This Report on Form 10-K for Northwest
Biotherapeutics, Inc. may contain forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are characterized by future
or conditional verbs such as "may," "will," "expect," "intend," "anticipate,"
believe," "estimate" and "continue" or similar words. You should read statements that contain these words
carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial
condition or state other forward-looking information. Such statements are only predictions and our actual results may differ materially
from those anticipated in these forward-looking statements. We believe that it is important to communicate future expectations
to investors. However, there may be events in the future that we are not able to accurately predict or control. Factors that may
cause such differences include, but are not limited to, those discussed under Item 1A. Risk Factors and elsewhere in this
Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission, including the
uncertainties associated with product development, the risk that products that appeared promising in early clinical trials do
not demonstrate safety and efficacy in larger-scale clinical trials, the risk that we will not obtain approval to market our products,
the risks associated with dependence upon key personnel and the need for additional financing. We do not assume any obligation
to update forward-looking statements as circumstances change.
Unless the context otherwise requires,
“Northwest Biotherapeutics,” the “company,” “we,” “us,” “our” and
similar names refer to Northwest Biotherapeutics, Inc. DCVax® is a registered trademark of the Company
ITEM 1. BUSINESS.
Overview
We are a development stage biotechnology
company focused on developing immunotherapy products to treat cancers more effectively than current treatments, without toxicities
of the kind associated with chemotherapies, and, through a proprietary batch manufacturing process, on a cost-effective affordable
basis. initially in both the United States and Europe (the two largest medical markets in the world).
We have developed a platform technology,
DCVax, which uses activated dendritic cells to mobilize a patient's own immune system to attack their cancer. The DCVax technology
is expected to be applicable to most cancers, and is embodied in several distinct product lines. One of the product lines (DCVax-L)
is designed to cover all solid tumor cancers in which the tumors can be surgically removed. Another product line (DCVax-Direct)
is designed for all solid tumor cancers which are considered inoperable and cannot be surgically removed. The broad applicability
of DCVax to many cancers provides multiple opportunities for commercialization and partnering.
After more than a decade of pre-clinical
and clinical development, the DCVax technology has reached late stage development for two different cancers (brain and prostate),
with a Phase III clinical trial in glioblastoma multiforme, or GBM, brain cancer currently under way, and a Phase III clinical
trial in prostate cancer which was previously cleared to proceed by the U.S. Food and Drug Administration, or FDA, which we anticipate
will proceed when we secure a partner. We have also completed a small early stage trial in metastatic ovarian cancer, and we have
received clearance from the FDA for early stage trials in multiple other diverse cancers.
In the Phase I/II trials which formed the
foundation for reaching these Phase III trials, the clinical results with DCVax were striking. DCVax treatment delayed disease
progression and extended survival by years, rather than weeks or months as is typical with cancer drugs. In addition, DCVax was
non-toxic: no serious adverse events related to the treatment were seen. These clinical results (both the efficacy and the lack
of toxicity) are consistent with a large and growing body of scientific literature and clinical experience, relating to the underlying
biology involved.
As of March 31, 2013, our Phase III clinical
trial in GBM is being conducted at 43 sites across the United States. We are also in the process of adding further US sites.
The Phase III GBM trial is also progressing
in Europe. We have accelerated and strengthened our programs in Europe by partnering with large, prominent institutions, including
the Fraunhofer IZI Institute in Germany and Kings College Hospital in the U.K.
In the U.K., we received approval from
the Medicines and Healthcare Products Regulatory Authority, or MHRA, on August 23, 2012, to proceed with our Phase III clinical
trial in GBM in the U.K.. We have been working on manufacturing arrangements for the clinical trial in the U.K. with both Kings
College London and the Fraunhofer Institute, under the oversight and management of Cognate BioServices, to obtain the necessary
approvals from the German and U.K. authorities for DCVax products to be able to be manufactured in either Germany or the U.K. for
the clinical trial in the U.K. These approvals were completed in February 2013. Four major medical centers in the U.K. are preparing
to proceed with the trial.
We have also been working on preparations
for the clinical trial in Germany. On July 25, 2012, we announced that manufacturing certification has been received from the German
regulatory authorities for the clinical trial in Germany, which is the first step towards implementation of the Phase III trial
in Germany. We submitted the application to the German regulatory authority (the Paul Ehrlich Insitute, or PEI) for approval of
the Phase III trial. As of March 31, 2013, 24 clinical centers are in varying stages of preparations as trial sites in Germany.
Also, in October, 2012, ten major hospital centers across Germany, including the key opinion leaders in brain cancer, all applied
to the German healthcare system for reimbursement of DCVax-L for brain cancer.
In parallel with these developments in
our Phase III brain cancer program, we have been making arrangements to launch our DCVax-Direct program. On September 20, 2012,
we announced that we had obtained approval from FDA for a combined Phase I/II trial with DCVax-Direct for all solid tumor cancers.
In the following months, we initiated the processes for manufacturing of the DCVax-Direct products for the clinical trial.
We also entered into collaborations with
premiere institutions for the DCVax-Direct trial, as we have done for the DCVax-L trial. On November 6, 2012, we announced that
we had entered into a Letter of Intent for such a collaboration with Sarah Cannon Research Institute, which specializes in oncology
and has a network of more than 700 physicians in the US and UK who see more than 75,000 new cancer patients per year.
During Q1 of 2013, we have continued and
accelerated the manufacturing work and the preparations for launch of the Phase I/II clinical trial with DCVax-Direct for inoperable
tumors in multiple diverse cancers. The trial is expected to be launched in Q2 of this year. As is standard with Phase I/II trials,
the DCVax-Direct trial will not be blinded, and the results will be visible as the trial proceeds over the course of 2013. The
Phase I stage of the trial involves dose escalation and confirmation. The Phase II stage of the trial will focus on efficacy. The
primary measure of efficacy will be regression (i.e., shrinkage or elimination) of the inoperable tumors. Such regression is a
rapid endpoint: if it is going to occur, is anticipated to occur within a couple months of treatment.
Our DCVax immunotherapies are based on
a platform technology involving dendritic cells, the master cells of the immune system, and are designed to reinvigorate and educate
the immune system to attack cancers. The dendritic cells are able to mobilize all parts of the immune system, including T cells,
B cells and antibodies, natural killer cells and many others. Mobilizing the entire immune system provides a broader attack on
the cancer than mobilizing just a particular component, such as T cells alone, or a particular antibody alone. Likewise, our DCVax
technology is designed to attack the full set of biomarkers, or antigens, on a patient’s
cancer, rather than just a particular selected target or several targets. Clinical experience indicates that when just one or a
few biomarkers on a cancer are targeted by a drug or other treatment, sooner or later the cancer usually develops a way around
that drug, and the drug stops working. We believe that mobilizing all agents of the immune system, and targeting all biomarkers
on the patient’s cancer, contributes to the effectiveness of DCVax.
We believe that the market potential of
this technology is particularly large because the DCVax products are expected to be applicable to most or all solid tumor cancers.
We believe that the market potential is also enhanced by our two-continent strategy. By conducting our Phase III clinical trial
in GBM on an international basis, with trial sites in both the United States and Europe, we believe we are positioned to potentially
apply for product approval in both markets.
