has been decreased by approximately $243,000 representing the expense for the
unamortized discount of the beneficial conversion feature as of January 1, 2006. Options, warrants,
convertible debt and convertible preferred stock outstanding were all considered anti-dilutive for
the three and nine months ended September 30, 2007, and for the three months ended September 30,
2006, due to net losses.
6. Notes Payable
From November 14, 2005 through March 9, 2006, the Company issued three promissory notes and
associated warrants to Toucan Partners pursuant to which Toucan Partners loaned the Company an
aggregate of $950,000. In April 2007, these notes were amended and restated to conform to the 2007
Convertible Notes described below. Payment is due under the $950,000 of notes upon written demand.
Interest accrues at 10% per annum, compounded annually, on a 365-day year basis. The principal
amount of, and accrued interest on, these notes, as amended, is convertible into Common Stock on
the same terms as the 2007 Convertible Notes.
Proceeds from the issuance of $950,000 senior convertible promissory notes and warrants
between November 14, 2005 and March 9, 2006 were allocated between the notes and warrants on a
relative fair value basis. The value allocated to the warrants on the date of the grant was
approximately $587,000. The fair value of the warrants was determined using the Black-Scholes
option pricing model with the following assumptions: expected dividend yield of 0%, risk-free
interest rate ranging from 4.1% to 4.4%, volatility ranging between 398% and 408%, and a
contractual life of 7 years. The value of the warrants was recorded as a deferred debt discount
against the $950,000 proceeds of the notes. In addition, a beneficial conversion feature related to
the notes was determined to be approximately $363,000. As a result, the total discount on the notes
equaled $950,000 which was amortized over the original twelve-month term of the respective notes.
As of March 31, 2007, the original debt discount was fully amortized. Amortization of the original
deferred debt discount of approximately $239,000 and $655,000 was recorded for the three and nine
months ended September 30, 2006, respectively.
From October 2006 through April 2007, the Company received a series of cash advances from
Toucan Partners in an aggregate principal amount of $3.15 million. In April 2007, these cash
advances were converted into a new series of convertible promissory notes (and associated
warrants), the 2007 Convertible Notes and 2007 Warrants. The 2007 Convertible Notes accrue interest
at 10% per annum from their respective original cash advance dates; however, the conversion terms
of these notes and the exercise price of these warrants were not fixed. On June 1, 2007, the
Company and Toucan Partners amended the 2007 Convertible Notes and 2007 Warrants to specify and fix
the conversion and exercise prices thereof. The Company and Toucan Partners also entered into two
F-11
promissory notes to fix the terms of two additional cash advances provided by Toucan Partners
to the Company on May 14, 2007 and May 25, 2007 in the aggregate amount of $725,000, and issued
warrants to purchase shares of the Companys capital stock to Toucan Partners in connection with
each such note. These notes and warrants have the same terms as the 2007 Convertible Notes and 2007
Warrants. As amended, the 2007 Convertible Notes provided that the principal and interest thereon
was convertible into shares of the Companys Series A-1 Preferred Stock at the conversion price of
$1.60 per share (with each such share of Series A-1 Preferred Stock convertible into 2.67 shares of
Common Stock at $0.60 per share) or, at the election of Toucan Partners, any other equity security
of the Company (at a conversion price of $0.60 per share). As amended, the 2007 Warrants provided
that they were exercisable for shares of Series A-1 Preferred Stock at the exercise price of $1.60
per share (with each such share of Series A-1 Preferred Stock convertible into 2.67 shares of
Common Stock at $0.60 per share) or, at the election of Toucan Partners, any other equity security
of the Company (at an exercise price of $0.60 per share). Each of the 2007 Warrants is exercisable
for the same number of shares that the corresponding 2007 Convertible Note is convertible into at
the time of exercise or, if earlier, the date on which the corresponding 2007 Convertible Note is
either converted or repaid in full.
In recognition of the modification to the 2007 Convertible Notes and 2007 Warrants, the
aggregate proceeds of $3.875 million received from Toucan Partners between October 2006 and May
2007 and the aggregate proceeds of $950,000 received from Toucan Partners between November 14, 2005
and March 9, 2006 were reallocated between the notes (including accrued interest) and warrants on a
relative fair value basis as of June 1, 2007. The value allocated to the warrants on the date of
the modification was approximately $3.7 million. The fair value of the warrants was determined
using the Black-Scholes option pricing model with the following assumptions: expected dividend
yield of 0%, risk-free interest rate of 4.9%, volatility of 240%, and a contractual life of seven
years. The value of the warrants was recorded as a deferred debt discount against the $4.825
million proceeds (plus accrued interest) of the notes. In addition, a beneficial conversion feature
related to the notes was determined to be approximately $1.4 million. As a result, the total
discount on the notes (including accrued interest) equaled $5.1 million which was expensed in its
entirety in June 2007 in recognition of the June 30, 2007 maturity date of the respective notes.
Interest accretion on the notes of approximately $125,000 and $307,000 was recorded for the three
and nine months ended September 30, 2007, respectively. Interest accretion on the notes of
approximately $24,200 and $65,900 was recorded for the three and nine months ended September 30,
2006, respectively.
Pursuant to the terms of the Conversion Agreement discussed in Note 4 above, which became
effective on June 22, 2007, Toucan Partners agreed to eliminate all of its existing rights to
receive Series A-1 Preferred Stock in connection with the 2007 Convertible Notes and 2007 Warrants
(and thereafter to receive shares of Common Stock at $0.60 per share rather than shares of Series
A-1 Preferred Stock at $1.60 per share), and the rights, preferences and protections associated
with the Series A-1 Preferred Stock, including the liquidation preference that would entitle Toucan
Partners to certain substantial cash payments, in return for the issuance by the Company of
2,572,710 shares of Common Stock.
At September 30, 2007, the principal and cumulative interest balance of the 2007 Convertible
Notes and the $950,000 Notes totaled $4.825 million and $0.418 million, respectively, and were
convertible into 8,737,800 shares of Common Stock. In addition, Toucan Partners held 2007 Warrants
to purchase a further 8,737,800 shares of Common Stock at $0.60 per share. The Company determined
the fair value of the warrant related to the additional accrued interest incurred during third
quarter 2007 using the Black-Scholes option pricing model with the following assumptions: expected
dividend yield of 0%, risk-free interest rate of 4.4% volatility of 204%, and a contractual life of
seven years. The aggregate value of the accrued interest related warrant has been recorded as a
charge to interest expense.
7. Related Party Transactions
On July 30, 2004, the Company entered into a service agreement with Cognate Therapeutics, Inc.
(now known as Cognate BioServices, Inc., or Cognate), a contract manufacturing and services
organization in which Toucan Capital has a majority interest. In addition, two of the principals of
Toucan Capital are members of Cognates board of directors and, on May 17, 2007, the managing
director of Toucan Capital was appointed to serve as a director of the Company and as the
non-executive Chairperson of the Companys board of directors. Under the service agreement, the
Company agreed to utilize Cognates services for an initial two-year period, related primarily to
manufacturing DCVax
®
product candidates, providing regulatory advice and research and development
preclinical activities, and managing clinical trials. The agreement expired on July 30, 2006;
however the Company continued to utilize Cognates services under the same terms as set forth in
the expired agreement. On May 17, 2007, the Company entered into a new services agreement with
Cognate pursuant to which Cognate will provide certain consulting and, when needed, manufacturing
services to the Company for its DCVax
®
-Brain Phase II clinical trial. Under the terms of the new
contract, the Company paid a non-refundable contract initiation fee of $250,000 and committed to
pay budgeted monthly service fees of $400,000, subject to quarterly true-ups, and monthly facility
fees of $150,000. The Company may terminate this agreement with 180 days notice and payment of all
reasonable wind-up costs and Cognate may terminate the contract in the event that the brain cancer
clinical trial fails to complete enrollment by
F-12
July 1, 2009. However, if such termination by the Company occurs at any time prior to the
earlier of the submission of an FDA biological license application/new drug application on the
Companys brain cancer clinical trial or July 1, 2010 or, if such termination by Cognate results
from failure of the brain cancer clinical trial to complete patient enrollment by July 1, 2009, the
Company shall make an additional termination fee payment to Cognate equal to $2 million.
During the three and nine months ending September 30, 2007, respectively, the Company
recognized approximately $1.7 million and $4.1 million of research and development costs related to
these service agreements. During the three and nine months ending September 30, 2006, respectively,
the Company recognized approximately $0.7 million and $1.7 million of research and development
costs related to these service agreements. As of September 30, 2007 and December 31, 2006, the
Company owed Cognate approximately zero and $2.2 million, respectively.
In accordance with a recapitalization agreement dated April 26, 2004 between the Company and
Toucan Capital, as amended and restated on July 30, 2004 and as further amended ten times between
October 22, 2004 and November 14, 2005, pursuant to which Toucan Capital agreed to recapitalize the
Company by making loans to the Company, the Company accrued and paid certain legal and other
administrative costs on Toucan Capitals behalf. During the three and nine months ending September
30, 2007, respectively, the Company recognized approximately zero and $493,000 of general and
administrative costs related to this recapitalization agreement and to certain other costs incurred
by Toucan Capital on the Companys behalf. Approximately $220,000 of the costs recorded during the
nine months ended September 30, 2007 relate to activities which took place prior to 2007. During
the three and nine months ending September 30, 2006, respectively, the Company recognized
approximately $12,000 and $151,000 of general and administrative costs related to the
recapitalization agreement. Pursuant to the terms of the Conversion Agreement discussed above, the
recapitalization agreement was terminated on June 22, 2007.
8. Contingencies
Reduction in Authorized Number of Common and Preferred Shares
On June 13, 2007 a majority of the Companys stockholders approved an amendment of the
Companys Certificate of Incorporation, reducing the number of authorized shares of Common Stock
from 800 million to 100 million and the number of authorized shares of Preferred Stock from 300
million to 20 million. This amendment will take effect approximately 20 days following the mailing
of an Information Statement to the Companys stockholders setting forth the details of such
amendment.
Private Placement
On March 30, 2006, the Company entered into a securities purchase agreement (the Purchase
Agreement) with a group of accredited investors pursuant to which the Company sold an aggregate of
approximately 2.63 million shares of its Common Stock, at a price of $2.10 per share (the PIPE
Shares), and issued, for no additional consideration, warrants to purchase up to an aggregate of
approximately 1.3 million shares of Companys Common Stock (the Warrant Shares).
Under the Purchase Agreement, the Company agreed to register for resale under the Securities
Act of 1933, as amended (the Securities Act), both the PIPE Shares and the Warrant Shares. The
Company also agreed to other customary obligations regarding registration, including matters
relating to indemnification, maintenance of the registration statement, payment of expenses, and
compliance with state blue sky laws. The Company may be liable for liquidated damages if the
registration statement (after being declared effective) ceases to be effective in a manner, and for
a period of time, that violates the Companys obligations under the Purchase Agreement. The amount
of the liquidated damages payable to the investors is, in aggregate, one percent (1%) of the
aggregate purchase price of the shares per month, subject to a cap of ten percent (10%) of the
aggregate purchase price of the shares.
As of April 17, 2007, the Companys registration statement ceased to be effective.
Accordingly, the Company will incur liquidated damages until the Company files a post-effective
amendment to the registration statement and such post-effective amendment is declared effective by
the SEC. During the three and nine months ended September 30, 2007, the Company accrued liquidated
damages in the amount of $71,000 and $154,000, respectively, as a charge to interest expense.
F-13
Legal Proceedings
Soma Arbitration
We signed an engagement letter, dated October 15, 2003, with Soma Partners, LLC, or Soma, a
New Jersey-based investment bank, pursuant to which we engaged them to locate potential investors.
Pursuant to the terms of the engagement letter, any disputes arising between the parties would be
submitted to arbitration in the New York metropolitan area. A dispute arose between the parties.
Soma filed an arbitration claim against us with the American Arbitration Association in New York,
NY claiming unpaid commission fees of $186,000 and seeking declaratory relief regarding potential
fees for future transactions that may be undertaken by us with Toucan Capital. We vigorously
disputed Somas claims on multiple grounds. We contended that we only owed Soma approximately
$6,000.
Soma subsequently filed an amended arbitration claim, claiming unpaid commission fees of
$339,000 and warrants to purchase 6% of the aggregate securities issued to date, and seeking
declaratory relief regarding potential fees for future financing transactions which may be
undertaken by us with Toucan Capital and others, which could potentially be in excess of $4
million. Soma also requested the arbitrator award its attorneys fees and costs related to the
proceedings. We strongly disputed Somas claims and defended ourselves.
The arbitration proceedings occurred from March 8-10, 2005 and on May 24, 2005, the arbitrator
ruled in our favor and denied all claims of Soma. In particular, the arbitrator decided that we did
not owe Soma the fees and warrants sought by Soma, that we would not owe Soma fees in connection
with future financings, if any, and that we had no obligation to pay any of Somas attorneys fees
or expenses. The arbitrator agreed with us that the only amount we owed Soma was $6,702.87, which
payment we made on May 27, 2005.
On August 29, 2005, Soma filed a notice of petition to vacate the May 24, 2005 arbitration
award with the Supreme Court of the State of New York. On December 30, 2005, the Supreme Court of
the State of New York dismissed Somas petition.
On February 3, 2006, Soma filed another notice of appeal with the Supreme Court of the State
of New York. On December 6, 2006, we filed our brief for this appeal and on December 12, 2006, Soma
filed its reply brief. On June 19, 2007, the Appellate Division, First Department of the Supreme
Court of the State of New York, reversed the December 30, 2005 decision and ordered a new
arbitration proceeding. On July 26, 2007, we filed a Motion for Leave to Appeal with the Court of
Appeals of the State of New York and on August 3, 2007 Soma filed its reply brief. On October 16,
2007 the Court of Appeals of the State of New York denied our motion to appeal. We intend to
continue to vigorously defend ourselves against the claims of Soma.
Lonza Patent Infringement Claim
On July 27, 2007, Lonza Group AG filed a complaint against the Company in the United States
District Court for the District of Delaware alleging patent infringement relating to recombinant
DNA methods, sequences, vectors, cell lines and host cells. The complaint seeks temporary and
permanent injunctions enjoining the Company from infringing Lonzas patents and unspecified
damages. On November 27, 2007, the complaint was dismissed from the United States District Court
for the District of Delaware. Also on November 27, 2007, a new complaint was filed in the United
States District Court for the District of Maryland. The new complaint alleges patent infringement
relating to recombinant DNA methods, sequences, vectors, cell lines and host cells by the Companys
DCVax
®
-Prostate product. The Company believes that Lonzas claims are meritless and intends to file
a response and vigorously defend this action.
Stockholder Class Action Lawsuit
s
On
August 13, 2007, a complaint was filed in the U.S. District Court for the Western District
of Washington naming the Company, the Chairperson of its Board of Directors, Linda Powers, and its
Chief Executive Officer, Alton Boynton, as defendants in a class action for violation of federal
securities laws. After this complaint was filed five additional complaints were filed in other
jurisdictions alleging the similar claims. The complaints were filed on behalf of purchasers of the
Companys Common Stock between July 9, 2007 and July 18, 2007 and allege violations of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaints seek
unspecified compensatory damages, costs and expenses. The Company disputes these claims and intends
to vigorously defend these actions. Motions are currently pending to consolidate the complaints
into a single action and to designate a lead plaintiff.
F-14
SEC Inquiry
On August 13, 2007, we received a letter of non-public informal inquiry from the SEC regarding the
events surrounding our application for Swiss regulatory approval and related press releases dated
July 9, 2007 and July 16, 2007. The Company is co-operating with the inquiry.
Management Warrants
On November 13, 2003, we borrowed an aggregate of $335,000 from certain members of our
management. As part of the consolidation of this loan, the lenders received warrants exercisable to
acquire an aggregate of 0.25 million shares of our Common Stock. From March 2006 through May 2006,
all of these warrants were exercised for shares of Common Stock on a net exercise basis, pursuant
to the terms of the warrants.
Two former members of our management who had participated as lenders in these management loans
have claimed that they are entitled to receive, for no additional cash consideration, an aggregate
of up to approximately 0.63 million (prior to our 1 for 15 reverse stock split) additional shares
of our Common Stock due to the alleged triggering of an anti-dilution provision in the warrant
agreements. We do not believe that these claims have merit and, in the event such claims are
pursued, we intend to vigorously defend ourselves against them.
F-15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Northwest Biotherapeutics, Inc.
Bothell, Washington
We have audited the accompanying balance sheets of Northwest Biotherapeutics, Inc. (a development
stage company) as of December 31, 2006 and 2005, and the related statements of operations,
stockholders equity (deficit), and cash flows for each of the years in the three-year period ended
December 31, 2006, and for the period from March 18, 1996 (date of inception) to December 31, 2006.
These financial statements are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company has determined that it is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Northwest Biotherapeutics, Inc. (a development stage company)
as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2006, and for the period from March 18, 1996
(date of inception) to December 31, 2006, in conformity with accounting principles generally
accepted in the United States.