In clinical trials to date, our DCVax treatments
have been achieving what we believe to be striking results. In patients with newly diagnosed GBM, the most aggressive and lethal
form of brain cancer, patients treated with full standard of care treatment today (surgery, radiation and chemotherapy), typically
have recurrence of their cancer within a median of 6.9 months, and typically die within a median of 14.6 months. In contrast, our
early stage clinical trials showed that patients who received DCVax in addition to standard of care typically did not experience
recurrence until approximately 2 years, rather than 6.9 months, and typically lived for approximately 3 years, rather than just
14.6 months. This data, if reproducible in a larger study, such as our current Phase III trial, would demonstrate that patients
with GBM can derive significant clinical benefit from DCVax treatment. Moreover, long-term follow-up data on the GBM patients treated
with DCVax in prior clinical trials show that, as of the latest update, 33% of the patients have reached or exceeded 4 years’
survival, and 27% of the patients have reached or exceeded 6 years’ survival (as compared with the median survival of 14.6
months with standard of care treatment today).
Similar results (i.e., significant extension
or doubling of survival time) have been obtained in patients with late stage prostate cancer, either with or without metastases,
in our prostate cancer clinical trial. Encouraging early results, significantly delaying progression of the cancer, have also been
seen in patients in the initial metastatic ovarian cancer clinical trial.
Nearly as important in clinical trials
to date, there has been no toxicity (no serious adverse events) related to DCVax. The broad and rapidly growing body of scientific
literature about dendritic cells is consistent with the DCVax clinical experience, and provides added support regarding the lack
of toxicity.
We are developing and positioning DCVax
as a front line therapy that could potentially become standard of care. Accordingly, we are highly sensitive to the cost and affordability
of DCVax. We have spent more than a decade pioneering a unique method of single-batch manufacturing which now results in costs
and pricing of DCVax lower than most cancer drugs, even though DCVax is a personalized product.
We have also worked to make DCVax an extremely
simple product for both physicians and patients. DCVax is administered to patients as a simple intra-dermal injection in the arm,
similar to a flu shot and does not involve any complex procedures for physicians or patients. Unlike chemical or biologic drugs,
however, DCVax must remain frozen throughout the distribution and delivery process, until the time of administration to the patient,
and cannot be handled at room temperature. Hospitals, pharmacies and physicians may need to adopt new requirements for handling,
distribution and delivery of DCVax.
We have continued to focus intensively
on manufacturing, as we have done for many years. In the US, due to the levels of demand for the Phase III brain cancer trial,
during 2012 we arranged for doubling of the manufacturing capacity for DCVax-L. Our contract manufacturer, Cognate BioServices,
undertook the necessary construction for this capacity increase.
In Europe, as part of our partnering arrangements,
the Fraunhofer Institute in Germany and Kings College in the U.K. have dedicated their own “cGMP” (clean room) state-of-the-art
manufacturing facilities to our programs. We thereby obtained these manufacturing facilities without capital cost to us, and without
the 18-month or more lead time usually required.
These manufacturing arrangements at Fraunhofer
in Germany and Kings College London in the U.K. have been developed by (including the training of all personnel) and are being
supervised by Cognate BioServices, Inc., our contract manufacturer in the U.S., to ensure consistency. Adding these two manufacturing
operations in Europe carries several important benefits for us: it increases capacity, it provides local operations to satisfy
European regulators, and it provides important risk mitigation in case of any disruption in the U.S. manufacturing operation (In
such case, we believe our DCVax product could be produced in Europe for the U.S. market).
During 2012, Fraunhofer, Cognate and we
completed the 1-1/2 year long regulatory processes and the final inspections for regulatory approval and certification for the
manufacture of DCVax-L for the clinical trial in Germany. In addition, Fraunhofer, Cognate, we and Kings College began the 7-month
processes for regulatory approvals and institutional approvals in both the UK and Germany to enable the manufacturing in Germany
to supply DCVax-L for the clinical trial in the UK as well. This German supply arrangement is in addition to the manufacturing
under development in the UK. Having two manufacturing locations in Europe will provide added flexibility for capacity management
as well as risk protection.
Product Information
Immune therapies for cancer
Development of effective immune therapies
for cancer has long been a goal of the medical and scientific communities. The human immune system is very powerful, and also
very complex: an “army” with many divisions and many different kinds of weapons. A diagram of some key agents and
weapons of the immune system is set forth below:
Diagram 1: The immune system
“army” includes many diverse agents. Dendritic cells are the “General” of the army.
It has taken decades of research to identify
the many different types of agents and weapons, to determine the relationships among them, and to determine how they work together
to attack and defeat invaders such as bacteria, viruses and cancers. While the research was in process, early versions of immune
therapies against cancers were tried, with mixed results and a number of failures. Over the course of the 1990s and 2000s, the
first commercially successful category of immune agents to treat cancers emerged: drugs that consisted of individual antibodies,
such as Avastin, Herceptin and Erbitux.
Antibodies are just one category of weapon
in the overall immune “army,” and there are many, many kinds of individual antibodies within this category. Each antibody
drug, such as Avastin, consists of just a single one of the many kinds of antibodies within this one category of immune weapon.
These drugs do not involve the numerous other important agents in the immune army, such as T cells, NK cells, and so on.
Antibody drugs have been moderate medical
successes and huge commercial successes. These drugs have delivered moderate extensions of patient survival compared with traditional
chemotherapy drugs, with somewhat lesser (though still significant) toxicity. On this basis, these antibody drugs are achieving
multi-billion dollars per year in sales.
Now, more broad based immune therapies
are starting to come of age: “therapeutic vaccines” designed to mobilize the entire immune “army,” rather
than just a single agent or single category of agents. Therapeutic vaccines are similar to preventive vaccines in that they work
by mobilizing the immune system. However, therapeutic vaccines are administered to patients who already have a given disease,
for the purpose of preventing or delaying recurrence or progression of the existing disease.
Several of the therapeutic vaccines that
are now coming of age are focusing on dendritic cells in various ways, or on T cells. The vaccines focusing on dendritic cells
offer a broader potential immune response because dendritic cells are the master cells of the immune system — the
“General” of the “army.” When dendritic cells are activated against a particular pathogen (or cancer)
they, in turn, mobilize all of the other agents (including T cells as well as B cells, NK cells and others) to attack that pathogen
(or cancer). The process by which dendritic cells mobilize other agents takes place to a large extent in the lymph nodes.
A major challenge faced by immune therapies
for cancer has been that, unlike in a healthy patient with an infectious disease, in cancer patients the dendritic cells fail
to do their job, and the other immune agents also fail to do their job. Pathologists analyzing tumor tissue removed from cancer
patients have long observed that there are often substantial numbers of immune cells in the surrounding tissue, but they are not
infiltrating and attacking the tumor — as though the immune cells have made it to the doorstep of the tumor and
then stopped.
The mechanisms by which cancer cells selectively
suppress or block the immune system are still the subject of much research. It is known that cancer cells have many such mechanisms,
including secretion of biochemical signals that jam normal immune signaling, that make tumor cells invisible to immune detection
and/or that convey false messages to the immune system. Different therapeutic vaccines are taking different approaches to trying
to overcome these cancer mechanisms and put the immune system back in action.
Many of the therapeutic vaccines for cancer
(e.g., Cell Genesys, CancerVax) have targeted existing dendritic cells
in situ
in a patient’s body, by administering
various compounds or factors that are designed to attract dendritic cells to the tumor or enhance the tumor signals to the dendritic
cells (in essence, making the tumor signals “louder”).