The accompanying financial statements have been prepared assuming the Company will continue as a
going concern. As discussed in Note 2 to the financial statements, the Company has experienced
recurring losses from operations since inception, has a working capital deficit, and has a deficit
accumulated during the development stage. These conditions raise substantial doubt about the
Companys ability to continue as a going concern. Managements plans regarding these matters are
also described in Note 2. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/
PETERSON SULLIVAN PLLC
March 27, 2007
Seattle, Washington
F-16
NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
|
(In thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
352
|
|
|
$
|
307
|
|
Accounts receivable
|
|
|
17
|
|
|
|
3
|
|
Accounts receivable, related party
|
|
|
58
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
117
|
|
|
|
145
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
544
|
|
|
|
455
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Laboratory equipment
|
|
|
100
|
|
|
|
14
|
|
Office furniture and other equipment
|
|
|
96
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
196
|
|
|
|
85
|
|
Less accumulated depreciation and amortization
|
|
|
(143
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
53
|
|
|
|
15
|
|
Restricted cash
|
|
|
31
|
|
|
|
31
|
|
Deposit and other non-current assets
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
631
|
|
|
$
|
504
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Note payable to related parties, net
|
|
$
|
6,683
|
|
|
$
|
2,505
|
|
Current portion of capital lease obligations
|
|
|
10
|
|
|
|
2
|
|
Accounts payable
|
|
|
443
|
|
|
|
493
|
|
Accounts payable, related party
|
|
|
3,353
|
|
|
|
2,852
|
|
Accrued expenses
|
|
|
117
|
|
|
|
301
|
|
Accrued expense, tax liability
|
|
|
336
|
|
|
|
|
|
Accrued expense, related party
|
|
|
500
|
|
|
|
300
|
|
Common stock warrant liability
|
|
|
604
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
12,046
|
|
|
|
6,453
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Capital lease obligations, net of current portion
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
12,049
|
|
|
|
6,453
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 100,000,000 and
300,000,000 shares authorized at December 31, 2005
and 2006, respectively
|
|
|
|
|
|
|
|
|
Series A preferred stock, 50,000,000 designated
and 32,500,000 shares issued and outstanding at
December 31, 2005 and 2006
|
|
|
33
|
|
|
|
33
|
|
Series A-1 preferred stock, zero and 10,000,000
designated at December 31, 2005 and 2006
respectively and zero and 4,816,863 shares
issued and outstanding at December 31, 2005 and
2006, respectively
|
|
|
|
|
|
|
5
|
|
Common stock, $0.001 par value; 300,000,000 and
800,000,000 shares authorized and 19,078,048
and 65,241,286 shares issued and outstanding at
December 31, 2005 and 2006, respectively
|
|
|
19
|
|
|
|
65
|
|
Additional paid-in capital
|
|
|
71,220
|
|
|
|
78,033
|
|
Deferred compensation
|
|
|
|
|
|
|
|
|
Deficit accumulated during the development stage
|
|
|
(82,690
|
)
|
|
|
(84,085
|
)
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
(11,418
|
)
|
|
|
(5,949
|
)
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
631
|
|
|
$
|
504
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-17
NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 18, 1996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands except per share data)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research materials sales
|
|
$
|
52
|
|
|
$
|
38
|
|
|
$
|
80
|
|
|
$
|
530
|
|
Contract research and development from related
parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,128
|
|
Research grants and other
|
|
|
338
|
|
|
|
86
|
|
|
|
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
390
|
|
|
|
124
|
|
|
|
80
|
|
|
|
2,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of research material sales
|
|
|
40
|
|
|
|
12
|
|
|
|
|
|
|
|
382
|
|
Research and development
|
|
|
3,621
|
|
|
|
4,469
|
|
|
|
3,777
|
|
|
|
35,844
|
|
General and administrative
|
|
|
2,845
|
|
|
|
2,005
|
|
|
|
2,273
|
|
|
|
32,967
|
|
Depreciation and amortization
|
|
|
132
|
|
|
|
63
|
|
|
|
37
|
|
|
|
2,303
|
|
Loss on facility sublease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
895
|
|
Asset impairment loss and (gain) loss on
disposal of equipment
|
|
|
130
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
2,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
6,768
|
|
|
|
6,549
|
|
|
|
6,077
|
|
|
|
74,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(6,378
|
)
|
|
|
(6,425
|
)
|
|
|
(5,997
|
)
|
|
|
(71,728
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant valuation
|
|
|
(368
|
)
|
|
|
|
|
|
|
7,127
|
|
|
|
6,759
|
|
Gain on sale of intellectual property to Medarex
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,656
|
|
Interest expense
|
|
|
(1,765
|
)
|
|
|
(3,517
|
)
|
|
|
(2,564
|
)
|
|
|
(15,701
|
)
|
Interest income
|
|
|
3
|
|
|
|
5
|
|
|
|
39
|
|
|
|
775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(8,508
|
)
|
|
|
(9,937
|
)
|
|
|
(1,395
|
)
|
|
|
(76,239
|
)
|
Accretion of Series A preferred stock mandatory
redemption obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,872
|
)
|
Series A preferred stock redemption fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
Beneficial conversion feature of Series D
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(8,508
|
)
|
|
$
|
(9,937
|
)
|
|
$
|
(1,395
|
)
|
|
$
|
(84,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share applicable to common
stockholders basic and diluted
|
|
$
|
(0.45
|
)
|
|
$
|
(0.52
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic
and diluted loss per Share
|
|
|
19,028
|
|
|
|
19,068
|
|
|
|
53,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-18
NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Additional
|
|
|
|
|
|
|
During the
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Series A
|
|
|
Series A-1
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Stage
|
|
|
Equity (Deficit)
|
|
|
|
(In thousands)
|
|
Balances at March 18, 1996
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Accretion of membership units
mandatory redemption obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106
|
)
|
|
|
(106
|
)
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,233
|
)
|
|
|
(1,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 1996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,339
|
)
|
|
|
(1,339
|
)
|
Accretion of membership units
mandatory redemption obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(275
|
)
|
|
|
(275
|
)
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,560
|
)
|
|
|
(2,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 1997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,174
|
)
|
|
|
(4,174
|
)
|
Conversion of membership units to
common stock
|
|
|
2,203
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
Accretion of Series A preferred stock
mandatory redemption obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(329
|
)
|
|
|
(329
|
)
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,719
|
)
|
|
|
(4,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 1998
|
|
|
2,203
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,224
|
)
|
|
|
(9,222
|
)
|
Issuance of Series C preferred stock
warrants for services related to sale
of Series C preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
394
|
|
Accretion of Series A preferred stock
mandatory redemption obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(354
|
)
|
|
|
(354
|
)
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,609
|
)
|
|
|
(5,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 1999
|
|
|
2,203
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
394
|
|
|
|
|
|
|
|
(15,187
|
)
|
|
|
(14,791
|
)
|
Issuance of Series C preferred stock
warrants in connection with lease
agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
Exercise of stock options for cash
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Issuance of common stock at $0.85 per
share for license rights
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Issuance of Series D preferred stock
warrants in convertible promissory
note offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,039
|
|
|
|
|
|
|
|
|
|
|
|
4,039
|
|
Beneficial conversion feature of
convertible promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,026
|
|
|
|
|
|
|
|
|
|
|
|
1,026
|
|
Issuance of Series D preferred stock
warrants for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related to sale of Series D
preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
368
|
|
Issuance of common stock warrants in
conjunction with issuance of
promissory note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Cancellation of common stock
|
|
|
(275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of Series A preferred stock
mandatory redemption obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(430
|
)
|
|
|
(430
|
)
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,779
|
)
|
|
|
(12,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2000
|
|
|
1,935
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,878
|
|
|
|
|
|
|
|
(28,396
|
)
|
|
|
(22,516
|
)
|
Issuance of Series D preferred stock
warrants in conjunction with
refinancing of note payable to
stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
|
225
|
|
Beneficial conversion feature of
convertible promissory note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
456
|
|
Beneficial conversion feature of
Series D preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,274
|
|
|
|
|
|
|
|
(4,274
|
)
|
|
|
|
|
Issuance of Series D preferred stock
warrants for services related to the
sale of Series D preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,287
|
|
|
|
|
|
|
|
|
|
|
|
2,287
|
|
Exercises of stock options and
warrants for cash
|
|
|
1,158
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
408
|
|
Issuance of common stock in initial
public offering for cash, net of
offering costs of $2,845
|
|
|
4,000
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,151
|
|
|
|
|
|
|
|
|
|
|
|
17,155
|
|
F-19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Additional
|
|
|
|
|
|
|
During the
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Series A
|
|
|
Series A-1
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Stage
|
|
|
Equity (Deficit)
|
|
|
|
(In thousands)
|
|
Conversion of preferred stock into
common stock
|
|
|
9,776
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,569
|
|
|
|
|
|
|
|
|
|
|
|
31,579
|
|
Series A preferred stock redemption
fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
|
|
(1,700
|
)
|
Issuance of stock options to
nonemployees for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
Deferred compensation related to
employee stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,330
|
|
|
|
(1,330
|
)
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314
|
|
|
|
|
|
|
|
314
|
|
Accretion of Series A preferred stock
mandatory redemption obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(379
|
)
|
|
|
(379
|
)
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,940
|
)
|
|
|
(10,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2001
|
|
|
16,869
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,622
|
|
|
|
(1,016
|
)
|
|
|
(45,689
|
)
|
|
|
16,934
|
|
Issuance of unregistered common stock
|
|
|
1,000
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
Issuance of common stock, Employee
Stock Purchase Plan
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Issuance of common stock warrants to
Medarex
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Issuance of restricted stock to
nonemployees
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Issuance of stock options to
nonemployees for service
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
Issuance of stock options to employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
Cancellation of employee stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(301
|
)
|
|
|
301
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and
warrants for cash
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Deferred compensation related to
employee restricted stock option
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449
|
|
|
|
(449
|
)
|
|
|
|
|
|
|
|
|
Cancellation of employee restricted
stock grants
|
|
|
(87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(392
|
)
|
|
|
392
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
compensation, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350
|
|
|
|
|
|
|
|
350
|
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,804
|
)
|
|
|
(12,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2002
|
|
|
17,930
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,794
|
|
|
|
(444
|
)
|
|
|
(58,493
|
)
|
|
|
4,875
|
|
Issuance of unregistered common stock
to Medarex
|
|
|
1,000
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
Issuance of unregistered common stock
to Nexus
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Issuance of common stock warrants to
Medarex
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Issuance of warrants with convertible
promissory note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
221
|
|
Beneficial conversion feature of
convertible promissory note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
Issuance of common stock, Employee
Stock Purchase Plan
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and
warrants for cash
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of employee restricted
stock grants
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
Cancellation of employee stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131
|
)
|
|
|
131
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
compensation, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240
|
|
|
|
|
|
|
|
240
|
|
Non-employee stock compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,752
|
)
|
|
|
(5,752
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003
|
|
|
19,028
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,294
|
|
|
|
(53
|
)
|
|
|
(64,245
|
)
|
|
|
15
|
|
Issuance of warrants with convertible
promissory note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,711
|
|
|
|
|
|
|
|
|
|
|
|
1,711
|
|
Beneficial conversion feature of
convertible promissory note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,156
|
|
|
|
|
|
|
|
|
|
|
|
1,156
|
|
Issuance of common stock, Employee
Stock Purchase Plan
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of employee stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
Amortization of deferred
compensation, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
41
|
|
Warrant valuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
368
|
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,508
|
)
|
|
|
(8,508
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
|
19,029
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,524
|
|
|
|
(7
|
)
|
|
|
(72,753
|
)
|
|
|
(5,217
|
)
|
F-20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Additional
|
|
|
|
|
|
|
During the
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Series A
|
|
|
Series A-1
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Stage
|
|
|
Equity (Deficit)
|
|
|
|
(In thousands)
|
|
Issuance of unregistered common stock
and preferred stock to Toucan Capital
|
|
|
|
|
|
|
|
|
|
|
32,500
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
1,243
|
|
|
|
|
|
|
|
|
|
|
|
1,276
|
|
Issuance of stock options to
non-employees for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Issuance of warrants with convertible
promissory note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,878
|
|
|
|
|
|
|
|
|
|
|
|
1,878
|
|
Exercise of stock options and
warrants for cash
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Amortization of deferred
compensation, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Beneficial conversion feature of
convertible promissory note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,172
|
|
|
|
|
|
|
|
|
|
|
|
1,172
|
|
Common Stock warrant liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(604
|
)
|
|
|
|
|
|
|
|
|
|
|
(604
|
)
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,937
|
)
|
|
|
(9,937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
|
19,078
|
|
|
|
19
|
|
|
|
32,500
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
71,220
|
|
|
|
|
|
|
|
(82,690
|
)
|
|
|
(11,418
|
)
|
Issuance of common stock to PIPE
Investors for cash, net of cash and
non-cash offering costs of $837
|
|
|
39,468
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,649
|
|
|
|
|
|
|
|
|
|
|
|
4,688
|
|
Issuance of warrants to PIPE
investment bankers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
395
|
|
Conversion of notes payable due to
Toucan Capital to Series A-1
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,817
|
|
|
|
5
|
|
|
|
7,702
|
|
|
|
|
|
|
|
|
|
|
|
7,707
|
|
Conversion of notes payable due to
management to common stock
|
|
|
2,688
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
269
|
|
Issuance of warrants with convertible
promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
236
|
|
Exercise of stock options and
warrants for cash
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Exercise of stock options and
warrants cashless
|
|
|
3,942
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Beneficial conversion feature of
convertible promissory note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
Common Stock warrant liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,523
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,523
|
)
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,395
|
)
|
|
|
(1,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006
|
|
|
65,241
|
|
|
$
|
65
|
|
|
|
32,500
|
|
|
$
|
33
|
|
|
|
4,817
|
|
|
$
|
5
|
|
|
$
|
78,033
|
|
|
$
|
|
|
|
$
|
(84,085
|
)
|
|
$
|
(5,949
|
)
|
See accompanying notes to financial statements.
F-21
NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 18, 1996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands)
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(8,508
|
)
|
|
$
|
(9,937
|
)
|
|
$
|
(1,395
|
)
|
|
$
|
(76,239
|
)
|
Reconciliation of net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
132
|
|
|
|
63
|
|
|
|
37
|
|
|
|
2,303
|
|
Amortization of deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
320
|
|
Amortization of debt discount
|
|
|
1,559
|
|
|
|
2,908
|
|
|
|
1,988
|
|
|
|
12,246
|
|
Accrued interest converted to preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260
|
|
Accreted interest on convertible promissory note
|
|
|
192
|
|
|
|
603
|
|
|
|
324
|
|
|
|
1,121
|
|
Stock-based compensation costs
|
|
|
41
|
|
|
|
10
|
|
|
|
19
|
|
|
|
1,112
|
|
Loss (gain) on sale and disposal of property and equipment
|
|
|
(48
|
)
|
|
|
(56
|
)
|
|
|
(10
|
)
|
|
|
273
|
|
Gain on sale of intellectual property and royalty rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,656
|
)
|
Warrant valuation
|
|
|
368
|
|
|
|
|
|
|
|
(7,127
|
)
|
|
|
(6,759
|
)
|
Asset impairment loss
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
2,066
|
|
Loss on facility sublease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
895
|
|
Increase (decrease) in cash resulting from changes in assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3
|
)
|
|
|
(64
|
)
|
|
|
72
|
|
|
|
(3
|
)
|
Prepaid expenses and other current assets
|
|
|
(66
|
)
|
|
|
34
|
|
|
|
(28
|
)
|
|
|
321
|
|
Accounts payable and accrued expenses
|
|
|
1,809
|
|
|
|
2,289
|
|
|
|
(810
|
)
|
|
|
4,343
|
|
Accrued loss on sublease
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(265
|
)
|
Deferred grant revenue
|
|
|
35
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
Deferred rent
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash used in Operating Activities
|
|
|
(4,425
|
)
|
|
|
(4,184
|
)
|
|
|
(6,930
|
)
|
|
|
(61,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment, net
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
(4,580
|
)
|
Proceeds from sale of property and equipment
|
|
|
41
|
|
|
|
97
|
|
|
|
17
|
|
|
|
250
|
|
Proceeds from sale of intellectual property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,816
|
|
Proceeds from sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
Refund of security deposit
|
|
|
45
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
Transfer of restricted cash
|
|
|
75
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (used in) provided by Investing Activities
|
|
|
161
|
|
|
|
50
|
|
|
|
17
|
|
|
|
(1,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of note payable to stockholder
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
3,150
|
|
Repayment of note payable to stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,650
|
)
|
Proceeds from issuance of convertible promissory note and warrants,
net of issuance costs
|
|
|
4,350
|
|
|
|
3,050
|
|
|
|
300
|
|
|
|
13,099
|
|
Repayment of convertible promissory note
|
|
|
(52
|
)
|
|
|
(54
|
)
|
|
|
(13
|
)
|
|
|
(119
|
)
|
Borrowing under line of credit, Northwest Hospital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,834
|
|
Repayment of line of credit to Northwest Hospital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,834
|
)
|
Payment on capital lease obligations
|
|
|
(41
|
)
|
|
|
(38
|
)
|
|
|
(10
|
)
|
|
|
(321
|
)
|
Payment on note payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(420
|
)
|
Proceeds from issuance of preferred stock, net
|
|
|
|
|
|
|
1,276
|
|
|
|
|
|
|
|
28,708
|
|
Proceeds from exercise of stock options and warrants
|
|
|
|
|
|
|
4
|
|
|
|
8
|
|
|
|
227
|
|
Proceeds from issuance of common stock, net
|
|
|
|
|
|
|
|
|
|
|
5,083
|
|
|
|
22,457
|
|
Series A preferred stock redemption fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
Deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash provided by Financing Activities
|
|
|
4,257
|
|
|
|
4,238
|
|
|
|
6,868
|
|
|
|
63,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(7
|
)
|
|
|
104
|
|
|
|
(45
|
)
|
|
|
307
|
|
Cash at beginning of period
|
|
|
255
|
|
|
|
248
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 18, 1996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
Years Ended December 31,
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
(In thousands)
|
|
Cash at end of period
|
|
$
|
248
|
|
|
$
|
352
|
|
|
$
|
307
|
|
|
$
|
307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
Cash paid during the period for interest
|
|
$
|
12
|
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
1,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash financing activities Equipment
acquired through capital leases
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
285
|
|
Common stock warrant liability
|
|
|
4,714
|
|
|
|
604
|
|
|
|
6,523
|
|
|
|
11,841
|
|
Accretion of Series A preferred stock mandatory redemption
obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,872
|
|
Beneficial conversion feature of convertible promissory notes
|
|
|
2,866
|
|
|
|
3,050
|
|
|
|
300
|
|
|
|
7,242
|
|
Conversion of convertible promissory notes and accrued interest to
Series D preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,324
|
|
Conversion of convertible promissory notes and accrued interest to
Series A-1 preferred stock
|
|
|
|
|
|
|
|
|
|
|
7,707
|
|
|
|
7,707
|
|
Conversion of convertible promissory notes and accrued interest to
common stock
|
|
|
|
|
|
|
|
|
|
|
269
|
|
|
|
269
|
|
Issuance of Series C preferred stock warrants in connection with
lease agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
Issuance of common stock for license rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Liability for and issuance of common stock and warrants to Medarex
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
840
|
|
Issuance of common stock to landlord
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Deferred compensation on issuance of stock options and restricted
stock grants
|
|
|
41
|
|
|
|
7
|
|
|
|
|
|
|
|
759
|
|
Cancellation of options and restricted stock grant
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
849
|
|
Financing of prepaid insurance through note payable
|
|
|
|
|
|
|
71
|
|
|
|
|
|
|
|
491
|
|
Stock subscription receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-23
NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004, 2005 and 2006
(1) Organization and Description of Business
Northwest Biotherapeutics, Inc. (the Company) was organized to discover and develop
innovative diagnostics and immunotherapies for prostate cancer. During 1998, the Company
incorporated as a Delaware corporation. Prior to 1998, the Company was a limited liability company,
which was formed on March 18, 1996. The Company is a development stage company, has yet to generate
significant revenues from its intended business purpose and has no assurance of future revenues.