We and a few others (e.g., Dendreon) are
taking a different approach, based on the belief that existing dendritic cells
in situ
in a patient’s body are impaired
and their ability to receive and process the necessary signals is blocked. Under this view, if the signaling is blocked, then
no matter how “loud” the signal may be, it will not get through and will not achieve the activation needed.
The DCVax Technology
Our platform technology, DCVax, is a personalized
immune therapy which consists of a therapeutic vaccine that uses a patient's own dendritic cells, or DCs, the master cells of
the immune system, as the therapeutic agent. The patient’s DCs are obtained through a blood draw, or leukapheresis. The
DCs are then activated and loaded with biomarkers (“antigens”) from the patient’s own tumor. The activation
shifts the DCs into “attack mode.” The loading of biomarkers into the DCs “educates” the DCs about
what
to attack. The activated, educated DCs are then isolated with very high purity and constitute the DCVax personalized vaccine.
Injection of DCVax (the activated, educated
dendritic cells of the patient) back into the patient, through a simple intra-dermal injection, similar to a flu shot, in the
upper arm initiates a potent immune response against cancer cells, mobilizing the overall immune system and doing so in the natural
way, with the numerous immune agents acting in their normal roles and in combination with each other. In short, DCVax is designed
to restore the potent natural functioning of the immune system which has otherwise been impaired or blocked by the cancer.
Importantly, each activated, educated
dendritic cell has a large multiplier effect, mobilizing hundreds of T cells and other immune cells. As a result, small doses
of such dendritic cells can mobilize large and sustained immune responses.
Diagram 2: One
Educated Dendritic Cell Activates Hundreds of Anti-Cancer Cells
We believe that at least three key aspects
of the DCVax technology contribute to the positive results (described more fully below) seen in clinical trials to date:
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(1)
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DCVax is personalized, and targets
the particular biomarkers expressed on
that patient’s
tumor. Extensive scientific evidence has shown that there
is substantial variation in tumor profiles and characteristics among
patients with the “same” cancer. The degree of variation
is particularly enormous in some of the most aggressive cancers,
such as GBM brain cancer and pancreatic cancer. Cancer drugs are
typically keyed to a single target which is believed to be found
on the cancer cells’ surface or in one of the cancer cells’
signaling pathways in a substantial percentage of patients with a
given type of cancer. Such drugs can be of no use in patients whose
cancers do not happen to express that particular target, or cease
expressing that target as the disease progresses. Most cancer drugs
only achieve clinical benefits in a limited percentage of the patients
with the type of cancer being targeted (e.g., 25 – 30%
of the patients). In contrast, DCVax has achieved clinical benefits
(i.e., longer delay in disease progression and longer extension of
survival than with standard of care treatment) in over 80% of the
patients who have received DCVax in clinical trials to date. Since
DCVax is made with biomarkers from the patient’s own tumor,
it is automatically tailored to targets that are present on that
patient’s cancer.
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(2)
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DCVax is designed to target not just
one but the
full set
of biomarkers on the patient’s
tumor. As mentioned above, cancer drugs are typically rifle shots
aimed at just one target on a patient’s cancer. However, cancer
is a complex and variable disease. Tumor profiles vary among patients
with the “same” cancer and also vary as the disease progresses.
Further, when rifle shot drugs hit individual targets on cancers,
the cancers find ways around them (called “escape variants”) — and
the rifle shot treatments then usually stop working. DCVax takes
the opposite approach: instead of aiming at a single target, DCVax
is designed at the full set of biomarkers on a patient’s cancer.
Such treatment approach is expected to make it more difficult for
tumors to develop escape variants.
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(3)
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DCVax is designed to mobilize the
entire immune system
, not just one among the many
different categories of immune agents in that overall system. As
described above, DCVax is comprised of activated, educated dendritic
cells, and dendritic cells are the master cells of the immune system,
that mobilize or help the entire immune system. Some of the prominent
cancer drugs today are composed of just one type of antibody — and
antibodies themselves are just one type of agent in the overall immune
“army” (see Diagram 1 above). In contrast, the full immune
system involves many types of antibodies, and also many other kinds
of agents besides antibodies. Similarly, there have been a variety
of early immune therapies that failed in the past. These, too, typically
involved single agents, such as a single one among the many, many
types of immune signaling molecules (e.g., a particular interferon
or interleukin), or a single type of agent such as T cells alone,
etc. In contrast, dendritic cells mobilize all of these different
categories of agents, comprising the whole immune “army,”
in combination with each other and in their natural relationships
to each other.
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DCVax Product Lines
We have developed several different product
lines based on the DCVax technology, to address multiple different cancers and different patient situations. There are two main
components to each DCVax product: the immune cells (dendritic cells) and the cancer biomarkers (antigens).
All of our DCVax product lines are made
from the patient’s own dendritic cells. The dendritic cells are freshly isolated, and newly matured and activated. We believe
that the existing dendritic cells in a cancer patient have already been compromised by the cancer, and we believe that is the reason
other vaccines aimed at the existing dendritic cells in patients have largely failed. However, the patient’s body continues
to produce new precursors of dendritic cells, and these precursors (monocytes) circulate in the patient’s blood stream. For
all DCVax products, these precursors are obtained through a blood draw, and then (through our proprietary manufacturing processes),
the precursors are matured into a fresh, uncompromised batch of new dendritic cells.
The antigen (biomarker) component, which
is combined with the fresh, personalized dendritic cells, varies among the DCVax product lines.
DCVax-L
— is made
with cancer antigens from tumor lysate (a protein extract from processed tumor cells) from the patient’s own tumor tissue.
As such, DCVax-L incorporates the
full set
of tumor antigens, making it difficult for tumors to find ways around it (“escape
variants”), as described above. This is the DCVax product that has been used in our brain cancer and ovarian cancer clinical
trials, and is currently in our Phase III trial. DCVax-L is expected to be used for any solid tumor cancers in situations in which
the patient has their tumor surgically removed as part of standard of care.
DCVax-Direct
— is designed
for situations in which the tumors are inoperable — where it is not feasible or not desirable for patients to
have their tumors surgically removed. This includes situations in which patients have multiple metastases, or for other reasons
cannot have their tumors removed. Like DCVax-L, DCVax-Direct also incorporates the
full set
of tumor antigens — but
it does so
in situ
in the patient’s body rather than at the manufacturing facility. With DCVax Direct, the fresh,
new dendritic cells are partially matured in a special (patent-protected) way so as to be ready to pick up antigens directly from
tumor tissue in the patient’s body, and also communicate the information about those antigens to other agents of the immune
system, such as T cells. The partially matured dendritic cells are then injected directly into the patient’s tumor(s). There,
the dendritic cells pick up the antigens
in situ
rather than picking up the antigens from lysate in a lab dish at the manufacturing
facility, as is done with DCVax-L.
DCVax-Prostate
— is
designed specifically for late stage, hormone independent prostate cancer. Such cancer involves the spread of micro-metastases
beyond the prostate tissue. In most patients, there is no focal tumor which can be surgically removed and used to make lysate,
or into which dendritic cells can be directly injected. Instead, the cancer cells are diffuse. We have developed a DCVax product
line using a particular proprietary antigen — PSMA (Prostate Specific Membrane Antigen) — which
is found on essentially all late stage (hormone independent) prostate cancer. The PSMA is produced through recombinant manufacturing
methods, and is then combined with the fresh, personalized dendritic cells to make DCVax-Prostate.
Simplicity of DCVax for Physicians
and Patients
All of the DCVax product lines are designed
to be very simple for both physicians and patients, to fit within existing medical practices and procedures, and to be deliverable
in virtually any clinic or doctor’s office. A number of complex, sophisticated and proprietary technologies are required
for the production and frozen storage of DCVax, but these technologies are mostly deployed at the manufacturing facility and do
not entail any effort or involvement by physicians or patients.
Front-end simplicity
For all DCVax product lines, the precursors
(monocytes) for the fresh, new dendritic cells are obtained through a blood draw. This blood draw can be done not only at the
hospital or cancer center where the patient is being treated, but at any blood center such as the Red Cross.
For DCVax-L, the collection of the patient’s
tumor tissue, which is to be used to make lysate and provide the antigen component of the vaccine, involves a simple kit. The kit
consists of a box with a vial which has a grinder top and is pre-loaded with a proprietary mix of enzymes. Such kits can be kept
on hand like any inventory item at medical centers. In the operating room, after the tumor has been surgically removed, instead
of disposing of the tissue in the medical waste, the nurse or technician chops the tissue coarsely and drops it into the vial,
puts the vial back into the box, and hands the box to a courier pick-up service such as FedEx’s or UPS’ life science
division, or a specialized courier such as World Courier.
For DCVax-Direct and DCVax-Prostate, there
is no tumor tissue collection involved.
Back-end simplicity
For all DCVax products, administration
to the patient involves a simple intra-dermal injection under the skin. All DCVax products are stored frozen in single doses. Such
doses are tiny, and require less than 5 minutes to thaw. DCVax must remain frozen throughout the distribution and delivery process,
until the time of administration to the patient, and cannot be handled at room temperature before that. Hospitals, pharmacies and
physicians may need to adopt new requirements for handling, distribution and delivery of DCVax.
There are no handling steps at the point
of care except thawing the frozen DCVax product to room temperature. There are also no intravenous infusions. DCVax-L and DCVax-Prostate
are administered through a simple intra-dermal injection, similar to a flu shot, and are just a few drops in size. With the absence
of handling steps at the point of care, and the simple intra-dermal injection, these DCVax products can be delivered to patients
in virtually any clinic or doctor’s office.
The simplicity for patients also lies in
the fact that DCVax is non-toxic. Patients do not have to take a second set of drugs to manage side effects of DCVax.
Clinical Programs and Clinical Trial
Results
Overall Clinical Pipeline
Over the last ten years, we have built
a robust clinical pipeline with DCVax products for multiple cancers, which we believe provides us with multiple opportunities for
success. Our lead products, DCVax-L for GBM brain cancer and DCVax-Prostate for late stage prostate cancer, have reached late stage
clinical trials. In addition to these, our DCVax-L has also been administered in an early stage trial for metastatic ovarian cancer,
and other DCVax products have been cleared by the FDA to begin early stage trials in multiple other cancers.
The results seen in patients who received
DCVax treatments in our Phase I/II clinical trials have been quite consistent. More than 80% of patients who received DCVax in
trials to date have shown clinical benefits (longer delays in disease progression and longer extension of survival than with standard
of care), compared with only 25 – 30% of patients showing clinical benefits with typical cancer drugs. Further,
the clinical effects observed were largely consistent across diverse types of cancer, and diverse patient profiles (including,
age, gender, physical condition, and different stages of disease). Nearly as important, in clinical trials to date, there have
been no serious adverse events related to the study drug (DCVax).
Brain Cancer (GBM)
As discussed above, GBM is the most aggressive
and lethal type of brain cancer. With full standard of care treatment today, including surgery, radiation and chemotherapy, the
cancer recurs in a median of just 6.9 months and kills the patient in a median of just 14.6 months. There has been very little
improvement in clinical outcomes for GBM patients in the last 30 years. The incidence of GBM appears to be on the rise, for unknown
reasons, and there is an urgent need for new and better treatments.
Our Prior Clinical Trials
We, together with our collaborator, Dr.
Linda Liau, have conducted two prior Phase I/II clinical trials at UCLA with DCVax-L for GBM brain cancer. These trials consisted
of 30 patients with newly diagnosed GBM and recurrent GBM. The newly diagnosed patients who received DCVax in addition to standard
of care treatment typically did not have tumor recurrence for a median of approximately 2 years, more than triple the usual time
with standard of care, and patients survived for a median of approximately 3 years, approximately 2½ times the usual period
attained with standard of care treatment.
Furthermore, a substantial percentage of
patients who received DCVax in the prior clinical trials have continued in a “long tail” far beyond even the 3 year
median survival. As of the latest long-term data update in July, 2011, 33% of the patients had reached or exceeded 4 years’
median survival and 27% had reached or exceeded 6 years’ median survival, compared with 14.6 months median survival with
full standard of care treatment today.
Although the number of patients in our
prior clinical trials for GBM has been limited, the difference in clinical outcomes with DCVax has been very large relative to
outcomes with standard of care treatments. Comparisons of the patient outcomes in our trials with the outcomes of matched pools
of patients treated with the same standard of care, in the same time period at the same hospital, display a high level of statistical
significance rarely seen, even in clinical trials with much larger numbers of patients. The data on the results of our prior Phase
I/II trials, if reproducible in a larger study, such as our current 312-patient Phase III trial, would demonstrate that patients
with GBM can derive significant clinical benefit from DCVax treatment.
The measure of statistical significance,
or “p value,” measures the probability that a set of clinical results are due to chance or random events. Accordingly,
the smaller the “p value,” the smaller the chance that the results are random and the higher the statistical significance
of the results. The FDA generally requires that the results of clinical trials reach a “p value” of .05 or less, meaning
that there is a 5% or less chance that the trial results were due to chance or random events.
Comparisons of the clinical results in
our two prior clinical trials with DCVax for GBM, with a small number of patients, and the clinical results in a matched pool of
patients as described above, achieved the following “p values”:
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For the delay in time to recurrence, from 6.9 months with standard of care to approximately 2 years in
patients treated with DCVax, the comparison “p value” was .00001 (i.e., a 1 in 100,000 chance that these results were
random events). In general, the FDA requires a p value of 0.05 or less for product approval (i.e., a 5 in 100 chance or less that
the clinical trial results were random events).
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For the extension of survival time, from 14.6 months with standard of care to approximately 3 years in
patients treated with DCVax, the comparison “p value” was .0003 (i.e., a 3 in 10,000 chance that these results were
random events). In general, the FDA requires a p value of 0.05 or less for product approval (i.e., a 5 in 100 chance or less that
the clinical trial results were random events).
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Following up on these results, in 2007 – 2008,
we designed and began a 140-patient randomized, controlled Phase II trial but without a placebo and without blinding (which can
only be achieved with a placebo that is indistinguishable from the new treatment being tested), as no placebo had been developed
for our living cell product, DCVax. Unfortunately, without a placebo and blinding, patients who were randomized to the control
group in the trial knew that this was the case — and, not surprisingly, they tended to drop out of the trial. As
a result, that 140-patient Phase II trial had to be stopped and a placebo had to be developed to enable blinding, so that patients
would not know whether they were receiving DCVax or a placebo.
Placebos to look indistinguishable from
various kinds of pills can readily be made, but creating or selecting a placebo to be indistinguishable from living cells in a
vial (such as the living immune cells that comprise DCVax) was a different and difficult challenge. Not only must the placebo look
indistinguishable from the DCVax
visually
, it must also not have any positive
functional
action of its own that would
muddy the trial results. After considerable work, we succeeded in developing such placebo arrangements and re-designing the Phase
II trial to accommodate them, including nearly doubling the number of patients (from 140 to 240 patients).