While in the development stage, the Companys principal activities have included defining and
conducting research programs, conducting clinical trials, raising capital and recruiting scientific
and management personnel.
(2) Operations and Financing
The Company has experienced recurring losses from operations, has a working capital deficit of
$5.9 million and has a deficit accumulated during the development stage of $84.1 million at
December 31, 2006.
Management loans
On November 13, 2003, the Company borrowed an aggregate of $335,000 from certain members of
its management which enabled the Company to continue operating into the first quarter of 2004. The
notes initially had a 12-month term, accrued interest at an annual rate equal to the prime rate
plus 2% and were secured by substantially all of the Companys assets not otherwise collateralized.
As of December 31, 2005, $100,000 and the related accrued interest was repaid to certain prior
members of management. During the first half of 2006, approximately $11,000 and the related accrued
interest was repaid to another prior member of management. On April 17, 2006, the final $224,000
outstanding principal balance on these notes, and the related accrued interest, were converted into
2,687,719 shares of common stock. Accordingly, as of December 31, 2006 all of these loans have
either been repaid or converted into common stock.
As part of the November 13, 2003 loans from management, the lenders received warrants
initially exercisable to acquire an aggregate of 3.7 million shares of the Companys common stock.
These warrants were set to expire in November 2008 and were subject to certain anti-dilution
adjustments. In connection with the April 26, 2004 recapitalization agreement, the warrants were
amended to remove the anti-dilution provisions and set the warrant exercise price at the lesser of
(i) $0.10 per share or (ii) a 35% discount to the average closing price during the twenty trading
days prior to the first closing of the sale by the Company of convertible preferred stock as
contemplated by the recapitalization agreement but not less than $0.04 per share.
During March and April 2006, warrants for the purchase of an aggregate of 3.7 million shares
of common stock were exercised on a net exercise basis resulting in the issuance of approximately
3.4 million shares of common stock to current and prior members of management.
Two former members of the Companys management, who had participated as lenders in the
Companys management loans have claimed that they are entitled to receive, for no additional cash
consideration, an aggregate of up to approximately 9.5 million additional shares of the Companys
common stock due to the alleged triggering of an anti-dilution provision in the warrant agreements.
The Company does not believe that these claims have merit, and intends to vigorously defend such
claims.
Toucan Capital Loans
From February 2004 through March 2007, the Company entered into multiple agreements with
Toucan Capital Fund II, L.P. (Toucan Capital) and Toucan Partners, LLC, an affiliate of Toucan
Capital (Toucan Partners), all of which relate to and were intended by the parties to implement
the terms and conditions of the recapitalization agreement originally entered into on April 26,
2004 with Toucan Capital. The recapitalization agreement, as amended, contemplated the investment
of up to $40 million through the issuance of new securities to Toucan Capital and a syndicate of
other investors to be determined.
F-24
The Company and Toucan Capital amended the recapitalization agreement in conjunction with each
successive loan agreement. The amendments (i) updated certain representations and warranties of the
parties made in the recapitalization agreement, and (ii) made certain technical changes in the
recapitalization agreement in order to facilitate the bridge loans described therein.
Pursuant to the recapitalization agreement, as amended, the Company borrowed an aggregate of
$6.75 million from Toucan Capital, from February 2, 2004 through September 7, 2005. In connection
with the loans from Toucan Capital, the Company issued warrants to purchase 122.5 million aggregate
shares of capital stock. These warrants provide Toucan Capital the ability to purchase 66 million
and 56.5 million aggregate shares of capital stock at an exercise price of $0.01 per share and
$0.04 per share, respectively. The warrant exercise period is seven years from the issuance date of
the warrant and the related convertible notes. The final exercise dates of the warrants range from
April 2011 and September 2012.
On April 17, 2006, Toucan Capital elected to convert all of its convertible promissory notes
and the related accrued interest into approximately 4.8 million shares of the Companys Series A-1
Preferred Stock. The Series A-1 Preferred Stock is substantially identical to the Companys Series
A Preferred Stock, except that (i) the issuance price and liquidation preference of the Series A-1
Preferred Stock are each $1.60 per share (as opposed to $0.04 per share for the Series A Preferred
Stock), and (ii) each share of Series A-1 Preferred Stock is convertible into 40 shares of common
stock (as opposed to one share of common stock in the case of the Series A Preferred Stock). The
foregoing differences result in the Series A-1 Preferred Stock being economically equivalent to the
Series A Preferred Stock.
In conjunction with the conversion of Toucan Capitals notes into Series A-1 Preferred Stock,
on April 17, 2006, the Company entered into an Amended and Restated Investor Rights Agreement (the
IRA) with Toucan Capital. The IRA implements the provisions of the binding term sheet the Company
executed on April 26, 2004, under which Toucan Capital and other investors, such as Toucan
Partners, who are holders of Series A or Series A-1 Preferred Stock receive registration rights in
respect of the shares of common stock issuable upon conversion of the Series A Preferred Stock and
Series A-1 Preferred Stock held by such investors, as well as the shares of common stock underlying
the warrants held by such investors.
The sixth amendment to the amended and restated binding term sheet, dated July 26, 2005,
extended subsequent closings of the convertible preferred stock to March 31, 2007, or such later
date as is mutually agreed by the Company and Toucan Capital.
Toucan Capital Loans and Related Beneficial Conversions, Warrant Valuations, and Amortization
The loan funding period commenced on February 2, 2004 when the Company issued Toucan Capital
an unsecured convertible promissory note. On March 1, 2004, the Company issued Toucan Capital a
secured convertible promissory note. The Recapitalization Agreement stipulated that these February
and March 2004 notes were to be cancelled and reissued effective April 26, 2004 conforming to the
conditions of the note signed for an April 26, 2004 bridge loan. Including these initial loans, the
Company issued Toucan Capital a series of thirteen convertible promissory notes during 2004 and
2005. Until conversion on April 17, 2006, these notes, (i) accrued interest at 10% per annum on a
365 day basis compounded annually from their respective original issuance dates, (ii) were secured
by a first priority senior security interest in all of the Companys assets, and (iii) notes
totaling $1.1 million have warrants with coverage equal to three hundred percent (300%) and the
remaining $5.65 million have warrants with coverage equal to one hundred per cent (100%).
Total proceeds from the issuance of senior convertible promissory notes and warrants during
the three years ended December 31, 2006 were allocated between the notes and warrants on a relative
fair value basis. The total value was allocated to the warrants based on the date of each grant.
The fair value of the warrants was determined using the Black-Scholes option pricing model based on
the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
2005
|
Risk-free interest rates
|
|
|
1.61% - 3.87
|
%
|
|
|
2.86% - 4.03
|
%
|
Contractual life
|
|
7 years
|
|
7 years
|
Expected volatility
|
|
|
218% - 239
|
%
|
|
|
416% - 440
|
%
|
Dividend yield
|
|
|
0 %
|
|
|
|
0 %
|
|
The value of the warrants was recorded as a deferred debt discount against the proceeds of the
notes received in each of the three years ended December 31, 2006. The notes were convertible at
prices below the current price of the Companys common stock at the date of issuance resulting in a
beneficial conversion cost which was included in the total discount and amortized over the 12-month
term of each note.
F-25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
Toucan Capital (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance at January 1,
|
|
$
|
|
|
|
$
|
2,926
|
|
|
$
|
6,355
|
|
Proceeds from issuance of senior convertible promissory notes and warrants
|
|
|
4,350
|
|
|
|
2,400
|
|
|
|
|
|
Discount on notes
|
|
|
|
|
|
|
|
|
|
|
|
|
Value allocated to warrants
|
|
|
(1,611
|
)
|
|
|
(1,527
|
)
|
|
|
|
|
Beneficial conversion feature related to the notes
|
|
|
(1,255
|
)
|
|
|
(873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discount on notes
|
|
|
(2,866
|
)
|
|
|
(2,400
|
)
|
|
|
|
|
Amortization of deferred debt discount
|
|
|
1,278
|
|
|
|
2,843
|
|
|
|
1,145
|
|
Accrued interest
|
|
|
164
|
|
|
|
586
|
|
|
|
207
|
|
Conversion of promissory notes
|
|
|
|
|
|
|
|
|
|
|
(7,707
|
)
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31,
|
|
$
|
2,926
|
|
|
$
|
6,355
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Toucan Partners Loans, Beneficial Conversion, Warrant Valuation, and Amortization
The Company borrowed $2.45 million from Toucan Partners, an affiliate of Toucan Capital, from
November 14, 2005 to December 31, 2006, comprised of three convertible promissory notes totaling
$950,000 and three cash advances totaling $1.5 million. The Company received six additional cash
advances from Toucan Partners totaling $1.55 million from January 1 through April 2007. In April
2007, the cash advances were converted into a new series of convertible promissory notes (and
associated warrants) (2007 Convertible Notes and 2007 Warrants) which accrue interest at 10%
per annum from their respective original cash advance dates. Although these notes are convertible,
the conversion terms will not be fixed until a future date upon further negotiation between the
company and Toucan Partners. Accordingly, they are referred to as convertible promissory notes with
conversion terms subject to negotiation. The convertible promissory notes accrue interest at 10%
per annum on a 365 day basis compounded annually from their respective original issuance dates. The
convertible promissory notes have warrants with coverage equal to one hundred per cent (100%). The
fair value of the conversion feature on the contingently convertible notes has not been recorded
due to the existing unspecified terms.
In connection with the convertible notes issued to Toucan Partners, the Company issued
warrants to purchase 9.5 million aggregate shares of capital stock. These warrants were amended and
restated in April 2007 to conform to the terms of the 2007 Convertible Notes and the 2007 Warrants.
These warrants are exercisable for seven years from the date of the amended and restated
convertible promissory notes and warrants.
In connection with the convertible notes with conversion terms subject to negotiation, we
issued warrants to Toucan Partners that carry 100% warrant coverage. The number of warrant shares
issuable upon exercise of each 2007 Warrant will be equal to the number of shares that would be
issuable if Toucan Partners elected to convert the principal and accrued interest on the
corresponding 2007 Convertible Notes determined as of the date of repayment or conversion of such
2007 Convertible Note. The exercise price of each 2007 warrant will be equal to the conversion
price of the corresponding 2007 Convertible Note. The Company has not recorded a value for these
warrants due to the unspecified terms with respect to exercise price and number of warrants.
Total proceeds from the issuance of senior convertible promissory notes and warrants during
the 2005 and 2006 were allocated between the notes and warrants on a relative fair value basis. The
total value was allocated to the warrants based on the date of each grant. The fair value of the
warrants was determined using the Black-Scholes option pricing model based on the following
weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2006
|
Risk-free interest rates
|
|
|
4.2
|
%
|
|
|
4.35
|
%
|
Contractual life
|
|
7 years
|
|
7 years
|
Expected volatility
|
|
|
406
|
%
|
|
|
398
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
The value of the warrants was recorded as a deferred debt discount against the proceeds of the
notes received in 2005 and 2006. The notes were convertible at prices below the current price of
the Companys common stock at the date of issuance resulting in a beneficial conversion cost which
was included in the total discount and amortized over the 12-month term of each note.
F-26
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
Toucan Partners (in thousands)
|
|
|
|
|
|
|
|
|
Beginning balance at January 1,
|
|
$
|
|
|
|
$
|
57
|
|
Proceeds from issuance of senior convertible promissory notes and warrants
|
|
|
650
|
|
|
|
300
|
|
Discount on notes
|
|
|
|
|
|
|
|
|
Value allocated to warrants
|
|
|
(351
|
)
|
|
|
(236
|
)
|
Beneficial conversion feature related to the notes
|
|
|
(299
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
Total discount on notes
|
|
|
(650
|
)
|
|
|
(300
|
)
|
Amortization of deferred debt discount
|
|
|
52
|
|
|
|
842
|
|
Accrued interest
|
|
|
5
|
|
|
|
106
|
|
Proceeds from issuance of convertible promissory notes with conversion terms subject to negotiation
Toucan Partners
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
Ending balance at December 31,
|
|
$
|
57
|
|
|
$
|
2,505
|
|
|
|
|
|
|
|
|
Toucan Capital Series A Cumulative Convertible Preferred Stock
On January 26, 2005, the Company entered into a securities purchase agreement with Toucan
Capital pursuant to which they purchased 32.5 million shares of our designated Series A Preferred
Stock at a purchase price of $0.04 per share, for an aggregate purchase price of $1.3 million. The
Series A Preferred Stock:
(i) is entitled to cumulative dividends at the rate of 10% per year;
(ii) is entitled to a liquidation preference in the amount of its initial purchase price
plus all accrued and unpaid dividends (to the extent of legally available funds);
(iii) has a preference over the common stock, and is pari passu with the Series A-1
Preferred Stock, with respect to dividends and distributions;
(iv) is entitled to participate on an as-converted basis with the common stock on any
distributions after the payment of any preferential amounts to the Series A Preferred Stock and
the Series A-1 Preferred Stock;
(v) votes on an as converted basis with the common stock and the Series A-1 Preferred Stock
on matters submitted to the common stockholders for approval and as a separate class on certain
other material matters; and
(vi) is convertible into common stock on a one-for-one basis (subject to adjustment in the
event of stock dividends, stock splits, reverse stock splits, recapitalizations, etc.).
The number of shares of common stock issuable upon conversion of each share of series A stock
is also subject to increase in the event of certain dilutive issuances in which we sell or are
deemed to have sold shares below the then applicable conversion price (currently $0.04 per share).
The consent of the holders of a majority of the Series A Preferred Stock is required in the event
that we elect to undertake certain significant business actions.
In the event that the Company sells at least $15 million of convertible preferred stock for
cash to investors other than Toucan Capital on the terms and conditions set forth in the Restated
Recapitalization Agreement and the Term Sheet (a Qualified Preferred Stock Financing), the
warrants will be exercisable only for shares of Convertible Preferred Stock. Unless and until the
Company completes a Qualified Preferred Stock Financing, the warrants will be exercisable for any
debt or equity security authorized for issuance by the Company (which currently consists of common
stock, Series A Preferred Stock and Series A-1 Preferred Stock). The number of shares issuable
pursuant to the warrants and the exercise prices thereof are subject to adjustment in the event of
stock splits, reverse stock splits, stock dividends, and the like. The exercise price is also
subject to downward adjustment in the event of certain dilutive issuances in which the Company
sells or is deemed to have sold shares below the then applicable exercise price.
Private Placement
On March 30, 2006, the Company entered into a securities purchase agreement (the Purchase
Agreement) with a group of accredited investors pursuant to which the Company agreed to sell an
aggregate of approximately 39.5 million shares of its common stock, at a price of $0.14 per share,
and to issue, for no additional consideration, warrants to purchase up to an aggregate of
F-27
approximately 19.7 million shares of the Companys common stock. The PIPE Financing closed and stock was issued to the new investors in early April
and the Company received gross proceeds of approximately $5.5 million, before cash offering expenses of approximately $442,000. The total cost of the offering recorded, including both cash and
non-cash costs, was approximately $837,000. The relative fair value of the common stock was
estimated to be approximately $3.7 million and the relative fair value of the warrants was
estimated to be $1.8 million as determined based on the relative fair value allocation of the
proceeds received. The warrants were valued using the Black-Scholes option pricing model.
In connection with the securities purchase agreement, the Company issued approximately 1
million warrants to their investment banker valued at approximately $395,000. The fair value of the
warrants issued to the investment banker was determined using the Black-Scholes option pricing
model based on the following assumptions: risk free interest rate of 4.8%, contractual life of five
years, expected volatility of 382% and a dividend yield of 0%.
The warrants expire five years after issuance, and are initially exercisable at a price of
$0.14 per share, subject to adjustments under certain circumstances.
Under the Purchase Agreement, the Company agreed to register for resale under the Securities
Act of 1933, as amended (the Securities Act) both the shares of common stock and the shares of
common stock underlying the warrants. Under the terms of the Purchase Agreement, the Company was
required to file a registration statement with the Securities and Exchange Commission (SEC)
within 45 days of the transaction closing date. The Company also agreed to other customary
obligations regarding registration, including matters relating to indemnification, maintenance of
the registration statement, payment of expenses, and compliance with state blue sky laws. The
registration statement was filed on May 19, 2006 and amendments to the registration statement were
filed on July 17 and September 29, 2006. The registration statement was declared effective by the
SEC on October 11, 2006. Because the registration statement was not declared effective by the SEC
on or prior to September 1, 2006, the Company paid liquidated damages to the investors, in the
aggregate of one percent (1%) of the aggregate purchase price of the shares per month, or $74,000.
Liability For Potentially Dilutive Securities in Excess of Authorized Number of Common Shares
In accordance with EITF 00-19, the Company accounts for potential shares that can be converted
to common stock, that are in excess of authorized shares, as a liability that is recorded at fair
value. Total potential outstanding common stock exceeded the Companys authorized shares as of
December 31, 2005 when the Company entered into another convertible promissory note and warrant
agreement with Toucan Partners on December 30, 2005. The fair value of the warrants in excess of
the authorized shares at December 31, 2005 totaling approximately $604,000 was recognized as a
liability on December 31, 2005. This liability was required to be remeasured at each reporting date
with any change in value included in other income/(expense) until such time as enough shares were
authorized to cover all potentially convertible instruments. Accordingly, during the first quarter
of 2006, the Company recognized a loss totaling $2.1 million with respect to the revaluation of
this warrant liability. Further, during March 2006, the Company issued an additional warrant to
Toucan Partners, along with a convertible promissory note. The fair value of the warrants in excess
of the authorized shares was approximately $6.7 million and was recognized as an additional
liability as of March 31, 2006. During April 2006, the Company sold common stock to outside
investors in the Pipe Financing. In addition, members of management and Toucan Capital elected to
convert their promissory notes and related accrued interest into common stock and Series A-1
Preferred Stock, respectively. As a result, the fair value of the potential common stock in excess
of the authorized shares was $24.4 million and was recognized as an additional liability during
April 2006.