We obtained a new FDA clearance and re-approvals
by all the clinical sites, and commenced the new Phase II trial in early 2008. Unfortunately, we had only been underway for a short
period when the economic crisis hit. We were able to keep the trial open, and continue treating the patients already enrolled in
the trial, but we had to suspend new enrollment of additional patients into the trial. This suspension continued through the end
of 2010, solely due to the severe economic downturn and resulting resource constraints.
In Q1 of 2011, we began the process of
resuming new enrollment – obtaining renewals of institutional review board or IRB approvals and other necessary steps. We
resumed the enrollment activity in Q2 of 2011. At that time, the trial was only at a dozen sites and only in the US. During 2011,
we expanded the trial to 25 sites across the US.
In an amendment to the clinical trial protocol
which became effective on May 3, 2012, the FDA, among other things, accepted the re-designation of this ongoing trial from a Phase
II to a Phase III. In August 2012, the UK regulatory authority (the Medicines and Healthcare Products Regulatory Authority, or
MHRA) also approved this trial to proceed in the UK as a Phase III trial.
Our Current Phase III Clinical Trial
During 2012, the Phase III brain cancer
trial was expanded to 42 sites in the US, and nearly 30 additional sites were identified and in varying stages in the UK and Germany.
As of March 31, 2013, there are 43 clinical
sites open and operating for the trial across the United States with more expected to become operational during 2013.
Inoperable Solid Tumor Cancers
Our DCVax-Direct product offers a potential
new treatment option for the wide range of clinical situations in which patients' tumors are considered “inoperable”
because the patient has multiple tumors, or their tumor cannot be completely removed, or the surgery would cause undue damage to
the patient and impair their quality of life.
A large number of patients with a variety
of cancer types (including lung, colon, pancreatic, liver, ovarian, head and neck, and others) are faced with this situation, because
their tumors are already locally advanced or have begun to metastasize by the time symptoms develop and the patients seek treatment.
For these patients, the outlook today is bleak and survival remains quite limited.
DCVax-Direct is administered by direct
injection into a patient's tumors. It can be injected into any number of tumors, enabling patients with locally advanced disease
or with metastases to be treated. DCVax-Direct can also be injected into tumors in virtually any location in the body: not only
tissues at or near the surface of the body but also, with ultra-sound guidance, into interior tissues.
As described above, we have been making
arrangements to launch our initial Phase I/II clinical trial with DCVax-Direct, which is approved by FDA to proceed in all solid
tumor cancers. In the fall of 2012, we initiated the processes for manufacturing DCVax-Direct for the clinical trial. During Q1
of 2013, we have expanded and accelerated the manufacturing preparations, including test runs and other qualification and optimization
work.
During 2012, we entered into collaborations
with premiere institutions for the DCVax-Direct trial, such as the Sarah Cannon Research Institute, with its network of more than
700 physicians in the US and UK who see more than 75,000 new cancer patients per year. During Q1 of 2013, major cancer centers
across the US have contacted us expressing interest in becoming sites in the DCVax-Direct clinical trial, and we have entered into
discussions to expand the trial and the collaborations relating to it. We anticipate launching the trial during Q2 of 2013.
As is standard with Phase I/II trials,
the DCVax-Direct trial will not be blinded, and the results will be visible as the trial proceeds over the course of 2013. The
Phase I stage of the trial involves dose escalation and confirmation. The Phase II stage of the trial will focus on efficacy. The
primary measure of efficacy will be regression (i.e., shrinkage or elimination) of the inoperable tumors. Such regression is a
rapid endpoint: if it is going to occur, is anticipated to occur within a couple months of treatment.
Prostate Cancer
Prostate cancer is the most common cancer
in men in the U.S., accounting for more than 25% of all cancers in men, and nearly twice as many cases per year as lung cancer
in men, according to the American Cancer Society. For late stage prostate cancer, there is a pressing unmet need for new treatments.
This late stage cancer includes two subsets of patients, comprising two distinct markets: (A) about 80 – 85% of
patients do not yet show metastases, have a last good period of life, and typically live for about 36 months; and (B) about 15 – 20%
of patients have more aggressive disease, show metastases right away, and only live for about 18 months. Nearly 100,000 men reach
these late stages of prostate cancer every year in the United States alone (with similar numbers in Europe). Yet, there is no FDA
approved drug specifically for the patients in group A, who comprise the vast majority of late stage prostate cancer patients.
For the patients in group B, there are
a growing number of FDA approved drugs, including taxotere (docetaxel), Provenge, Zytiga and Xtandi, but they only add
a few months of survival. Taxotere adds about 10 weeks of survival, in only a limited percentage of patients, and has toxic side
effects. The Provenge immune therapy developed by Dendreon Corporation adds about 4 months of survival. Zytiga and Xtandi work
through different mechanisms of action, and they, too, add only 4 – 5 months of survival.
We believe that DCVax-Prostate can offer
a much needed treatment for late stage prostate cancer patients in group A, for whom there is no treatment specifically approved
by FDA today. In addition, for patients in group B, we believe that DCVax-Prostate can potentially offer a much longer extension
of survival.
Our Prior Clinical Trials
Clinical experience with DCVax-Prostate
dates back more than a decade, and has reached the Phase III trial stage. More than one hundred patients were treated with DCVax-Prostate
in an academic clinical setting in the mid and late 1990s. Based on encouraging results from those treatments, we undertook a
Phase I/II clinical trial with 35 patients at two leading clinical centers: MD Anderson and UCLA. Based upon positive results
from that trial, we designed a large 612-patient, Phase III clinical trial, and previously obtained FDA clearance to proceed with
this trial. The details of these clinical programs are described below.
Our Phase I/II clinical trial, conducted
at MD Anderson and UCLA, included both subsets of hormone independent prostate cancer patients: group A, without visible metastases,
and group B, with metastases. As is standard for Phase I/II trials, in our Phase I/II trial all patients in the trial received
the DCVax treatment (there was no placebo control arm). For Group A patients, the information below shows a comparison of
our clinical results with the natural course of the disease in group A (for whom there is no established standard of care treatment).
For group B patients, the information below shows a comparison of our clinical results with the results reported in clinical trials
and clinical practice with two of the four treatments that are currently FDA approved for these patients (Taxotere and Provenge).
The results of this clinical trial were as follows. Two drugs not shown below (Zytiga and Xtandi) produced clinical outcomes similar
to Provenge.
Group A: Hormone Independent Prostate Cancer
Patients
without
Metastases
|
|
|
Natural
Course of Disease
|
|
With
DCVax-Prostate
|
Median time to
disease progression
(appearance of bone metastases)
|
|
28 - 34 weeks
|
|
59 weeks
|
|
|
|
|
|
|
|
Median survival
|
|
36 months
|
|
>
54 months and continuing
**
|
|
|
|
|
|
**(more than half of these
patients still alive as of
12/31/05-last data follow-up)
|
Group B: Hormone Independent
Prostate Cancer Patients
with
Metastases
|
|
|
With
Standard of Care
(Taxotere)
|
|
With
Provenge
|
|
With
DCVax-Prostate
|
|
Median survival
|
|
18.9 months
|
|
25.9 months
|
|
38.7 months
|
|
Overall survival
at 3 years
|
|
11%
|
|
33%
|
|
64%
|
Thus, in the prior Phase I/II clinical
trial, patients without metastases (group A) who were treated with DCVax-Prostate typically lived at least 1½ years longer
than patients going through the natural course of the disease.