Effective May 25, 2006, the number of authorized common shares was increased to 800 million.
The liability for potential shares in excess of total authorized shares was revalued at that date.
This valuation resulted in a gain of approximately $7.1 million during 2006, due to the net
decreases in the net fair value of the related warrants on the date the authorized shares were
increased. This gain is included in the 2006 statement of operations as a warrant valuation.
Similarly, total potential outstanding common stock exceeded the Companys authorized shares
on July 30, 2004 when an additional $2.0 million loan, convertible into common stock, was received
from Toucan Capital and an additional warrant was issued. The fair value of the warrant shares in
excess of the authorized shares was approximately $2.8 million and was recognized as a liability on
July 30, 2004. During the fourth quarter of 2004, the Company received three additional loans from
Toucan Capital, convertible into shares of common stock totaling $1.25 million and additional
warrants were issued with each loan. The total fair value of the warrant shares in excess of the
authorized shares was approximately $1.5 million and was recognized as a liability at the dates of
issuance of the convertible debt and warrants. This liability was evaluated at each reporting date
and any changes in value were included in other income/(expense) until enough shares were
authorized to cover all potentially convertible instruments. Effective
F-28
December 29, 2004, the
number of authorized common shares was increased to 300 million. The liability for potential shares
in excess of total authorized shares was revalued at that date. This valuation resulted in a fourth
quarter loss of approximately $1.0 million, due to net increases in the net fair value of the
related warrants at that date. This loss was offset against the September 30, 2004 gain of
approximately $717,000 for an annual net loss as of December 31, 2004 of approximately $368,000,
included in the 2004 statement of operations as a warrant valuation.
Liquidity
Since 2004, the Company has undergone a significant recapitalization pursuant to which Toucan
Capital, has loaned it $6.75 million and Toucan Partners has loaned the Company $4.00 million in
convertible promissory notes with conversion terms subject to negotiation. On January 26, 2005, the
Company entered into a securities purchase agreement with Toucan Capital pursuant to which they
purchased 32.5 million shares of the Companys Series A Preferred Stock at a purchase price of
$0.04 per share, for a net purchase price of $1.267 million, net of offering related costs of
approximately $24,000. In April 2006, $6.75 million of the notes payable plus all accrued interest
due to Toucan Capital were converted into shares of Series A-1 Preferred Stock.
The $3.15 million in convertible promissory notes with conversion terms subject to negotiation
from Toucan Partners have enabled the Company to continue to operate and advance programs, while
attempting to raise additional capital.
On April 4, 2006, the Company closed an equity financing (PIPE Financing) with unrelated
investors pursuant to which aggregate net cash proceeds of approximately $5.1 million was raised.
As of April 30, 2007, the Company had less than $100,000 in cash. The Company is considered
illiquid as this cash is not considered sufficient to fund the recurring operating and associated
financing costs for the next month. Approximately $5.7 million of the Companys $6.5 million
current liabilities at December 31, 2006 were payable to related parties, net of the related debt
discount. The Company pays approximately $250,000 of the related party liabilities balance per
month. Further, during the quarter ended December 31, 2006, the Company commenced a clinical trial
which will increase the current cash needs.
The Company needs to raise significant additional funding to continue its operations, conduct
research and development activities, pre-clinical studies and clinical trials necessary to bring
its product candidates to market. However, additional funding may not be available on terms
acceptable to the Company or at all. The alternative of issuing additional equity or convertible
debt securities also may not be available and, in any event, would result in additional dilution to
the Companys stockholders. For ongoing operating capital the Company intends to seek additional
funds from Toucan Capital, Toucan Partners, or other third parties. Neither Toucan Capital, Toucan
Partners, or any other third parties is obligated to provide the Company any additional funds. Any
additional financing with Toucan Capital, Toucan Partners or any other third party is likely to be
dilutive to stockholders, and any debt financing, if available, may include additional restrictive
covenants. The Company does not believe that its assets would be sufficient to satisfy the claims
of all of its creditors in full and to satisfy aggregate liquidation preferences of our preferred
stock in full. Therefore, if the Company were to pursue a liquidation, it is highly unlikely that
any proceeds would be received by the holders of the Companys common stock. If the Company is
unable to obtain significant additional capital in the near-term, it may cease operations at
anytime. There can be no assurance that the Companys efforts to seek funding will be successful.
If the Companys capital raising efforts are unsuccessful, the Companys inability to obtain
additional cash as needed could have a material adverse effect on its financial position, results
of operations and its ability to continue its existence. The Companys independent auditors have
indicated in their report on the financial statements, included in the December 31, 2006 annual
report on Form 10-K, that there is substantial doubt about the Companys ability to continue as a
going concern.
(3) Summary of Significant Accounting Policies
(a) Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
F-29
(b) Cash
Cash consists of checking and money market accounts. While cash held by financial institutions
may at times exceed federally insured limits, management believes that no material credit or market
risk exposure exists due to the high quality of the institutions. The Company has not experienced
any losses on such accounts.
(c) Fair Value of Financial Instruments and Concentrations of Risk
Financial instruments, consisting of cash, accounts receivable, restricted cash, accounts
payable, accrued expenses, and capital lease obligations, are recorded at cost, which approximates
fair value based on the short term maturities of these instruments.
Credit is extended based on an evaluation of a customers financial condition and collateral
is generally not required. Accounts receivable are generally derived from revenue earned from
entities located in the United States. The Company records an allowance for potential credit losses
based upon the expected collectibility of the accounts receivable. To date, the Company has not
experienced any material credit losses.
In January 2003, research materials sales were made to multiple customers, primarily in the
United States of America, with whom there were no other contractual relationships. Effective
December 31, 2005, the Company no longer actively sells research materials.
(d) Property and Equipment
During 2003 and 2004, the Company determined that the carrying value of a significant part of
its fixed assets was not recoverable, and recorded an impairment charge to reduce the carrying
value of its long-lived assets to their estimated fair values. Property and equipment are stated at
cost, as adjusted for any prior impairments. Property and equipment are depreciated or amortized
over the following estimated useful lives using the straight-line method:
|
|
|
|
|
Laboratory equipment
|
|
5-7 years
|
Office furniture and other equipment
|
|
3-5 years
|
Expenditures for maintenance and repairs are expensed as incurred. Gains and losses from
disposal representing the difference between any proceeds received from the sale of property and
equipment and the recorded values of the asset disposed are recorded in total operating costs and
expenses.
(e) Impairment of long-lived assets
In accordance with the provisions of Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS 144), long-lived assets
including property and equipment are reviewed for possible impairment whenever significant events
or changes in circumstances, including changes in our business strategy and plans, indicate that an
impairment may have occurred. An impairment is indicated when the sum of the expected future
undiscounted net cash flows identifiable to that asset or asset group is less than its carrying
value. Long-lived assets to be held and used, including assets to be disposed of other than by
sale, for which the carrying amount is not recoverable are adjusted to their estimated fair value
at the date an impairment is indicated, which establishes a new basis for the assets for
depreciation purposes. Long-lived assets to be disposed of by sale are reported at the lower of
carrying amount or fair value less cost to sell. Impairment losses are determined from actual or
estimated fair values, which are based on market values, net realizable values or projections of
discounted net cash flows, as appropriate.
(f) Restricted Cash
Restricted cash of $31,000 as of both December 31, 2006 and 2005 represents a deposit to
secure the Companys credit limit on its corporate credit cards.
(g) Operating Leases
The Company recognizes lease expense on a straight-line basis over the initial lease term. The
Company has operating leases on real property and equipment expiring at various dates through 2007.
For leases that contain rent holidays or escalation clauses, the Company recognizes rent expense on
a straight-line basis and records the difference between the rent expense and rental amount payable
as deferred rent. As of December 31, 2006 and 2005, we did not have any deferred rent.
F-30
(h) Revenue Recognition
The Company earned revenues through sale of research materials, providing research services to
third parties and through research grants. Revenues from sale of research materials are to multiple
customers with whom there is no other contractual relationship and are recognized when shipped to
the customer and title has passed.
Research contracts and grants require the Company to perform research activities as specified
in each respective contract or grant on a best efforts basis, and the Company is paid based on the
fees stipulated in the respective contracts and grants which approximate the costs incurred by the
Company in performing such activities. The Company recognizes revenue under the research contracts
and grants based on completion of performance under the respective contracts and grants where no
ongoing obligation on the part of the Company exists. Direct costs related to these contracts and
grants are reported as research and development expenses.
(i) Research and Development Expenses
Research and development costs are expensed as incurred. These costs include, but are not
limited to, personnel costs, lab supplies, depreciation, amortization and other indirect costs
directly related to the Companys research and development activities.
(j) Income Taxes
Deferred income taxes are provided utilizing the liability method whereby the estimated future
tax effects of carry forwards and temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis in accordance with
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes
(SFAS 109).
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those carry forwards and temporary differences are expected to
be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax
rates is recognized in the period that includes the enactment date. A valuation allowance is
recorded on deferred tax assets if it is more likely than not that such deferred tax assets will
not be realized. Prior to 1998, the Company was an LLC and the Companys tax losses and credits
generally flowed directly to the members.
(k) Stock-Based Compensation
On January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123 (revised 2004), Share-Based Payment. SFAS No. 123(R) requires the
measurement and recognition of compensation for all stock-based awards including stock options and
employee stock purchases under a stock purchase plan, to be accounted for under the fair value
method and requires the use of an option pricing model for estimating fair value. Accordingly,
share-based compensation is measured at the grant date, based on the fair value of the award. In
prior years, we accounted for awards granted under our equity incentive plans under the intrinsic
value method prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock
Issued to Employees
(APB No. 25), and related interpretations, and provided the required pro
forma disclosures prescribed by SFAS No. 123,
Accounting for Stock-Based Compensation
(SFAS No.
123)
,
as amended.
The Company adopted SFAS No. 123(R) using the modified prospective transition method, which
requires the application of the accounting standard as of January 1, 2006. In accordance with the
modified prospective transition method, the Companys financial statements for periods prior to
2006 have not been restated to reflect this change. Stock-based compensation recognized during the
period is based on the value of the portion of the stock-based award that will vest during the
period, adjusted for expected forfeitures. Stock-based compensation recognized in the Companys
financial statements for 2006 includes compensation cost for stock-based awards granted prior to,
but not fully vested as of December 31, 2005 and stock-based awards granted subsequent to December
31, 2005.
Stock compensation costs related to fixed employee awards with pro rata vesting are recognized
on a straight-line basis over the period of benefit, generally the vesting period of the options.
For options and warrants issued to non-employees, the Company recognizes stock compensation costs
utilizing the fair value methodology prescribed in SFAS No. 123 over the related period of benefit.
F-31
Pro Forma Information Under SFAS No. 123 and APB Opinion No. 25
Prior to January 1, 2006, stock-based compensation plans were accounted for using the
intrinsic value method prescribed in APB Opinion No. 25 and related interpretations. Had
compensation cost for the plans been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of SFAS No. 123, net loss and basic and diluted
net loss per share would have been changed to the pro forma amounts indicated below (in thousands,
except for per share data):
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2004
|
|
|
2005
|
|
Net loss applicable to common stockholders:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(8,508
|
)
|
|
$
|
(9,937
|
)
|
Add: Stock-based employee compensation expense included in reported net loss
|
|
|
41
|
|
|
|
7
|
|
Deduct: Stock-based employee compensation determined under fair value based
method for all awards
|
|
|
(47
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
(8,514
|
)
|
|
$
|
(9,943
|
)
|
|
|
|
|
|
|
|
Net loss per share-basic and diluted:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(0.45
|
)
|
|
$
|
(0.52
|
)
|
Pro forma
|
|
$
|
(0.45
|
)
|
|
$
|
(0.52
|
)
|
The fair value of stock options granted during 2005 was estimated using the Black-Scholes
option pricing model based on the following assumptions:
|
|
|
|
|
|
|
2005
|
Risk-free interest rate
|
|
|
3.53
|
%
|
Expected life
|
|
5 years
|
|
Expected volatility
|
|
|
403
|
%
|
Dividend yield
|
|
|
0
|
%
|
(l) Loss Per Share
Basic loss per share is computed on the basis of the weighted average number of shares
outstanding for the reporting period excluding 2,000 unvested restricted shares as of December 31,
2004. Diluted loss per share is computed on the basis of the weighted average number of common
shares plus dilutive potential common shares outstanding using the treasury stock method. Any
potentially dilutive securities are antidilutive due to the Companys net losses. For the periods
presented, there is no difference between the basic and diluted net loss per share.
(m) Operating Segments
The Company is principally engaged in the discovery and development of innovative
immunotherapies for cancer and has a single operating segment as management reviews all financial
information together for the purposes of making decisions and assessing the financial performance
of the company.
Operating costs:
Operating costs and expenses consist primarily of research and development expenses, including
clinical trial expenses which rise when we are actively participating in clinical trials, and
general and administrative expenses.
Research and development:
Discovery and preclinical research and development expenses include scientific personnel
related salary and benefit expenses, costs of laboratory supplies used in our internal research and
development projects, travel, regulatory compliance, and expenditures for preclinical and clinical
trial operation and management when we are actively engaged in clinical trials.
Because the Company is a development stage company it does not allocate research and
development costs on a project basis. The Company adopted this policy, in part, due to the
unreasonable cost burden associated with accounting at such a level of detail and its limited
number of financial and personnel resources. The Companys business judgment continues to be that
there is little value associated with evaluating expenditures at the project level since the
Company is focusing primarily on its lead clinical trial programs as most of the Companys
expenditures relate to those programs.
F-32
For the year ended December 31, 2006, of the Companys operating expenses of approximately
$6.1 million, approximately 62% of its expended resources were apportioned to the re-activation of
its two DCVax
®
clinical trial programs. From its inception through December 31, 2006, the Company
incurred costs of approximately $35.8 million associated with its research and development
activities. Because its technologies are novel and unproven, the Company is unable to estimate with
any certainty the costs it will incur in the continued development of its product candidates for
commercialization.
General and administrative:
General and administrative expenses include administrative personnel related salary and
benefit expenses, cost of facilities, insurance, travel, legal support, property and equipment
depreciation, amortization of stock options and warrants, and amortization of debt discounts and
beneficial conversion costs associated with the Companys debt financing.
(n) Recent Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48 (FIN 48)
Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement No. 109, Accounting for Income Taxes
, which
clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. The interpretation requires that the we recognize in
the financial statements, the impact of a tax position, if that position is more likely than not of
being sustained on audit, based on the technical merits of the position. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods
and disclosure. The provisions of FIN 48 are effective beginning January 1, 2007 with the
cumulative effect of the change in accounting principle recorded as an adjustment to opening
retained earnings. We are currently evaluating the possible impact of FIN 48 on our financial
statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,
Fair
Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements but does not require any new fair
value measurements. SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. The Company is
evaluating the possible impact of SFAS 157 on the financial statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
, (SFAS 158).
SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its
statement of financial position and to recognize changes in that funded status in the year in which
the changes occur through comprehensive income. SFAS 158 is effective for employers with publicly
traded equity securities for fiscal years ending after December 15, 2006. The Company did not
experience a material impact from applying SFAS 158.
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 108 (SAB 108). Due to diversity in practice among registrants, SAB 108 expresses SEC
staff views regarding the process by which misstatements in financial statements are evaluated for
purposes of determining whether financial statement restatement is necessary. SAB 108 is effective
for fiscal years ending after November 15, 2006, and early application is encouraged. The Company
does not expect any material impact from applying SAB 108.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities, (SFAS 159). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. SFAS 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. The Company has not yet
determined the impact of adopting SFAS 159 on the Companys financial position.
4. Share-Based Compensation Plans
Effective January 1, 2006, the Company adopted SFAS No. 123(R), which establishes accounting
for stock-based awards exchanged for goods or services, using the modified prospective transition
method. Accordingly, stock-based compensation cost is
measured at grant date, based on the fair value of the award, recognized over the requisite service period. Previously,
the Company applied APB Opinion No. 25 and related interpretations, as permitted by SFAS No. 123.
F-33
For options and warrants issued to non-employees, the Company recognizes stock compensation
costs utilizing the fair value methodology prescribed in SFAS No. 123(R) over the related period of
benefit.
Determining Fair Value Under SFAS No. 123(R)
Valuation and Amortization Method.
The Company estimates the fair value of stock-based awards
granted using the Black-Scholes option valuation model. The Company amortizes the fair value of all
awards on a straight-line basis over the requisite service periods, which are generally the vesting
periods.
Expected Life.
The expected life of awards granted represents the period of time that they
are expected to be outstanding. The Company determines the expected life based on historical
experience with similar awards, giving consideration to the contractual terms, vesting schedules
and pre-vesting and post-vesting forfeitures.
Expected Volatility.
The Company estimates the volatility of its common stock at the date of
grant based on the historical volatility of its common stock. The volatility factor used in the
Black-Scholes option valuation model is based on the Companys historical stock prices over the
most recent period commensurate with the estimated expected life of the award.
Risk-Free Interest Rate.
The Company bases the risk-free interest rate used in the
Black-Scholes option valuation model on the implied yield currently available on U.S. Treasury
zero-coupon issues with an equivalent remaining term equal to the expected life of the award.
Expected Dividend Yield.
The Company has never paid any cash dividends on common stock and
does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company
uses an expected dividend yield of zero in the Black-Scholes option valuation model.
Expected Forfeitures.
The Company uses historical data to estimate pre-vesting option
forfeitures. The Company records stock-based compensation only for those awards that are expected
to vest.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes
option pricing model. There were no shares purchased under the Companys employee stock purchase
plan during 2006 and 2005.
The stock-based compensation expense recognized in the financial statements relate to
stock-based awards under SFAS No. 123(R) totaled approximately $19,000 for 2006 which increased the
loss from operations and net loss by the same amount. This expense had no effect on the Companys
net loss per share for the year ended December 31, 2006. At December 31, 2006 the Company had
non-vested stock options covering approximately 132,500 shares of common stock. As of December 31,
2006, the Company had approximately $4,000 of total unrecognized compensation cost related to
non-vested stock-based awards granted under all equity compensation plans. Total unrecognized
compensation cost will be adjusted for any future changes in estimated forfeitures. The Company
expects to recognize this cost during 2007. Total intrinsic value of options exercised was $18,000
for 2006. Weighted average fair value of options granted during 2006 was $0.11 per share.