Patients with metastases (group B) who
were treated with DCVax-Prostate lived twice as long as patients typically do with standard of care (receiving the drug taxotere),
and more than a year longer than Dendreon has reported that such patients lived when treated with its Provenge immune therapy
in the clinical trials upon which FDA approval of Provenge was based.
Following these positive results in both
group A and group B patients, we determined to focus our Phase III clinical trial on the patients in group A, because 80-85% of
late stage prostate cancer patients fall into this group, while only 15 – 20% fall into group B. In contrast, Dendreon
focused its clinical trials on the group B patients, and obtained FDA approval only for that group of patients. Thus, the addressable
market for our DCVax-Prostate will be at least four times the size of the addressable market for Provenge. Due to the size and
anticipated cost of the Phase III trial (at least $75 million or more), we plan to proceed with that trial only in the context
of partnering arrangements.
Target Markets
Since DCVax is expected, ultimately, to
be applicable to most types of solid tumor cancers, we believe the potential market for DCVax can be very large. According to the
American Cancer Society, 1 in 2 men, and 1 in 3 women in the U.S. will develop some form of cancer in their lifetime. There are
nearly 1.5 million new cases of cancer per year in the U.S., and nearly 600,000 deaths from cancer. The statistics are similar
in Europe and in much of the rest of the world.
Even focusing just on the two DCVax products
which have already reached late stage clinical trials — for GBM brain cancer and for hormone independent prostate
cancer, as described above — we believe that the target markets for each of these have very large (billion dollar)
revenue potential.
Brain cancer
Brain cancers fall into two broad categories:
primary (meaning the cancer first originates in the brain) and metastatic (meaning the cancer first appears elsewhere in the body,
but subsequently metastasizes to the brain). In the U.S. alone, on an annual basis, there are some 40,000 new cases of primary
brain cancer, and 160,000 new cases of metastatic brain cancer. The numbers are similar in Europe and the rest of the world.
Within the category of primary brain cancer,
Grade 4 GBM is the most aggressive and lethal type. Among the 40,000 new cases of primary brain cancer per year in the U.S., at
least 12,000 cases are GBM (with some estimates as high as 17,000) and the incidence is increasing.
In addition, brain cancer is a serious
medical problem in children 18 years and under. It is the second most frequent type of childhood cancers (after leukemias) and,
following progress in reducing death rates from leukemias, it is now the leading cause of childhood cancer deaths.
Very little has changed in the last 30
years in the treatment and clinical outcomes for GBM. With all standard of care treatment today — surgery, radiation
and chemotherapy — patients still die within a median of about 14.6 months from diagnosis.
The one drug which has become the standard
of care chemotherapy treatment for GBM, Temodar, achieved market saturation extremely rapidly, within two years of product launch.
Temodar added 10 weeks of survival (extending survival from its historical 12 months to the 14.6 months typical today), and did
so in a limited percentage of patients. Other drugs approved by FDA for GBM, such as Avastin, did not extend survival at all.
Against this backdrop, we believe DCVax
is well positioned for this target market. Further, after seeking regulatory approval for DCVax for the GBM subset of primary
brain cancers, in the future we plan to conduct clinical trials and seek approval for other (lower grade) primary brain cancers
and for metastatic brain cancers.
We believe that the market potential of
DCVax for brain cancer, even under conservative assumptions, is very large. For example, if one counts only GBM cases (and not
other primary brain cancers nor any metastatic brain cancers), only in the U.S. and Europe (and not rest of world), and one assumes
a 50% market share (compared with Temodar whose market share rapidly reached saturation), the number of cases to be treated with
DCVax would be at least 12,000 per year.
Prostate cancer
We also believe that the market potential
of DCVax for prostate cancer is very large, even under conservative assumptions. Prostate cancer is the most common cancer in men.
More than 200,000 new cases per year are diagnosed in the U.S. alone, according to the American Cancer Society, with similar numbers
in Europe. Among these, at least 100,000 new cases reach late stage prostate cancer each year in the U.S. (with similar numbers
in Europe).
Among these 100,000 new late stage prostate
cancer cases per year, 80 – 85% of the patients have no visible metastases, and only 15 – 20%
already have visible metastases. As noted above, in prior clinical trials, patients in both groups were treated with DCVax, and
both groups showed positive results (substantial extensions of survival, far beyond existing treatment options — including
Provenge). We are focusing our Phase III trial on the much larger market: patients without visible metastases, comprising 80 – 85%
of the 100,000 new cases per year in the U.S.
If one counts only those 80 – 85,000
late stage patients, only in the U.S. (not counting either Europe or rest of world), and one assumes only a 25% market share (compared
with Taxotere, whose market share is very high despite adding only 10 weeks of survival), the number of cases to be treated with
DCVax would be 20 – 21,000 cases per year.
Manufacturing of DCVax
We believe that our proprietary manufacturing
process for DCVax products is a key to our favorable product economics, and we are positioning DCVax to be a potential front line
therapy that can be provided to patients everywhere. We have spent more than a decade honing this manufacturing process.
We have pioneered a manufacturing model
under which at least 3 years of treatments are produced in one large batch in each manufacturing cycle. In addition, we have implemented
special cryopreservation methods which enable this multi-year quantity of product to be frozen, and kept frozen for years, while
maintaining its potency.
Both of these technologies, the multi-year
batch manufacturing and the cryopreservation, are essential elements of our manufacturing model and product economics. Together,
they enable us to incur the high costs of manufacturing just one time, and then store the multi-year quantity of product, frozen,
in single doses. This makes DCVax effectively an “off the shelf” product for the patient, even though it is personalized,
and enables the price of DCVax to be at or below the price level of modern, non-personalized cancer drugs while still achieving
reasonable profit margins. This is already the case while we are using first generation manufacturing, without automation and
have not yet scaled up to obtain significant economies of scale. We believe that both automation and economies of scale will further
enhance the product economics.
Our manufacturing process has been taught
to, and replicated at, Kings College in England and the Fraunhofer Institute in Germany, so that the same efficiencies and quality
controls will be present for the DCVax produced both in Europe and the United States.
Our manufacturing process for DCVax-L takes
about 8 days, followed by quality control and sterility testing. It involves several main steps as follows:
Isolation of Precursors
. The
precursors of new dendritic cells are isolated from the patient's white blood cells, which were obtained through a blood draw
and sent to the manufacturing facility.
Differentiation of Precursors into
Immature Dendritic Cells
. Precursors are differentiated (transformed) into immature dendritic cells through a
six-day culture period, during which specific growth factors are applied in a manner that mimics the natural process in a healthy
person's body.
Maturation of Dendritic Cells
. Immature
dendritic cells are exposed to proprietary maturation factors and methods.
Antigen Display and Activation of Dendritic
Cells
. Cancer-associated antigens or antigen fragments obtained from the patient’s own tumor tissue or, for
prostate cancer, produced recombinantly, are added to the maturing dendritic cells. The dendritic cells ingest and process the
antigen materials, and then display fragments on their outer cell surfaces (which will serve to pass along the activation signals
from these dendritic cells to other agents in the immune system, such as T cells and B cells, when the dendritic cells are injected
back into the patient.
Harvest
. These matured
and activated new dendritic cells are isolated with very high purity, and divided into single-dose vials. They are then frozen
and stored until needed.