Stock Option Activity
A summary of activity relating to our stock options is as follows (options in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Weighted-
|
|
Remaining
|
|
|
|
|
|
|
|
|
Average
|
|
Contractual
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
Term
|
|
Intrinsic
|
|
|
Options
|
|
Price
|
|
(Years)
|
|
Value
|
Outstanding as of December 31, 2005
|
|
|
743
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
175
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(66
|
)
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(88
|
)
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2006
|
|
|
764
|
|
|
$
|
0.53
|
|
|
|
5.1
|
|
|
$
|
406,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at December 31, 2006
|
|
|
631
|
|
|
$
|
0.62
|
|
|
|
5.0
|
|
|
$
|
387,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2006
|
|
|
631
|
|
|
$
|
0.62
|
|
|
|
5.0
|
|
|
$
|
387,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
Additional information regarding stock options outstanding and exercisable at December 31,
2006 is as follows, in thousands, except option price and weighted average exercise price.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Remaining
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
Number
|
|
Contractual
|
|
Average
|
|
Number
|
|
Average
|
Range of Exercise Prices
|
|
Outstanding
|
|
Life (Years)
|
|
Exercise Price
|
|
Exercisable
|
|
Exercise Price
|
|
|
(In thousands except weighted average)
|
$0.00 - 0.50
|
|
|
478
|
|
|
|
6.6
|
|
|
$
|
0.12
|
|
|
|
345
|
|
|
$
|
0.12
|
|
0.51 - 1.01
|
|
|
180
|
|
|
|
2.9
|
|
|
|
0.85
|
|
|
|
180
|
|
|
|
0.85
|
|
1.02 - 2.02
|
|
|
89
|
|
|
|
4.3
|
|
|
|
1.25
|
|
|
|
89
|
|
|
|
1.25
|
|
2.03 - 5.05
|
|
|
17
|
|
|
|
5.0
|
|
|
|
5.00
|
|
|
|
17
|
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.00 - 5.05
|
|
|
764
|
|
|
|
5.1
|
|
|
$
|
0.53
|
|
|
|
631
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable as of December 31, 2004, 2005 and 2006 totaled 556,301, 605,000 and
631,000, respectively.
Stock Option Plans
The Companys stock option plans are administered by the Board of Directors, which determines
the terms and conditions of the options granted, including exercise price, number of options
granted and vesting period of such options.
Options granted under the plans are generally priced at or above the estimated fair market
value of the Companys common stock on the date of grant and generally vest over four years.
Compensation expense, if any, is charged over the period of vesting. All options, if not previously
exercised or canceled, expire ten years from the date of grant, or the expiration date specified in
the individual option agreement, if earlier.
During the year ended December 31, 2004, the Company did not grant any stock options.
During the year ended December 31, 2005, the Company granted non-qualified options to purchase
an aggregate of 25,000 shares of common stock to a non-employee consultant with a weighted average
exercise price of $0.21. The fair value of the underlying common stock is evaluated monthly for
specific performance compliance with $510 of compensation expense recognized for the year ended
December 31, 2005.
During the year ended December 31, 2006, the Company granted options to purchase an aggregate
of 175,000 shares of common stock to employees with a weighted average exercise price of $0.14.
Stock compensation expense totaling $16,000 was recorded as of December 31, 2006.
(a) 1998 Stock Option Plan
The Companys 1998 Stock Option Plan (1998 Plan) has reserved 413,026 shares of common stock
for stock option grants to employees, directors and consultants of the Company. As of December 31,
2006, net of forfeitures, a total of 391,247 shares remain available for granting under this plan.
(b) 1999 Executive Stock Option Plan
The Companys 1999 Executive Stock Option Plan (1999 Plan) has reserved 586,166 shares of
common stock for issuance. As of December 31, 2006, net of forfeiture, a total of 420,956 shares
remain available for granting under this plan.
(c) 2001 Stock Option Plan
Under the 2001 Stock Option Plan (2001 Plan), 1,800,000 shares of the Companys common stock
have been reserved for grant of stock options to employees and consultants. Additionally, on
January 1 of each year, commencing January 1, 2002, the number of
shares reserved for grant under the 2001 Plan will increase by the lesser of (i) 15% of the
aggregate number of shares available for grant under the 2001 Plan or (ii) 300,000 shares. As of
December 31, 2006, net of forfeitures, a total of 2,548,320 shares remain available under this
plan.
F-35
(d) 2001 Non-employee Director Stock Incentive Plan
Under the 2001 Non-employee Director Stock Incentive Plan (2001 Director Plan), 200,000 shares
of the Companys common stock have been reserved for grant of stock options to non-employee
directors of the Company. As of December 31, 2006, net of forfeitures, a total of 147,500 shares
remain available under this plan.
5) Stockholders Equity (Deficit)
(a) Issuance of Common Stock and Warrants
In April 2006, the Company received gross proceeds of $5.5 million and issued approximately
39.5 million shares of its common stock, at a price of $0.14 per share, and, for no additional
consideration, warrants to purchase up to an aggregate of approximately 19.7 million shares of the
Companys common stock pursuant to a securities purchase agreement entered into with a group of
accredited investors. The Company registered both the shares of common stock and the shares of
common stock underlying the warrants for resale under the Securities Act of 1933, as amended,
effective October 2006.
In connection with the securities purchase agreement, the Company issued approximately 1
million warrants to their investment banker valued at approximately $395,000.
This transaction is more fully described in note (2) Operations and Financing.
(b) Issuance of Unregistered Common Stock
On June 30, 2003, the Company entered into a Settlement Agreement with Nexus Canyon Park, its
prior landlord. Under this Settlement Agreement, Nexus Canyon Park agreed to permit premature
termination of its prior lease and excuse the Company from future performance of lease obligations
in exchange for 90,000 shares of its unregistered common stock with a fair value of $35,000 and
Nexus retention of the Companys $1.0 million lease security deposit. The Settlement Agreement
resulted in an additional loss on facility sublease and lease termination of $174,000, net of
deferred rent of $202,000.
(c) Issuance of Unregistered Preferred Stock
On January 26, 2005, we entered into a securities purchase agreement with Toucan Capital
pursuant to which they purchased 32.5 million shares of our designated series A preferred stock at
a purchase price of $0.04 per share, for an aggregate purchase price of approximately $1.3 million.
The series A preferred stock:
(i) is entitled to cumulative dividends at the rate of 10% per year;
(ii) is entitled to a liquidation preference in the amount of its initial purchase price
plus all accrued and unpaid dividends (to the extent of legally available funds);
(iii) has a preference over the common stock, and is pari passu with the Series A-1
Preferred Stock, with respect to dividends and distributions;
(iv) is entitled to participate on an as-converted basis with the common stock and the
Series A-1 Preferred Stock on any distributions after the payment of any preferential amounts to
the Series A Preferred Stock;
(v) votes on an as converted basis with the common stock and the Series A-1 Preferred Stock
on matters submitted to the common stockholders for approval and as a separate class on certain
other material matters; and
(vi) is convertible into common stock on a one-for-one basis (subject to adjustment in the
event of stock dividends, stock splits, reverse stock splits, recapitalizations, etc.).
The number of shares of common stock issuable upon conversion of each share of Series A
Preferred Stock is also subject to increase in the event of certain dilutive issuances in which we
sell or are deemed to have sold shares below the then applicable conversion price (currently $0.04
per share). The consent of the holders of a majority of the Series A Preferred Stock is required in
the event that we elect to undertake certain significant business actions.
F-36
(d) Stock Purchase Warrants
Medarex
On December 9, 2002, the Company entered into an assignment and license agreement with Medarex
wherein the Company sold certain intellectual property to Medarex in exchange for certain of their
intellectual property and received $3.0 million, consisting of $1.0 million in cash and two
payments of $1.0 million each payable in common stock. The Company realized a total of $3.0 million
in cash as all of the foregoing shares were sold within 30 days of their issuance in 2003.
Additionally, a $400,000 payable of ours to Medarex was forgiven by Medarex. Pursuant to this
agreement, the Company issued to Medarex 2.0 million unregistered shares of its common stock. The
2.0 million shares of unregistered common stock were issued as follows: (i) 1.0 million shares were
issued on December 26, 2002 (ii) 500,000 shares were issued on January 8, 2003; and (iii) 500,000
shares were issued on February 9, 2003. Also in conjunction with the December 9, 2002 agreement
with Medarex, the Company issued warrants to purchase unregistered common stock as follows: (i) on
December 26, 2002, issued a warrant to purchase 400,000 shares of its common stock at an exercise
price of $0.216 per share; (ii) on January 8, 2003, issued a warrant to purchase 200,000 shares of
its common stock at an exercise price of $0.177 per share; and (iii) on February 9, 2003 issued the
final warrant to purchase 200,000 shares of its common stock at an exercise price of $0.102 per
share. The warrants may be exercised at any time after six-months following their issue date and
prior to the tenth anniversary of the issue date.
The fair value of the 800,000 warrant shares was $159,678 on the date of grant, which was
determined using the Black-Scholes option pricing model with the following assumptions: expected
dividend yield 0%, risk-free interest rate of 4.17%, volatility of 191%, and an expected life of
10-years. As of December 31, 2002, one-half of the warrant value, $79,839, was recognized as an
increase to additional paid in capital and $79,839 was recognized as a long-term liability, for the
400,000 warrant shares to be issued in 2003.
The net gain recognized on this sale of intellectual property was $2.8 million, made up of the
receipt of $3.0 million of cash and stock from Medarex and forgiveness of the $400,000 payable to
Medarex, offset by the issuance of 2.0 million shares of unregistered common stock and warrants to
purchase 800,000 shares of common stock valued at approximately $560,000.
Management Loan Warrants
On November 13, 2003, the Company borrowed an aggregate of $335,000 from certain members of
its current and former management. As part of the November 13, 2003 loans from management, the
lenders received warrants initially exercisable to acquire an aggregate of 3.7 million shares of
the Companys common stock. These warrants were set to expire in November 2008 and were subject to
certain anti-dilution adjustments. In connection with the April 26, 2004 recapitalization
agreement, the warrants were amended to remove the anti-dilution provisions and set the warrant
exercise price at the lesser of (i) $0.10 per share or (ii) a 35% discount to the average closing
price during the twenty trading days prior to the first closing of the sale by the Company of
convertible preferred stock as contemplated by the recapitalization agreement but not less than
$0.04 per share.
During March and April 2006, warrants for the purchase an aggregate of 3.7 million shares of
common stock were exercised on a net exercise basis resulting in the issuance of approximately 3.4
million shares of common stock to current and prior members of management.
Toucan Capital and Toucan Partners Warrants
From February 1, 2004 through December 31, 2006, the Company has issued eleven warrants for
122.5 million shares of Company capital stock to Toucan Capital pursuant to which Toucan Capital
has loaned the Company an aggregate of $6.75 million in loan financing, as more fully described in
note (2) Operations and Financing.
On January 26, 2005, we issued Toucan Capital a warrant, with a contractual life of 7 years,
to purchase 13.0 million shares of series A preferred stock in connection with a securities
purchase agreement pursuant to which Toucan Capital purchased 32.5 million shares of our newly
designated series A preferred stock at a purchase price of $0.04 per share, for an aggregate
purchase price of $1.3 million. The number of shares issuable pursuant to the exercise of the
warrant and the exercise price thereof is subject to adjustment in the event of stock splits,
reverse stock splits, stock dividends and the like, as more fully described in note (2) Operations
and Financing.
F-37
From November 14 through December 31, 2006, the Company issued warrants for 9.5 million shares
of Company capital stock to Toucan Partners pursuant to which Toucan Partners loaned the Company
$950,000 in loan financing. These loans and related warrants have been amended and restated in
April 2007 as more fully described in note (2) Operations and Financing.
From October 2006 through April 2007, the Company received $3.15 million in cash advances from
Toucan Partners. In April 2007, these advances were converted to nine convertible promissory notes
with conversion terms subject to further negotiation. In connection with these notes, the Company
issued warrants to Toucan Partners. The number of warrant shares issuable upon exercise of each
2007 Warrant will be equal to the number of shares that would be issuable if Toucan Partners
elected to convert the principal and accrued interest on the corresponding 2007 Convertible Notes
determined as of the date of repayment or conversion of such 2007 Note. The exercise price of each
2007 Warrant will be equal to the note conversion price of the corresponding 2007 Convertible Note.
Private Placement Warrants
On April 4, 2006, the Company closed a securities purchase agreement with a group of
accredited investors pursuant to which the Company agreed to sell an aggregate of approximately
39.5 million shares of its common stock, at a price of $0.14 per share, and to issue, for no
additional consideration, warrants to purchase up to an aggregate of approximately 19.7 million
shares of the Companys common stock at an exercise price of $0.14 per share. As of December 31,
2006, approximately 714,000 of these warrants have been exercised.
A summary of stock purchase warrants outstanding at December 31, 2006 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Number
|
|
Average
|
Type of Warrant
|
|
Outstanding
|
|
Exercise Price
|
|
|
(In thousands)
|
|
|
|
|
Common stock warrant
|
|
|
20,816
|
|
|
$
|
0.14
|
|
Series A preferred stock warrants
|
|
|
13,000
|
|
|
$
|
0.04
|
|
Series C preferred stock warrants(1)
|
|
|
235
|
|
|
$
|
2.50
|
|
Series D preferred stock warrants(1)
|
|
|
324
|
|
|
$
|
5.00
|
|
Warrants issued in connection with convertible promissory notes
|
|
|
132,000
|
|
|
$
|
0.03
|
|
|
|
|
(1)
|
|
The exercise of Series C and Series D Preferred Stock warrants will result in the issuance of
an equal number of shares of the Companys common stock with no issuance of preferred stock.
|
The exercise of Series A Preferred Stock warrants will result in the issuance of an equal
number of shares of the Companys Series A Preferred Stock.
(d) Common Stock Equivalents
The following common stock equivalents on an as-converted basis were excluded from the
calculation of diluted net loss per share, as the effect would be antidilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
(In thousands)
|
Preferred stock
|
|
|
|
|
|
|
32,500
|
|
|
|
32,500
|
|
Common stock options
|
|
|
864
|
|
|
|
743
|
|
|
|
764
|
|
Common stock warrants
|
|
|
810
|
|
|
|
810
|
|
|
|
20,816
|
|
Convertible preferred stock warrants
|
|
|
559
|
|
|
|
13,599
|
|
|
|
13,599
|
|
Convertible promissory note
|
|
|
110,333
|
|
|
|
186,306
|
|
|
|
26,149
|
|
Convertible promissory note stock warrants
|
|
|
102,222
|
|
|
|
132,722
|
|
|
|
132,000
|
|
(e) Employee Stock Purchase Plan
In June 2001, the Company adopted an employee stock purchase plan which became effective upon
consummation of the Companys initial public offering and reserved 500,000 shares of common stock
for issuance under this plan. Under this plan, employees may purchase up to 1,000 shares of the
Companys common stock during each six-month offering period commencing on April 1 and October 1 of
each year. The purchase price of the common stock is equal to the lower of 85% of the market price
on the first and last day of each offering period. As of December 31, 2006, a total of 14,374
shares have been issued under the plan.
F-38
(f) Employee 401(k) Plan
On August 19, 1999, the Company adopted a 401(k) Plan for certain eligible employees. Under
the plan, an eligible employee may elect to contribute up to 60% of his or her pre-tax total
compensation, not to exceed the annual limits established by the Internal Revenue Service. The
Company matched an employees contribution at the rate of $0.50 for every employee contributed
dollar with a maximum Company match of $3,000 annually. Effective March 1, 2006, the Company no
longer matches employee contributions. For the years ended December 31, 2004, 2005 and 2006, the
Company contributed approximately $17,000, $15,000 and $6,000 of matching dollars, respectively.
(g) Stockholder Rights Agreement
On March 6, 2002, the Company adopted a Stockholder Rights Agreement, under which each common
stockholder of record at the close of business on March 4, 2002 received a dividend of one right
per share of common stock held. Each right entitles the holder to purchase one share of common
stock from the Company at a price equal to $19.25 per share, subject to certain anti-dilution
provisions. The rights become exercisable only in the event that a third party acquires beneficial
ownership of, or announces a tender or exchange offer for, at least 15% of the then outstanding
shares of the Companys common stock and such acquisition or offer is determined by the Board of
Directors to not be in the best interests of the stockholders. If the acquisition or offer were
determined by the Board of Directors to be in the best interests of the stockholders, the rights
may be redeemed by the Company for $0.0001 per right. The rights will expire on February 25, 2012,
unless earlier redeemed, exchanged or terminated in accordance with the rights agreement.
In connection with the Recapitalization Agreement, the Board of Directors and Mellon Investor
Services LLC, its Rights Agent, on April 26, 2004, amended the Stockholder Rights Agreement. The
definition of an Acquiring Person was amended to exclude Toucan Capital Fund II, L.P. and other
investors selected by Toucan from the definition of Acquiring Person for those shares of the
Companys capital stock they acquire, or are deemed to beneficially own, in connection with the
Recapitalization Agreement.
(6) Related Party Transactions
(a) Notes Payable to Related Parties
Promissory notes have been issued to Toucan Capital and Toucan Partners, an affiliate of
Toucan Capital, the Companys controlling shareholder.
Notes payable to related parties are more fully described in note (2) Operations and Financing
and note (10) Notes Payable.
(b) Agreement with Medarex
On June 20, 2003, under a First Amendment to Assignment and License Agreement with Medarex,
the Company released Medarex from future royalty obligations in exchange for a cash payment of
$816,000. The purchase price of $816,000 was negotiated based on the expected discounted net
present value of a future 2% royalty obligation under that certain Assignment and License Agreement
dated December 9, 2002. The Company received the cash payment on July 1, 2003. See further
discussions regarding transactions with Medarex in Note 5.