For DCVax-Direct, our manufacturing process
is similar, but simpler as it does not involve full maturation of the dendritic cells and does not involve the antigen display
and activation stage. The DCVax-Direct manufacturing process is partly automated with a proprietary system, and takes about 6 days.
We contract out the manufacturing of our
DCVax products to Cognate BioServices. Although there are many contract manufacturers for small molecule drugs and for biologics,
there are only a few major contract manufacturers in the U.S. that specialize in producing living cell products. Cognate is one
of those few and appears to have the most substantial track record of clinical trial approvals from FDA for cellular products.
The manufacturing of living cell products is highly specialized and entirely different than production of biologics: the physical
facilities and equipment are different, the types of personnel and skill sets are different, and the processes are different.
In addition, the regulatory requirements
for living cell products are exceptionally difficult to meet — particularly for
personalized
living cell products, which
can vary considerably from patient to patient. We believe that among companies developing such living cell products, nearly all
cases in which clinical trials have been put on clinical hold (i.e., stopped) by FDA have been because of product or manufacturing
related issues.
Cognate has a leading regulatory track
record. According to Cognate, the Cognate team has been responsible for the product and manufacturing aspects of more than 20 INDs
(applications for approval of clinical trials) for living cells products, and all of these INDs have been approved. Moreover, the
Company believes, based upon information provided by Cognate, that no client of Cognate has been put on clinical hold in connection
with its product.
Cognate’s manufacturing facility
for clinical-grade cell products is located in Memphis, Tennessee, near the airport. Memphis is a worldwide air shipping hub for
both Federal Express and UPS. Cognate's facility is approximately 35,000 square feet and contains substantial expansion space in
addition to the portions currently built out and in use. The current manufacturing facilities are sufficient to produce DCVax for
at least several thousand patients per year — an amount well in excess of what is needed for the late stage clinical
trial under way. There is a large amount of expansion space, which is already planned for build- -out in stages to allow for scale
-up of production capacity in a modular fashion as the need increases for commercialization. This would allow Cognate's current
facility to increase to a total capacity of some 5,000 patients per year. In addition, the manufacturing arrangements with Fraunhofer
in Germany and Kings College London in the United Kingdom provide further manufacturing capacity and flexibility. As a comparison,
Dendreon commercially launched its Provenge dendritic cell vaccine for prostate cancer with initial manufacturing capacity for
only 2,000 patients per year for a cancer that occurs in at least 100,000 new cases per year In the U.S. alone.
Intellectual Property and Orphan Drug
Designation
We have an integrated strategy for protection
of our technology through both patents and other mechanisms, such as Orphan Drug status. As of December 31, 2012, we have over
180 issued and pending patents worldwide, grouped into 17 patent families. Some cover the use of dendritic cells in particular
DCVax products. Others cover key processes for manufacturing and quality control for DCVax, as well as an automated system which
we believe will play a major role in the scale-up of production for large numbers of patients on a cost-effective basis.
During 2012, a dozen new patents were issued to us as part of
our worldwide patent portfolio. The newly issued patents covered a variety of subject matter, such as the proprietary partial maturation
for DCVax-Direct, the machines and systems to manufacture DCVax-Direct, certain processes for enhancing the potency of dendritic
cells in general, certain measures of product quality, and other matters.
The expiration dates of the issued patents
in our portfolio range from 2015 to 2026. For some of the earlier dates, we plan to seek extensions of the patent life, and believe
we have reasonable grounds for doing so.
In addition to our patent portfolio, we
have obtained Orphan Drug designation for our lead product, DCVax-L for brain cancer. Such designation brings with it a variety
of benefits, including potential market exclusivity for seven years in the U.S. and ten years in Europe if our product is the first
of its type to reach the market.
This market exclusivity applies regardless
of patents, according product exclusivity on the market even if the company that developed it has no patent coverage on the product.
In addition, the time period for such market exclusivity does not begin to run until product sales begin. In contrast, the time
period of a patent begins when the patent is filed and runs down during the years while the product is going through development
and clinical trials.
In order to qualify for these incentives,
a company must apply for designation of its product as an “Orphan Drug” and obtain approval from the FDA, or its counterpart,
abroad. In addition, for the market exclusivity, a product must be either the first of its kind for a particular disease to reach
the market, or clinically superior to a product currently on the market. The U.S. and the European Union each granted an Orphan
Drug designation for our DCVax-L product for GBM.
Competition
The biotechnology and biopharmaceutical
industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products.
Several companies, such as Dendreon, Celldex Therapeutics, Inc., Ark Therapeutics plc, Oxford Biomedica plc, Argos Therapeutics,
Inc., Agenus, Inc., Prima Biomed, Ltd., Avax Technologies, Inc., Immunocellular Therapeutics, Ltd., Activartis, Bavarian Nordic,
Bellicum Pharmaceuticals and others are actively involved in the research and development of immune therapies or cell-based therapies
for cancer. In addition, other novel technologies for cancer are under development, such as the electro-therapy device of NovoCure.
Of these companies, only one has obtained approval of such an immune therapy: Dendreon (for its Provenge treatment of prostate
cancer). 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, a substantial number of antibody-based
drugs are approved for commercial sale for cancer therapy, and a large number of additional ones are under development. 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, as well as some medical device companies
(e.g., NovoCure and MagForce Nano Technologies AG).
We face extensive competition from companies
developing new treatments for brain cancer. These include a variety of immune therapies, as mentioned above, as well as a variety
of small molecule drugs and biologics. There are also a number of existing drugs used for the treatment of brain cancer that may
compete with our product, including, Avastin® (Roche Holding AG), Gliadel® (Eisai Co. Ltd.), and Temodar® (Merck &
Co., Inc.).
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 and sales than we do. Smaller or early-stage companies may also prove to
be significant competitors, particularly if they enter into 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, and in obtaining sites for our clinical trials and enrolling patients.
Recent Developments
In August 2012, our Board and a majority
of our stockholders approved an amendment to our Amended and Restated 2007 Stock Option Plan providing that, on an ongoing basis,
effective January 1 each year, the aggregate number of shares of common stock that are available for issuance under the plan shall
automatically be increased in such manner as to maintain the option pool capped at twenty percent of our issued and outstanding
stock.
On September 25, 2012, we effected a 1-for-16
reverse stock split of our issued and outstanding common stock. In addition, we filed an amendment to our certificate of incorporation
increasing our authorized shares of preferred stock from 20,000,000 to 40,000,000.
In December, 2012, we retired $36.4 million
in aggregate amount of convertible notes, notes and payables and accrued interest by entering into Conversion Agreements with
our non-affiliated and affiliated note holders and creditors, including certain of our directors and executive officers. This
aggregate debt amount was converted into 9.8 million common shares and warrants exercisable for 3.8 million shares of common stock.
The warrants have an exercise period of five years from the date of issuance and a weighted average exercise price of $3.66 per
share.
In April 2012, we announced the addition
of two highly respected experts to our Board: Dr. Navid Malik and Mr. Jerry Jasinowski. Dr. Malik is Head of Life Sciences Research
for Cenkos Securities Plc. in the UK, and has been one of the most influential analysts in the UK and Europe over the last decade,
covering the life sciences industry worldwide. Mr. Jasinowski is a nationally recognized chief executive who headed up the largest
industrial trade association in the US (the National Association of Manufacturers) for fourteen years, and has extensive board
experience across a wide range of manufacturing, technology, and financial firms, including Fortune 1000 and Fortune 500 companies.