(c) Cognate Agreement
The Company entered into a service agreement, dated July 30, 2004, with Cognate Therapeutics,
Inc. Cognate is a contract manufacturing and services Organization (CRO), majority owned by Toucan
Capital and two of the principals of Toucan Capital are board members of Cognate. The Company
committed to utilizing Cognates services for a two year period related primarily to manufacturing
its DCVax
®
product candidates, regulatory advice, research and development preclinical activities
and managing clinical trials. The agreement expired on July 30, 2006. Accordingly, the parties are
in the process of negotiating new terms. Monthly expenditures ranged between approximately $250,000
and $487,000 during each of the three years ending December 31, 2006. The contract with Cognate
includes a penalty of $2.0 million if cancelled after one year as well as payment for all services
performed in winding down any ongoing activities. The Company entered into this contract after
extensive consultations with an independent expert in the field of Good Manufacturing Practices
(GMP), regulatory affairs, and clinical trial activities, as well as consultations with a former
FDA Commissioner, and after considering the ability of other contract research and manufacturing
organizations to comply with the Companys requirement to rapidly commence technology transfers
involving manufacturing, immune monitoring, and
F-39
regulatory clinical advice and after obtaining approval of our Board of Directors. The Company
did not find any other CRO who could meet its needs in order to rapidly restart its clinical
programs. The Company believes entering into this agreement has given it an opportunity to restart
its clinical and research programs much more efficiently and rapidly as opposed to rebuilding its
infrastructure, internal GMP facilities, regulatory, clinical and research and development
expertise. The Company recognized approximately $2.9 million, $3.5 million and $2.4 million of
costs relative to this agreement during the years ending December 31, 2004, 2005 and 2006,
respectively. The costs are included in research and development expense.
(7) Income Taxes
There was no income tax benefit attributable to net losses for 2004, 2005 and 2006. The
difference between taxes computed by applying the U.S. federal corporate rate of 34% and the actual
income tax provisions in 2004, 2005 and 2006 is primarily the result of establishing a valuation
allowance on the Companys deferred tax assets arising primarily from tax loss carry forwards.
The tax effects of temporary differences and tax loss and credit carry forwards that give rise
to significant portions of deferred tax assets at December 31 are comprised of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
Net operating loss carry forwards
|
|
$
|
17,126
|
|
|
$
|
20,450
|
|
|
$
|
22,354
|
|
Research and development credit carry forwards
|
|
|
1,319
|
|
|
|
1,525
|
|
|
|
1,533
|
|
Depreciation and amortization
|
|
|
981
|
|
|
|
927
|
|
|
|
1,134
|
|
Other
|
|
|
313
|
|
|
|
325
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
19,739
|
|
|
|
23,227
|
|
|
|
25,378
|
|
Less valuation allowance
|
|
|
(19,739
|
)
|
|
|
(23,227
|
)
|
|
|
(25,378
|
)
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in the valuation allowance for deferred tax assets for 2004, 2005 and 2006 of
$2.9 million, $3.5 million and $2.2 million, respectively, was due to the inability to utilize net
operating losses and research and development credits.
At December 31, 2006, the Company had net operating loss carry forwards for income tax
purposes of approximately $65.7 million and unused research and development tax credits of
approximately $1.5 million available to offset future taxable income and income taxes,
respectively, expiring beginning 2018 through 2023. The Companys ability to utilize net operating
loss and credit carry forwards is limited pursuant to the Tax Reform Act of 1986, due to cumulative
changes in stock ownership in excess of 50% such that some net operating losses may never be
utilized.
(8) Scientific Collaboration Arrangements
The Company has also entered into certain collaborative arrangements under which it may be
obligated to pay royalties or milestone payments if product development is successful. It is not
anticipated that the aggregate amount of any royalty or milestone obligations under these other
arrangements will be material to the Companys operations.
(9) Commitments and Contingencies
(a) Lease Obligations
The Company leases its facilities and certain equipment. Commitments for minimum rentals under
non-cancelable leases in effect as of December 31, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
Leases
|
|
|
Leases
|
|
|
|
(In thousands)
|
|
2007
|
|
$
|
3
|
|
|
$
|
19
|
|
Less amount representing interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
3
|
|
|
|
|
|
Less current portion
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
At both December 31, 2005 and 2006, certain assets included in property and equipment are
assets under capital leases totaling approximately $110,000, and related net accumulated
amortization totaling approximately $109,000 and $110,000, respectively. Rent expense was
approximately $256,000, $96,000 and $37,000 in 2004, 2005 and 2006, respectively
(b) Legal Matters
The Company signed an engagement letter with SOMA Partners, LLC (SOMA), a New Jersey-based
investment bank dated October 15, 2003 pursuant to which the Company engaged them to locate
potential investors. Pursuant to the terms of the engagement letter, any disputes arising between
the parties would be submitted to arbitration in the New York metropolitan area. A significant
dispute arose between the parties. SOMA filed an arbitration claim against the Company with the
American Arbitration Association in New York, NY claiming unpaid commission fees of $186,000 and
seeking declaratory relief regarding potential fees for future transactions that may be undertaken
by us with Toucan Capital. The Company vigorously disputed SOMAs claims on multiple grounds,
contending the Company only owed SOMA approximately $6,000.
SOMA subsequently filed an amended arbitration claim, claiming unpaid commission fees of
$339,000 and warrants to purchase 6% of the aggregate securities issued to date, and seeking
declaratory relief regarding potential fees for future financing transactions which may be
undertaken by the Company with Toucan Capital and others, which could potentially be in excess of
$4 million. SOMA also requested the arbitrator award its attorneys fees and costs related to the
proceedings. The Company strongly disputed SOMAs claims and defended itself.
The arbitration proceedings occurred from March 8-10, 2005 and on May 24, 2005, the arbitrator
ruled in favor of the Company and denied all claims of SOMA. In particular, the arbitrator decided
that the Company did not owe SOMA the large fees and warrants sought by SOMA, that the Company
would not owe SOMA fees in connection with future financings, if any, and that the Company had no
obligation to pay any of SOMAs attorneys fees or expenses. The arbitrator agreed with the Company
that the only amount owed SOMA was $6,702.87, which payment was made on May 27, 2005.
On August 29, 2005, SOMA filed a notice of petition to vacate the May 24, 2005 arbitration
award issued by the Supreme Court of the State of New York.
On December 30, 2005, the Supreme Court of the State of New York dismissed SOMAs petition,
denying SOMAs August 29, 2005 motion to vacate the May 24, 2005 award in the Companys favor.
On February 3, 2006, SOMA filed another notice of appeal with the Supreme Court of the State
of New York.
On December 6, 2006, we filed our brief for this appeal and on December 12, 2006, SOMA filed
its reply brief. As of the date of the filing of this report, the Supreme Court of the State of New
York has yet to act on this matter. The Company believes that this latest appeal is without merit
and intends to vigorously defend the appeal.
The Company has no other legal proceeding pending at this time.
(c) Sales Tax Assessment
The Company received a tax assessment of $492,000 on October 21, 2003 related to the
abandonment of tenant improvements at a facility it had previously leased on which use tax payments
to the State of Washington had been deferred, including the disposal and impairment of previously
qualified tax deferred equipment. The Company appealed this assessment and was granted a partial
reduction in the assessment on July 8, 2005. The Company filed an addendum to its appeal petition
on December 2, 2005. The net assessment, through December 31, 2005, of approximately $336,000,
inclusive of accrued interest, was being carried as an estimated liability on the Companys balance
sheet and included in general and administrative expense. On August 10, 2006 the Companys appeal
was denied. In September 2006, the Company entered into an agreement with the State of Washington
to pay an aggregate of approximately $336,000, plus interest at a rate of 4% per year over a four
month period commencing on September 11, 2006. As of December 31, 2006, the Company has repaid the
outstanding balance.
In February 2004, the Company filed a refund request of approximately $175,000 related to
certain other state taxes previously paid to the State of Washingtons Department of Revenue. As of
December 31, 2006, we have received correspondence from the Department of Revenue setting forth a
refund of approximately $36,000. We do not plan to pursue this matter any further.
F-41
(d) Other Contractual Arrangements
On February 14, 2006, the Company and The Regents of the University of California entered into
a clinical study for the University of California at Los Angeles (UCLA) to carry out a booster
vaccination immunotherapy program. During the study, patients will receive up to five boosters over
a 12 month period. The Company will pay approximately $216,000 over the course of the study.
Approximately $95,000 has been paid as of December 31, 2006. The Company will incur no other costs
in connection with this study, unless prior approval by the parties is made in writing.
(10) Notes Payable
(a)Notes Payable to Related Parties.
Commencing in November 2003, the Company issued promissory notes to finance its operations.
This debt financing is comprised of convertible management loans, senior convertible promissory
notes issued to Toucan Capital and Toucan Partners, as well as further cash advances from Toucan
Partners. In April 2007, these cash advances were converted into a new series of convertible
promissory notes (and associated warrants). In addition, the convertible promissory notes
previously issued to Toucan Partners with an aggregate value of $950,000 were amended and restated
to conform to the terms of the new notes and warrants. Although these notes are convertible the
conversion terms will not be fixed until a future date upon further negotiation between the Company
and Toucan Partners. The notes payable are comprised of the following as of December 31, 2006 and
2005 (in thousands):
|
|
|
|
|
|
|
|
|
Notes Payable to Related Parties, Net
|
|
2005
|
|
|
2006
|
|
Convertible Management loans
|
|
$
|
271
|
|
|
$
|
|
|
Toucan Capital promissory notes
|
|
|
6,355
|
|
|
|
|
|
Toucan Partners convertible promissory notes and
convertible promissory notes with conversion terms
subject to negotiation
|
|
|
57
|
|
|
|
2,505
|
|
|
|
|
|
|
|
|
Ending balance at December 31,
|
|
$
|
6,683
|
|
|
$
|
2,505
|
|
|
|
|
|
|
|
|
The related party notes payable transactions are more fully described in note (2) Operations
and Financing.
Management Loans
In November 2003, the Company issued convertible promissory notes totaling $335,000 to certain
members of management as more fully described in note (2) Operations and Financing.
Toucan Capital Loans
From February 1, 2004 through September 7, 2005, the Company issued thirteen promissory notes
to Toucan Capital pursuant to which Toucan Capital loaned the Company an aggregate of $6.75 million
in bridge loan financing as more fully described in note (2) Operations and Financing.
Toucan Partners Loans
From November 14, 2005 through December 31, 2006, the Company issued three promissory notes to
Toucan Partners pursuant to which Toucan Partners loaned the Company an aggregate of $950,000 in
loan financing. In addition, the Company received cash advances totally $1.5 million from Toucan
Partners through December 31, 2006. The promissory notes were amended and restated and the cash
advances were converted to convertible promissory notes in April 2007. These transactions are more
fully described in note (2) Operations and Financing and note (13) Subsequent Events.
F-42
(11) Unaudited Quarterly Financial Information (in thousands, except loss per share data)
The following table contains selected unaudited statement of operations information for each
of the quarters in 2005 and 2006. The Company believes that the following information reflects all
adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of
the information for the periods presented. The operating results for any quarter are not
necessarily indicative of results for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
Total revenues
|
|
$
|
87
|
|
|
$
|
8
|
|
|
$
|
15
|
|
|
$
|
14
|
|
Net loss applicable to common stockholders
|
|
$
|
(2,526
|
)
|
|
$
|
(2,638
|
)
|
|
$
|
(2,782
|
)
|
|
$
|
(1,987
|
)
|
Net loss per share applicable to common stockholders basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.10
|
)
|
Weighted average shares used in computing basic and diluted loss per share
|
|
|
19,035
|
|
|
|
19,078
|
|
|
|
19,078
|
|
|
|
19,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
Total revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
80
|
|
|
$
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
(3,958
|
)
|
|
$
|
6,428
|
|
|
$
|
(1,809
|
)
|
|
$
|
(2,057
|
)
|
Net income (loss) per share applicable to common stockholders basic
|
|
$
|
(0.21
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
Net income (loss) per share applicable to common stockholders diluted
|
|
$
|
(0.21
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
Weighted average shares used in computing basic income (loss) per share
|
|
|
19,230
|
|
|
|
63,381
|
|
|
|
65,241
|
|
|
|
65,241
|
|
Weighted average shares used in computing diluted income (loss) per share
|
|
|
19,230
|
|
|
|
228,505
|
|
|
|
65,241
|
|
|
|
65,241
|
|
(12) Impairment and Disposal of Long-lived Assets
Upon signing the June 30, 2003 lease cancellation with Nexus, its prior landlord with respect
to the entire prior leased space, the Company on September 30, 2003 recorded an additional loss on
disposal of assets of approximately $904,000 primarily related to leasehold improvements and
equipment that were not utilized in its new facility of 14,000 square feet.
The Company subsequently vacated its 14,000 square foot laboratory and administrative space on
December 15, 2004 and entered a sublease at the same facility for approximately 5,047 square feet
of strictly administrative space. The Company sold, disposed, or impaired $337,000 of fixed assets,
in the third and fourth quarters of 2004, recognizing a loss on retirement of fixed assets of
approximately $83,000, net of depreciation, and cash received of approximately $41,000, the net of
which is included in general and administrative expenses as of December 31, 2004.
The Company vacated the 5,045 square foot facility when signing a new sublease on November 4,
2005, and moving to a smaller administrative only facility of 2,325 square feet on December 31,
2005. The Company sold, disposed, or impaired $159,000 of fixed assets and leasehold improvements,
in the third and fourth quarters of 2005, recognizing a loss on retirement of fixed assets of
approximately $41,000, net of depreciation, and cash received of approximately $97,000, the net of
which is included in general and administrative expenses as of December 31, 2005.
(13) Subsequent Events
Loan Agreement
During January through April 2007, the Company received a series of cash advances from Toucan
Partners totaling $1.55 million. In April 2007, these cash advances, as well as cash advances
totaling $1.5 million prior to December 31, 2006, were converted into a new series of convertible
promissory notes (with associated warrants) with repayment due upon written demand on or after June
30, 2007. Interest accrues at the rate of 10% per annum, compounded annually, on a 365-day year
basis. Although these notes are convertible, the conversion terms will not be fixed until a future
date at Toucan Partners election. The outstanding principal and accrued interest under the 2007
Convertible Notes may be converted (in whole or in part) on conversion terms equal to the terms of
any convertible debt financing from an unaffiliated investor in an aggregate principal amount of at
least $150,000 on or before May 15, 2007 (a Qualified Debt Financing). In the event that a
Qualified Debt Financing does not occur, or Toucan Partners, an affiliate of Toucan Capital and a
controlling shareholder, elects in its sole discretion to not convert on such terms, the conversion
terms shall by subject to further negotiation between us and Toucan Partners. In April 2007, the
Company also amended and restated three convertible promissory notes issued to Toucan Partners
totaling $950,000 on the same terms as the 2007 Convertible Notes and 2007 Warrants. See Note 2,
Operations and Financing for the specific terms of these notes.
F-43
688,722 Shares
Common Stock
Northwest Biotherapeutics, Inc.
PROSPECTUS
December __, 2007
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13.
Other Expenses of Issuance and Distribution.
Set forth below are the expenses expected to be incurred in connection with the issuance and
distribution of the securities registered hereby. With the exception of the Securities and Exchange
Commission (SEC) registration fee, the amounts set forth below are estimates.
|
|
|
|
|
|
|
Amount
|
|
SEC Registration Fee
|
|
$
|
2,430
|
|
Printing Expenses
|
|
$
|
60,000
|
|
Accounting Fees and Expenses
|
|
$
|
40,000
|
|
Legal Fees and Expenses
|
|
$
|
140,000
|
|
Blue Sky Fees and Expenses
|
|
$
|
3,000
|
|
Miscellaneous
|
|
$
|
|
|
|
|
|
|
Total
|
|
$
|
245,430
|
|
|
|
|
|
Item 14.
Indemnification of Directors and Officers.
Section 145(a) of the Delaware General Corporation Law (DGCL) provides in relevant part that
[a] corporation shall have the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action by or in the right
of the corporation) by reason of the fact that the person is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with such action, suit or
proceeding if the person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe the persons conduct was unlawful. With
respect to derivative actions, Section 145(b) of the DGCL provides in relevant part that [a]
corporation shall have the power to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor ... [by reason of the persons service in one of the
capacities specified in the preceding sentence] against expenses (including attorneys fees)
actually and reasonably incurred by the person in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interest of the corporation except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been adjudged to be liable
to the corporation unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem
proper.
Our Certificate of Incorporation includes a provision that eliminates the personal liability
of our directors for monetary damages for breach of fiduciary duty to the full extent permitted by
Delaware law.
Our Bylaws provide that the Company is required to indemnify and hold harmless its directors
and officers and may indemnify and hold harmless its employees and agents, in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by reason of any action
alleged to have been taken or omitted in such capacity, against costs, charges, expenses (including
counsel fees), judgments, fines and amounts paid or owed in settlement actually and reasonably
incurred by such person or rendered or levied against such person in connection with such action,
suit or proceeding, if the party being indemnified acted in good faith and in a manner such party
reasonably believed to be in or not opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe such partys conduct was
unlawful. In proceedings by or in the right of the Company, a party seeking to be indemnified may
be indemnified if the above standards of conduct are met and to the extent as set forth above,
however, if a court judges a party seeking to be indemnified liable to the corporation, no
indemnification shall be provided except to the extent that, in view of all of the circumstances of
the case, such person is fairly and reasonably entitled to indemnification. To the extent that a
director, officer, employee or agent of the Company has been successful on the merits or otherwise,
including without limitation, the dismissal of an action without prejudice, in defense of any
action, suit or proceeding, or in defense of any claim, issue or matter therein, such party
II-1
shall be indemnified against all costs, charges and expenses (including counsel fees) actually
and reasonably incurred in connection therewith.
We maintain insurance on behalf of our officers and directors, insuring them against
liabilities that they may incur in such capacities or arising out of this status.
The above discussion of our Certificate of Incorporation and Bylaws and of Section 145 of the
DGCL is not intended to be exhaustive and is respectively qualified in its entirety by such
Certificate of Incorporation, Bylaws and statute.
See also the undertakings included under Item 17 in this registration statement.
Item 15.
Recent Sales of Unregistered Securities.
The Company sold the securities described below during the past three years (from the date
hereof) without being registered under the Securities Act. (All common per share amounts have been
adjusted to reflect the June 19, 2007 one-for-fifteen reverse stock split.)
1. The Company sold an aggregate of 9,007 shares of common stock to employees, directors
and consultants for cash consideration in the aggregate amount of $11,100 upon the exercise of
stock options and stock awards.
2. The Company granted stock options and stock awards to employees, directors and
consultants under its 1998 Stock Plan, 1999 Executive Stock Plan, 2001 Stock Plan, 2001
Nonemployee Director Stock Incentive Plan and Employee Stock Purchase Plan covering an aggregate
of 25,667 shares of common stock, with exercise prices ranging from $1.80 to $3.15 per share. Of
these, options covering an aggregate of 12,333 were cancelled without being exercised.
3. On November 13, 2003, the Company borrowed an aggregate of $335,000 from members of its
management, pursuant to a series of convertible promissory notes which accrued interest at a
rate of prime plus 2% (and associated warrants to purchase an aggregate of approximately
0.25 million shares of our common stock at $0.60 per share). In connection with the financing
with Toucan Capital Fund II, L.P. (Toucan Capital) described below, the remaining $285,000
principal amount of notes were amended to, among other things, reduce the conversion prices to
$1.50 per share. The notes that remained outstanding were amended on a number of occasions to
extend their respective maturity dates.
From March 2006 through June 2006, these warrants were exercised on a net exercise basis
for an aggregate of 230,647 shares. Additionally, in March 2006, the promissory notes referred
to above, including all accrued interest thereon, were converted in accordance with their terms
into an aggregate of 179,181 shares of common stock.
4. Since 2004, the Company has undergone a significant recapitalization pursuant to which
Toucan Capital loaned the Company an aggregate of $6.75 million and Toucan Partners, LLC, an
affiliate of Toucan Capital (Toucan Partners), loaned the Company an aggregate of $4.825
million (excluding $225,000 in proceeds from a demand note that was received on June 13, 2007
and repaid on June 27, 2007).
On January 26, 2005, the Company entered into a securities purchase agreement with Toucan
Capital pursuant to which it purchased 32.5 million shares of the Companys Series A cumulative
convertible preferred stock (the Series A Preferred Stock) at a purchase price of $0.04 per
share, for a net purchase price of $1.267 million, net of offering related costs of
approximately $24,000. In April 2006, the $6.75 million of notes payable plus all accrued
interest due to Toucan Capital were converted into shares of the Companys Series A-1 cumulative
convertible Preferred Stock (the Series A-1 Preferred Stock).
The $4.825 million loaned to the Company by Toucan Partners was loaned in a series of
transactions. From November 14, 2005 through March 9, 2006, the Company issued three promissory
notes to Toucan Partners, pursuant to which Toucan Partners loaned the Company an aggregate of
$950,000. In April 2007, these notes were amended and restated to conform to the 2007
Convertible Notes described below. Payment is due under the notes upon written demand on or
after June 30, 2007. Interest accrues at 10% per annum, compounded annually, on a 365-day year
basis. The principal amount of, and accrued interest on, these notes, as amended, is convertible
at Toucan Partners election into common stock on the same terms as the 2007 Convertible Notes.
In addition to the $950,000 of promissory notes described above, Toucan Partners provided
$3.15 million in cash advances from October 2006 through April 2007, which were converted into
convertible notes (the 2007 Convertible Notes) and related
II-2
warrants (the 2007 Warrants) in April 2007. The Company and Toucan Partners also entered
into two promissory notes to fix the terms of two additional cash advances provided by Toucan
Partners to the Company on May 14, 2007 and May 25, 2007 in the aggregate amount of $725,000,
and issued warrants to purchase shares of the Companys capital stock to Toucan Partners in
connection with each such note. These notes and warrants are on the same terms as the previous
2007 Convertible Notes and 2007 Warrants.
During October through December 2007, the Company repaid $5.3 million in principal and
related accrued interest due to Toucan Capital pursuant to the $4.825 million Convertible Notes.
Subsequent to these repayments, the aggregate outstanding accrued interest of approximately
$14,000 on the convertible notes owed to Toucan Partners may be converted by Toucan Partners (in
whole or in part) into common stock at a conversion price of $0.60 per share.
On June 1, 2007, the Company issued to Toucan Capital a new warrant to purchase the
Companys Series A-1 Preferred Stock (Toucan Capital Series A-1 Warrant) in exchange for the
cancellation of all previously issued warrants to purchase Series A-1 Preferred Stock (or, at
the election of Toucan Capital, any other equity or debt security of the Company) held by Toucan
Capital. The new Toucan Capital Series A-1 Warrant is exercisable for 6,471,333 shares of Series
A-1 Preferred Stock plus shares of Series A-1 Preferred Stock attributable to accrued dividends
on the shares of Series A-1 Preferred Stock held by Toucan Capital, (with each such Series A-1
Preferred Share convertible into 2.67 shares of common stock at $0.60 per share), as compared to
the 3,062,500 shares of Series A-1 Preferred Stock (with each such Series A-1 Preferred Share
convertible into 2.67 shares of common stock at $0.60 per share) that were previously issuable
to Toucan Capital upon exercise of the warrants being cancelled.
Also on June 1, 2007, the Company and Toucan Capital amended Toucan Capitals warrant to
purchase Series A Preferred Stock (the Toucan Capital Series A Warrant) to increase the number
of shares of Series A Preferred Stock that are issuable upon exercise of the warrant to
32,500,000 shares of Series A Preferred Stock (plus shares of Series A Preferred Stock
attributable to accrued dividends on the shares of Series A Preferred Stock held by Toucan
Capital) from 13,000,000 shares of Series A Preferred Stock.
On June 15, 2007, the Company, Toucan Capital, and Toucan Partners entered into a
conversion agreement (Conversion Agreement) which became effective on June 22, 2007 upon the
admission of the Companys common stock to trade on the Alternative Investment Market (AIM) of
the London Stock Exchange (Admission).
Pursuant to the terms of the Conversion Agreement (i) Toucan Capital agreed to convert and
has converted all of its shares of the Companys Series A Preferred Stock and Series A-1
Preferred Stock (in each case, excluding any accrued and unpaid dividends) into common stock and
agreed to eliminate a number of rights, preferences and protections associated with the Series A
Preferred Stock and Series A-1 Preferred Stock, including the liquidation preference entitling
Toucan Capital to certain substantial cash payments and (ii) Toucan Partners agreed to eliminate
all of its existing rights to receive Series A-1 Preferred Stock under certain notes and
warrants (and thereafter to receive shares of common stock rather than shares of Series A-1
Preferred Stock), and the rights, preferences and protections associated with the Series A-1
Preferred Stock, including the liquidation preference that would entitle Toucan Partners to
certain substantial cash payments, in return for issuance by the Company of an aggregate of
6,860,561 additional shares of common stock, to be apportioned between Toucan Capital and Toucan
Partners as to 4,287,851 and 2,572,710 shares of common stock, respectively.
Following conversion by Toucan Capital of all of its shares of the Companys Series A
Preferred Stock and Series A-1 Preferred Stock, no shares of either series of preferred stock
remained outstanding. Accordingly, as approved by the board of directors of the Company, upon
Admission on June 22, 2007, the Company filed with the Secretary of State of the State of
Delaware a Certificate of Elimination of the Companys Series A Cumulative Convertible Preferred
Stock and a Certificate of Elimination of the Companys Series A-1 Cumulative Convertible
Preferred Stock, to eliminate the Companys Series A Preferred Stock and Series A-1 Preferred
Stock, respectively. In addition, under the terms of the Conversion Agreement (i) the Toucan
Capital Series A Warrant is exercisable for 2,166,667 shares of common stock rather than shares
of Series A Preferred Stock (plus shares of common stock, rather than shares of Series A
Preferred Stock, attributable to accrued dividends on the shares of Series A Preferred Stock
previously held by Toucan Capital that were converted into common stock upon Admission, subject
to the further provisions of the Conversion Agreement as described below) and (ii) the Toucan
Capital Series A-1 Warrant is exercisable for an aggregate of 17,256,888 shares of common stock
rather than shares of Series A-1 Preferred Stock (plus shares of common stock, rather than shares of Series A-1 Preferred Stock, attributable to accrued dividends on the shares of Series
A-1 Preferred Stock previously held by Toucan Capital that were converted into common stock upon
Admission), subject to further provisions of the Conversion Agreement as described below.
II-3
As noted above, the 32,500,000 shares of Series A Preferred Stock held by Toucan Capital
converted, in accordance with their terms, into 2,166,667 shares of common stock and the
4,816,863 shares of Series A-1 Preferred Stock held by Toucan Capital converted, in accordance
with their terms, into 12,844,968 shares of common stock, and the convertible promissory notes
issued by the Company to Toucan Partners in aggregate principal amount of $4.825 million (the
2007 Convertible Notes) and associated warrants (the 2007 Warrants) became convertible and
exercisable solely for shares of common stock.
Under the terms of the Conversion Agreement, Toucan Capital also agreed to temporarily
defer receipt of the accrued and unpaid dividends on its shares of Series A Preferred Stock and
Series A-1 Preferred Stock of an amount equal to $334,340 and $917,451, respectively, until not
later than September 30, 2007. We paid these dividends in full to Toucan Capital in September
2007.
5. In April 2006, the Company sold 2,631,193 shares of common stock (and accompanying
warrants to purchase an aggregate of 1,315,596 shares of common stock at an exercise price of
$2.10 per share) to certain accredited investors (the PIPE Financing) for aggregate proceeds
of approximately $5.5 million.
6. On April 7, 2006, the Company issued 32,139 shares of its common stock to an accredited
investor as a result of the net exercise of the warrant to purchase 47,619 shares of common
stock at $2.10 per share acquired by such investor pursuant to the PIPE Financing.
7. On June 22, 2007, the Company placed 15,789,473 shares of its common stock with foreign
institutional investors at a price of £0.95 per share. The gross proceeds from the placement
were approximately £15.0 million, or $29.9 million, while net proceeds from the offering, after
deducting commissions and expenses, were approximately £13.0 million, or $25.9 million.
8. From July 11 through 16, 2007, the Company issued 335,097 shares of its common stock to
accredited investors as a result of the net exercise of warrants to purchase 255,463 shares of
common stock at $2.10 per share acquired by such investors pursuant to the PIPE Financing.
The Company claimed exemption from registration under the Securities Act for the sales and
issuances of securities in the transactions described in paragraphs (1) and (2) above under
Section 4(2) of the Securities Act in that such sales and issuances did not involve a public
offering, or under Rule 701 under the Securities Act, in that they were offered and sold either
pursuant to written compensatory plans or pursuant to a written contract relating to compensation,
as provided by Rule 701.
The Company claimed exemption from registration under the Securities Act for the sale and
issuance of securities in the transactions described in paragraphs (3), (4) and (5) under
Section 4(2) of the Securities Act and/or Regulation D thereunder, as transactions not involving
any public offering. All of the purchasers of unregistered securities for which the Company relied
on Section 4(2) and/or Regulation D represented that they were accredited investors, as defined
under the Securities Act. The Company claimed such exemption on the basis that (i) the purchasers
in each case represented that they intended to acquire the securities for investment only and not
with a view to the distribution thereof and that they either received adequate information about
the Company or had access, through employment or other relationships, to such information and
(ii) appropriate legends were affixed to the stock certificates or warrants issued in such
transactions.
The Company claimed exemption from registration under the Securities Act for the sale and
issuance of securities in the transactions described in paragraphs (3), (6), and (8) pursuant to
Section 3(a)(9) of the Securities Act, as an exchange of securities where no commission or other
remuneration is paid or given directly or indirectly for soliciting the exchange.
II-4
Item 16.
Exhibits and Financial Statement Schedules
(a) The following documents are filed as exhibits to this registration statement:
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
3.1
|
|
Seventh Amended and Restated Certificate of Incorporation (3.1)(22).
|
|
|
|
3.2
|
|
Third Amended and Restated Bylaws of the Company (3.1)(29).
|
|
|
|
3.3
|
|
Amendment to Seventh Amended and Restated Certificate of Incorporation (3.2)(29).
|
|
|
|
4.1
|
|
Form of common stock certificate.(4.1)(2)
|
|
|
|
4.2
|
|
Northwest Biotherapeutics, Inc. Stockholders Rights Agreement dated February 26, 2002 between the Company and
|
|
|
Mellon Investors Services, LLC.(4.2)(3)
|
|
|
|
4.3
|
|
Form of Rights Certificate.(4.1)(3)
|
|
|
|
4.4
|
|
Amendment to Northwest Biotherapeutics, Inc. Stockholders Rights Agreement dated April 26, 2004.(4.2)(4)
|
|
|
|
5.1*
|
|
Opinion of Covington & Burling LLP as to the legality of the securities being registered.
|
|
|
|
10.1
|
|
Amended and Restated Loan Agreement and 10% Promissory Note dated November 14, 2005 in the principal amount of
|
|
|
$400,000 as amended and restated on April 14, 2007 between the Company and Toucan Partners, LLC.(10.1)(23)
|
|
|
|
10.2
|
|
Second Amended and Restated Loan Agreement and 10% Promissory Note originally dated December 30, 2005, and
|
|
|
amended and restated on April 17, 2006 and April 14, 2007 in the principal amount of $250,000 between the Company
|
|
|
and Toucan Partners, LLC.(10.2)(23)
|
|
|
|
10.3
|
|
Second Amended and Restated Loan Agreement and 10% Promissory Note originally dated March 9, 2006, and as amended
|
|
|
and restated on April 17, 2006 and April 14, 2007 in the principal amount of $300,000 between the Company and
|
|
|
Toucan Partners, LLC.(10.3)(23)
|
|
|
|
10.4
|
|
Form of Loan Agreement and 10% Convertible, Promissory Note between the Company and Toucan Partners, LLC.
|
|
|
(10.4)(23)
|
|
|
|
10.5
|
|
Amended and Restated Investor Rights Agreement dated April 17, 2006.(10.4)(18)
|
|
|
|
10.6
|
|
Second Amended and Restated Investor Rights Agreement dated June 22, 2007 between the Company and Toucan Capital
|
|
|
Fund II, LLP (10.3)(29).
|
|
|
|
10.7
|
|
Securities Purchase Agreement, dated March 30, 2006 by and among the Company and the Investors identified
|
|
|
therein.(10.1)(6)
|
|
|
|
10.8
|
|
Form of Warrant.(10.2)(6)
|
|
|
|
10.9
|
|
Warrant to purchase securities of the Company dated April 26, 2004 issued to Toucan Capital Fund II, L.P.(10.9)(7)
|
|
|
|
10.10
|
|
Warrant to purchase securities of the Company dated June 11, 2004 issued to Toucan Capital Fund II, L.P.(10.8)(7)
|
|
|
|
10.11
|
|
Warrant to purchase securities of the Company dated July 30, 2004 issued to Toucan Capital Fund II, L.P.(10.7)(7)
|
|
|
|
10.12
|
|
Warrant to purchase securities of the Company dated October 22, 2004 issued to Toucan Capital Fund II,
|
|
|
L.P.(10.3)(8)
|
|
|
|
10.13
|
|
Warrant to purchase securities of the Company dated November 10, 2004 issued to Toucan Capital Fund II,
|
|
|
L.P.(10.3)(9)
|
|
|
|
10.14
|
|
Warrant to purchase securities of the Company dated December 27, 2004 issued to Toucan Capital Fund II,
|
|
|
L.P.(10.3)(10)
|
|
|
|
10.15
|
|
First Amendment to Warrants between Northwest Biotherapeutics, Inc. and Toucan Capital Fund II, L.P. dated
|
|
|
January 26, 2005.(10.5)(1)
|
|
|
|
10.16
|
|
Warrant to purchase Series A Cumulative Convertible Preferred Stock dated January 26, 2005 issued to Toucan
|
|
|
Capital Fund II, L.P.(10.2)(1)
|
II-5
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
10.17
|
|
Warrant to purchase securities of the Company dated April 12, 2005 issued to Toucan Capital Fund II,
|
|
|
L.P.(10.39)(11)
|
|
|
|
10.18
|
|
Warrant to purchase securities of the Company dated May 13, 2005 issued to Toucan Capital Fund II, L.P.(10.3)(12)
|
|
|
|
10.19
|
|
Warrant to purchase securities of the Company dated June 16, 2005 issued to Toucan Capital Fund II, L.P.(10.3)(13)
|
|
|
|
10.20
|
|
Warrant to purchase securities of the Company dated July 26, 2005 issued to Toucan Capital Fund II, L.P.(10.3)(14)
|
|
|
|
10.21
|
|
Warrant to purchase securities of the Company dated September 7, 2005 issued to Toucan Capital Fund II,
|
|
|
L.P.(10.3)(15)
|
|
|
|
10.22
|
|
Amended Form of Warrant to purchase securities of the Company dated November 14, 2005 and April 17, 2006 as
|
|
|
amended April 14, 2006 issued to Toucan Partners, LLC.(10.21)(23)
|
|
|
|
10.23
|
|
Form of Warrant to purchase securities of the Company dated April 14, 2007 issued to Toucan Partners,
|
|
|
LLC.(10.22)(23)
|
|
|
|
10.24
|
|
Loan Agreement and 10% Convertible Promissory Note in the principal amount of $100,000 between the Company and
|
|
|
Toucan Partners, LLC, dated April 27, 2007 (10.1)(24).
|
|
|
|
10.25
|
|
Warrant to purchase securities of the Company issued to Toucan Partners, LLC., dated April 27, 2007 (10.2)(24).
|
|
|
|
10.26
|
|
Form of Toucan Partners Note, dated as of June 1, 2007 (10.1)(27).
|
|
|
|
10.27
|
|
Form of Toucan Partners Warrant, dated as of June 1, 2007 (10.2)(27).
|
|
|
|
10.28
|
|
Amended and Restated Warrant to Purchase Series A Preferred Stock issued to Toucan Capital Fund II, L.P., dated
|
|
|
as of June 1, 2007 (10.3)(27).
|
|
|
|
10.29
|
|
Warrant to Purchase Series A-1 Preferred Stock issued to Toucan Capital Fund II, L.P., dated as of June 1, 2007
|
|
|
(10.4)(27).
|
|
|
|
10.30
|
|
Warrant to Purchase Series A-1 Preferred Stock issued to Toucan Capital Fund II, L.P., dated as of June 1, 2007
|
|
|
(10.5)(27).
|
|
|
|
10.31
|
|
Northwest Biotherapeutics, Inc. $225,000 Demand Note dated June 13, 2007 (10.1)(28).
|
|
|
|
10.32
|
|
Conversion Agreement dated June 15, 2007 and effective June 22, 2007 between the Company and Toucan Capital Fund
|
|
|
II, LLP (10.1)(29).
|
|
|
|
10.33
|
|
Termination Agreement dated June 22, 2007 between the Company and Toucan Capital Fund II, LLP (10.2)(29).
|
|
|
|
10.34
|
|
Nomad Agreement dated June 15, 2007 and effective June 22, 2007 between the Company and Collins Stewart Europe
|
|
|
Limited (10.4)(29).
|
|
|
|
10.35
|
|
Employment Agreement dated June 18, 2007 between Dr. Alton L. Boynton and the Company (10.6)(29).
|
|
|
|
10.36
|
|
Employment Agreement dated October 1, 2007 between Anthony P. Deasey and the Company (10.1)(30).
|
|
|
|
10.37
|
|
Letter of Appointment for Linda F. Powers (10.8)(29).
|
|
|
|
10.38
|
|
Letter of Appointment for R. Steve Harris (10.9)(29).
|
|
|
|
10.39
|
|
Form of Warrant to purchase common stock of the Company, as amended.(10.27)(18)
|
|
|
|
10.40**
|
|
Northwest Biotherapeutics DCVax
®
-Brain Services Agreement with Cognate BioServices, Inc. dated May 17,
|
|
|
2007.(10.1)(25)
|
|
|
|
10.41
|
|
1998 Stock Option Plan.(10.15)(2)
|
|
|
|
10.42
|
|
1999 Executive Stock Option Plan.(10.16)(2)
|
|
|
|
10.43
|
|
2001 Stock Option Plan.(10.17)(2)
|
|
|
|
10.44
|
|
2001 Nonemployee Director Stock Incentive Plan.(10.18)(2)
|
|
|
|
10.45
|
|
Employee Stock Purchase Plan.(10.19)(2)
|
|
|
|
10.46
|
|
2007 Stock Option Plan (10.5)(29).
|
II-6
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
10.47
|
|
Form of Stock Option Agreement under the 2007 Stock Option Plan. (10.1)(31)
|
|
|
|
10.48
|
|
Lease Agreement.(10.34)(18)
|
|
|
|
10.49
|
|
Lease Extension between the Company and the International Union of Operating Engineers Local 302, dated May 31,
|
|
|
2007 (10.1)(26).
|
|
|
|
10.50
|
|
Clinical Study Agreement between the Company and the Regents of the University of California dated February 14,
|
|
|
2006.(10.35)(18)
|
|
|
|
10.51
|
|
Employment Agreement dated June 18, 2007 between Jim Johnston and Northwest Biotherapetics, Inc. (10.7)(29)
|
|
|
|
11.1
|
|
Computation of net loss per share
included within the Northwest Biotherapeutics, Inc. audited financial
statements for the year ended December 31, 2006 included in
this Registration Statement on pages F-16 through F-43.
|
|
|
|
21.1*
|
|
Subsidiary of the registrant.
|
|
|
|
23.1*
|
|
Consent of Peterson Sullivan, PLLC, Independent Registered Accounting Firm.
|
|
|
|
23.2
|
|
Consent of Covington & Burling LLP, included in the opinion filed as Exhibit 5.1.
|
|
|
|
|
|
|
(1)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on February 1, 2005.
|
|
(2)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-67350) on
November 14, 2001.
|
|
(3)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Registration Statement on
Form 8-A on July 8, 2002.
|
|
(4)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Annual Report on Form 10-K on May 14, 2004.
|
|
(5)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Quarterly Report on Form 10-Q on November 14, 2005.
|
|
(6)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on March 31, 2006.
|
|
(7)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Quarterly Report on Form 10-Q on November 15, 2004.
|
|
(8)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on October 28, 2004.
|
|
(9)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on November 16, 2004.
|
|
(10)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on December 30, 2004.
|
|
(11)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Annual Report on Form 10-K on April 15, 2005.
|
|
(12)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on May 18, 2005.
|
|
(13)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on June 21, 2005.
|
II-7
|
|
|
(14)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on August 1, 2005.
|
|
(15)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on September 9, 2005.
|
|
(16)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Quarterly Report on Form 10-Q on November 14, 2003.
|
|
(17)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on August 5, 2005.
|
|
(18)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Annual Report on Form 10-K on April 18, 2006.
|
|
(19)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on April 26, 2006.
|
|
(20)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Form 10-K/A on June 30, 2006.
|
|
(21)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrant Registration Statement on Form S-1 (File No. 33-134320) on May 19, 2006.
|
|
(22)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Amendment No. 1 to the Registration Statement on Form S-1(File No. 333-134320) on
July 17, 2006.
|
|
(23)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Form 10-K on April 17, 2007.
|
|
(24)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on May 3, 2007.
|
|
(25)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on May 21, 2007.
|
|
(26)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on June 4, 2007.
|
|
(27)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on June 7, 2007.
|
|
(28)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on June 18, 2007.
|
|
(29)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on June 22, 2007.
|
|
(30)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on October 2, 2007.
|
|
(31)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Registration Statement on
Form S-8 on November 21, 2007.
|
|
*
|
|
Filed herewith
|
|
**
|
|
Portions of this exhibit have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
|
II-8
Item 17.
Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of
1933; and
(ii) To reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate offering price
set forth in the Calculation of Registration Fee table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering as such securities at that time shall be deemed to
be the initial
bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby further undertakes that:
(i) For purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this registration statement in
reliance under Rule 430A and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4), or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide
offering thereof.
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has
duly caused this Post-Effective Amendment No. 1 to Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Bethesda, State of
Maryland, on December 17, 2007.
|
|
|
|
|
|
NORTHWEST BIOTHERAPEUTICS, INC.
|
|
|
By:
|
/s/ ALTON L. BOYNTON
|
|
|
|
Alton L. Boynton
|
|
|
|
Its: President and Chief Executive Officer
|
|
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this Post-Effective
Amendment No. 1 to Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
President, Chief Executive
Officer and Director
|
|
December 17, 2007
|
Alton L. Boynton, Ph.D.
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
/s/ Anthony P. Deasey
|
|
|
|
Senior Vice President of
Finance and
|
|
December 17, 2007
|
|
|
|
|
|
|
|
Anthony P. Deasey
|
|
|
|
Chief Financial
Officer
|
|
|
|
|
|
|
(Principal Financial and
Accounting Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
December 17, 2007
|
R. Steve Harris
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Linda F. Powers
|
|
|
|
Director
|
|
December 17, 2007
|
|
|
|
|
|
|
|
II-10
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
3.1
|
|
Seventh Amended and Restated Certificate of Incorporation (3.1)(22).
|
|
|
|
3.2
|
|
Third Amended and Restated Bylaws of the Company (3.1)(29).
|
|
|
|
3.3
|
|
Amendment to Seventh Amended and Restated Certificate of Incorporation (3.2)(29).
|
|
|
|
4.1
|
|
Form of common stock certificate.(4.1)(2)
|
|
|
|
4.2
|
|
Northwest Biotherapeutics, Inc. Stockholders Rights Agreement dated February 26, 2002 between the Company and
Mellon Investors Services, LLC.(4.2)(3)
|
|
|
|
4.3
|
|
Form of Rights Certificate.(4.1)(3)
|
|
|
|
4.4
|
|
Amendment to Northwest Biotherapeutics, Inc. Stockholders Rights Agreement dated April 26, 2004.(4.2)(4)
|
|
|
|
5.1*
|
|
Opinion of Covington & Burling LLP as to the legality of the securities being registered.
|
|
|
|
10.1
|
|
Amended and Restated Loan Agreement and 10% Promissory Note dated November 14, 2005 in the principal amount of
$400,000 as amended and restated on April 14, 2007 between the Company and Toucan Partners, LLC.(10.1)(23)
|
|
|
|
10.2
|
|
Second Amended and Restated Loan Agreement and 10% Promissory Note originally dated December 30, 2005, and
amended and restated on April 17, 2006 and April 14, 2007 in the principal amount of $250,000 between the Company
and Toucan Partners, LLC.(10.2)(23)
|
|
|
|
10.3
|
|
Second Amended and Restated Loan Agreement and 10% Promissory Note originally dated March 9, 2006, and as amended
and restated on April 17, 2006 and April 14, 2007 in the principal amount of $300,000 between the Company and
Toucan Partners, LLC.(10.3)(23)
|
|
|
|
10.4
|
|
Form of Loan Agreement and 10% Convertible, Promissory Note between the Company and Toucan Partners,
LLC.(10.4)(23)
|
|
|
|
10.5
|
|
Amended and Restated Investor Rights Agreement dated April 17, 2006.(10.4)(18)
|
|
|
|
10.6
|
|
Second Amended and Restated Investor Rights Agreement dated June 22, 2007 between the Company and Toucan Capital
Fund II, LLP (10.3)(29).
|
|
|
|
10.7
|
|
Securities Purchase Agreement, dated March 30, 2006 by and among the Company and the Investors identified
therein.(10.1)(6)
|
|
|
|
10.8
|
|
Form of Warrant.(10.2)(6)
|
|
|
|
10.9
|
|
Warrant to purchase securities of the Company dated April 26, 2004 issued to Toucan Capital Fund II, L.P.(10.9)(7)
|
|
|
|
10.10
|
|
Warrant to purchase securities of the Company dated June 11, 2004 issued to Toucan Capital Fund II, L.P.(10.8)(7)
|
|
|
|
10.11
|
|
Warrant to purchase securities of the Company dated July 30, 2004 issued to Toucan Capital Fund II, L.P.(10.7)(7)
|
|
|
|
10.12
|
|
Warrant to purchase securities of the Company dated October 22, 2004 issued to Toucan Capital Fund II,
L.P.(10.3)(8)
|
|
|
|
10.13
|
|
Warrant to purchase securities of the Company dated November 10, 2004 issued to Toucan Capital Fund II,
L.P.(10.3)(9)
|
|
|
|
10.14
|
|
Warrant to purchase securities of the Company dated December 27, 2004 issued to Toucan Capital Fund II,
L.P.(10.3)(10)
|
|
|
|
10.15
|
|
First Amendment to Warrants between Northwest Biotherapeutics, Inc. and Toucan Capital Fund II, L.P. dated
January 26, 2005.(10.5)(1)
|
|
|
|
10.16
|
|
Warrant to purchase Series A Cumulative Convertible Preferred Stock dated January 26, 2005 issued to Toucan
Capital Fund II, L.P.(10.2)(1)
|
|
|
|
10.17
|
|
Warrant to purchase securities of the Company dated April 12, 2005 issued to Toucan Capital Fund II,
L.P.(10.39)(11)
|
|
|
|
10.18
|
|
Warrant to purchase securities of the Company dated May 13, 2005 issued to Toucan Capital Fund II, L.P.(10.3)(12)
|
|
|
|
10.19
|
|
Warrant to purchase securities of the Company dated June 16, 2005 issued to Toucan Capital Fund II, L.P.(10.3)(13)
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
10.20
|
|
Warrant to purchase securities of the Company dated July 26, 2005 issued to Toucan Capital Fund II, L.P.(10.3)(14)
|
|
|
|
10.21
|
|
Warrant to purchase securities of the Company dated September 7, 2005 issued to Toucan Capital Fund II,
L.P.(10.3)(15)
|
|
|
|
10.22
|
|
Amended Form of Warrant to purchase securities of the Company dated November 14, 2005 and April 17, 2006 as
amended April 14, 2006 issued to Toucan Partners, LLC.(10.21)(23)
|
|
|
|
10.23
|
|
Form of Warrant to purchase securities of the Company dated April 14, 2007 issued to Toucan Partners,
LLC.(10.22)(23)
|
|
|
|
10.24
|
|
Loan Agreement and 10% Convertible Promissory Note in the principal amount of $100,000 between the Company and
Toucan Partners, LLC, dated April 27, 2007 (10.1)(24).
|
|
|
|
10.25
|
|
Warrant to purchase securities of the Company issued to Toucan Partners, LLC., dated April 27, 2007 (10.2)(24).
|
|
|
|
10.26
|
|
Form of Toucan Partners Note, dated as of June 1, 2007 (10.1)(27).
|
|
|
|
10.27
|
|
Form of Toucan Partners Warrant, dated as of June 1, 2007 (10.2)(27).
|
|
|
|
10.28
|
|
Amended and Restated Warrant to Purchase Series A Preferred Stock issued to Toucan Capital Fund II, L.P., dated
as of June 1, 2007 (10.3)(27).
|
|
|
|
10.29
|
|
Warrant to Purchase Series A-1 Preferred Stock issued to Toucan Capital Fund II, L.P., dated as of June 1, 2007
(10.4)(27).
|
|
|
|
10.30
|
|
Warrant to Purchase Series A-1 Preferred Stock issued to Toucan Capital Fund II, L.P., dated as of June 1, 2007
(10.5)(27).
|
|
|
|
10.31
|
|
Northwest Biotherapeutics, Inc. $225,000 Demand Note dated June 13, 2007 (10.1)(28).
|
|
|
|
10.32
|
|
Conversion Agreement dated June 15, 2007 and effective June 22, 2007 between the Company and Toucan Capital Fund
II, LLP (10.1)(29).
|
|
|
|
10.33
|
|
Termination Agreement dated June 22, 2007 between the Company and Toucan Capital Fund II, LLP (10.2)(29).
|
|
|
|
10.34
|
|
Nomad Agreement dated June 15, 2007 and effective June 22, 2007 between the Company and Collins Stewart Europe
Limited (10.4)(29).
|
|
|
|
10.35
|
|
Employment Agreement dated June 18, 2007 between Dr. Alton L. Boynton and the Company (10.6)(29).
|
|
|
|
10.36
|
|
Employment Agreement dated October 1, 2007 between Anthony P. Deasey and the Company (10.1)(30).
|
|
|
|
10.37
|
|
Letter of Appointment for Linda F. Powers (10.8)(29).
|
|
|
|
10.38
|
|
Letter of Appointment for R. Steve Harris (10.9)(29).
|
|
|
|
10.39
|
|
Form of Warrant to purchase common stock of the Company, as amended.(10.27)(18)
|
|
|
|
10.40**
|
|
Northwest Biotherapeutics DCVax
®
-Brain Services Agreement with Cognate BioServices, Inc. dated May 17,
2007.(10.1)(25)
|
|
|
|
10.41
|
|
1998 Stock Option Plan.(10.15)(2)
|
|
|
|
10.42
|
|
1999 Executive Stock Option Plan.(10.16)(2)
|
|
|
|
10.43
|
|
2001 Stock Option Plan.(10.17)(2)
|
|
|
|
10.44
|
|
2001 Nonemployee Director Stock Incentive Plan.(10.18)(2)
|
|
|
|
10.45
|
|
Employee Stock Purchase Plan.(10.19)(2)
|
|
|
|
10.46
|
|
2007 Stock Option Plan (10.5)(29).
|
|
|
|
10.47
|
|
Form of Stock Option Agreement under the 2007 Stock Option Plan. (10.1)(31)
|
|
|
|
10.48
|
|
Lease Agreement.(10.34)(18)
|
|
|
|
10.49
|
|
Lease Extension between the Company and the International Union of Operating Engineers Local 302, dated May 31,
2007 (10.1)(26).
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
10.50
|
|
Clinical Study Agreement between the Company and the Regents of the University of California dated February 14,
2006.(10.35)(18)
|
|
|
|
10.51
|
|
Employment Agreement dated June 18, 2007 between Jim Johnston and Northwest Biotherapetics, Inc. (10.7)(29)
|
|
|
|
11.1
|
|
Computation of net loss per share
included within the Northwest Biotherapeutics, Inc. audited financial
statements for the year ended December 31, 2006 included in
this Registration Statement on pages F-16 through F-43.
|
|
|
|
21.1*
|
|
Subsidiary of the registrant.
|
|
|
|
23.1*
|
|
Consent of Peterson Sullivan, PLLC, Independent Registered Accounting Firm.
|
|
|
|
23.2
|
|
Consent of Covington & Burling LLP, included in the opinion filed as Exhibit 5.1.
|
|
|
|
(1)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on February 1, 2005.
|
|
(2)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-67350) on
November 14, 2001.
|
|
(3)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Registration Statement on
Form 8-A on July 8, 2002.
|
|
(4)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Annual Report on Form 10-K on May 14, 2004.
|
|
(5)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Quarterly Report on Form 10-Q on November 14, 2005.
|
|
(6)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on March 31, 2006.
|
|
(7)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Quarterly Report on Form 10-Q on November 15, 2004.
|
|
(8)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on October 28, 2004.
|
|
(9)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on November 16, 2004.
|
|
(10)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on December 30, 2004.
|
|
(11)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Annual Report on Form 10-K on April 15, 2005.
|
|
(12)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on May 18, 2005.
|
|
(13)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on June 21, 2005.
|
|
(14)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on August 1, 2005.
|
|
(15)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on September 9, 2005.
|
|
|
|
(16)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Quarterly Report on Form 10-Q on November 14, 2003.
|
|
(17)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on August 5, 2005.
|
|
(18)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Annual Report on Form 10-K on April 18, 2006.
|
|
(19)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on April 26, 2006.
|
|
(20)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Form 10-K/A on June 30, 2006.
|
|
(21)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrant Registration Statement on Form S-1 (File No. 33-134320) on May 19, 2006.
|
|
(22)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Amendment No. 1 to the Registration Statement on Form S-1(File No. 333-134320) on
July 17, 2006.
|
|
(23)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Form 10-K on April 17, 2007.
|
|
(24)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on May 3, 2007.
|
|
(25)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on May 21, 2007.
|
|
(26)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on June 4, 2007.
|
|
(27)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on June 7, 2007.
|
|
(28)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on June 18, 2007.
|
|
(29)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on June 22, 2007.
|
|
(30)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Current Report on Form 8-K on October 2, 2007.
|
|
(31)
|
|
Incorporated by reference to the exhibit shown in the preceding parentheses filed with the
Registrants Registration Statement on
Form 8-K on November 21, 2007.
|
|
*
|
|
Filed herewith
|
|
**
|
|
Portions of this exhibit have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment.
|
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