In September 2012, we added a pharma industry veteran, Dr. Guenter
Rosskamp, to our management team as CEO of our German subsidiary. Dr. Rosskamp previously served for many years as Head of Central
Nervous System Therapeutics, and as head of Strategic Business Development, for Schering AG (now part of Bayer AG). In those capacities,
Dr. Rosskamp was responsible for the development and commercialization of multiple drugs.
Corporate Information
We were formed in 1996 and incorporated
in Delaware in July 1998. Our principal executive offices are located in Bethesda, Maryland, and our telephone number is (240)
497-9024. Our website address is
www.nwbio.com
. The information on our website is not part of this report. We have included
our website address as a factual reference and do not intend it to be an active link to our website.
Employees
As of March 31, 2013, we had 8 full-time
and 2 part-time employees. We believe our employee relations are satisfactory.
ITEM 1A. RISK
FACTORS
RISK FACTORS
Our business, financial condition,
operating results and prospects are subject to the following material risks. Additional risks and uncertainties not presently
foreseeable to us may also impair our business operations. If any of the following risks actually occurs, our business, financial
condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could
decline, and our stockholders may lose all or part of their investment in the shares of our Common Stock.
Risks Related to our Operations
We will need to raise substantial
funds, on an ongoing basis, for general corporate purposes and operations, including our clinical trials. Such funding may not
be available or may not be available on attractive terms.
We will need substantial additional funding,
on an ongoing basis, in order to continue execution of our clinical trials, to move our product candidates towards commercialization,
to continue prosecution and maintenance of our large patent portfolio, to continue development and optimization of our manufacturing
and distribution arrangements, and for other corporate purposes. Any financing, if available, may include restrictive covenants
and provisions that could limit our ability to take certain actions, preference provisions for the investors, and/or discounts,
warrants or other incentives. Any financing will involve issuance of equity and/or debt, and such issuances will be dilutive to
existing shareholders. There can be no assurance that we will be able to complete any of the financings, or that the terms for
such financings will be attractive. If we are unable to obtain additional funds on a timely basis or on acceptable terms, we may
be required to curtail or cease some or all of our operations at any time.
We are likely to continue to incur
substantial losses, and may never achieve profitability.
As of December 31, 2012, we have an aggregate
accumulated cash deficit, since inception of the Company, of $140.0 million, and accumulated non-cash (accounting measures) deficit
of $179.1 million, making a combined cash and non-cash accumulated deficit of $319.1 million since the Company’s inception.
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, 2012 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 if we do not continue as a going
concern. 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 shareholders, in the event of liquidation.
As a development stage company with
a novel technology and 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 still in the process of developing our product candidates through clinical trials. Our technology is novel and involves
mobilizing the immune system to fight a patient’s cancer. Immune therapies have been pursued by many parties for decades,
and have experienced many failures. In addition, our technology involves personalized treatment products, a new approach to medical
products that involves new product economics and business strategies, which have not yet been shown to be commercially feasible
or successful. We have not yet gone through scale-up of our operations to commercial scale. This limited operating history, along
with the novelty of our technology, product economics, and business strategy, and the limited scale of our operations to date,
makes it difficult to assess our prospects for generating revenues commercially in the future.
We will need to expand our management
and technical personnel as our operations progress, and we may not be able to recruit such additional personnel and/or retain
existing personnel.
As of December 31, 2012, we employ eight
(8) full-time employees and two (2) part-time employees. The rest of our personnel are retained on a consulting or contractor basis.
Biotech companies would typically have a larger number of employees by the time they reach late stage clinical trials. Such trials
require extensive management activities and skill sets, including scientific, medical, regulatory (for FDA and foreign regulatory
counterparts), manufacturing, distribution and logistics, site management, business, financial, legal, public relations outreach
to both the patient community and physician community, intellectual property, administrative, regulatory (SEC), investor relations
and other.
In order to fully perform all these diverse
functions, with late stage trials under way at many sites across the U.S. and soon in Europe, we will need to expand our management
and technical personnel. However, the pool of such personnel with expertise and experience with living cell products, such as
our DCVax immune cell product, is very limited. In addition, we are a small company with limited resources, our business prospects
are uncertain and our stock price is volatile. For some or all of such reasons, we may not be able to recruit all the management
and technical personnel we need, and/or we may not be able to retain all of our existing personnel. In such event, we may have
to continue our operations with a smaller than usual team of personnel, and our business and financial results may suffer.
We rely at present on third-party
contract manufacturers. As a result, we may be at risk for capacity limitations and/or supply disruptions.
We currently rely upon Cognate BioServices,
Inc., or Cognate, to produce all of our DCVax product in the U.S., and to supervise the production of our DCVax product candidates
outside the U.S. The majority owner of Cognate is Toucan Capital, one of our major stockholders, and its affiliates. We have an
agreement in place with Cognate pursuant to which Cognate has agreed to provide manufacturing and other services for the next
five years, in connection with our Phase III clinical trial of DCVax -L in brain cancer, and other programs. The agreement requires
us to make certain minimum monthly payments to Cognate in order to have dedicated manufacturing capacity available for our products,
irrespective of whether we actually order any DCVax products. The agreement also specifies the amounts we must pay for Cognate's
actual manufacturing of DCVax for patients.
We have entered into an agreement with
King’s College London to manufacture DCVax for our clinical trial and our compassionate use cases. Cognate will manage and
supervise the processing in London. In addition, our partner, Fraunhofer, has received approval and certification from the regional
and national regulatory agencies in Germany for the manufacture of DCVax for GBM. We anticipate that the manufacturing facilities
in the U.K. and Germany will eventually obtain the necessary approvals and be able to supply DCVax products for anywhere in Europe,
however this may not turn out to be feasible, for regulatory, operational and/or logistical reasons.
Problems with the manufacturing facilities
or processes of Cognate or our partners in the U.K. and/or Germany could result in a failure to produce, or a delay in production,
of adequate supplies of our DCVax product candidates. A number of factors could cause interruptions or delays, including the inability
of a supplier to provide raw materials, equipment malfunctions or failures, damage to a facility due to natural disasters or otherwise,
changes in FDA or European regulatory requirements or standards that require modifications to our manufacturing processes, action
by the FDA or European regulators, or by us that results in the halting or slowdown of production of components or finished products
due to regulatory issues, our manufacturers going out of business or failing to produce product as contractually required, and/or
other similar factors. Because manufacturing processes for our DCVax product candidates are highly complex, require specialized
facilities and personnel that are not widely available in the industry, involve equipment and training with long lead times, and
are subject to lengthy regulatory approval processes, alternative qualified production capacity may not be available on a timely
basis or at all. Difficulties, delays or interruptions in the manufacturing and supply of our DCVax product candidates could require
us to stop enrolling additional new patients into our trial, and/or require us to stop the trial or other program, increase our
costs, damage our reputation and, if our product candidates are approved for sale, cause us to lose revenue or market share if
our manufacturers are unable to timely meet market demands.
The manufacturing of our product
candidates will have to be greatly scaled up for commercialization, and neither we nor other parties in the industry have experience
with such scale-up.
As is the case with any clinical trial,
our Phase III clinical trial of DCVax-L for GBM involves a number of patients that is a small fraction of the number of potential
patients for whom DCVax-L may be applicable in the commercial market. The same will be true of our other clinical programs with
our other DCVax product candidates. If our DCVax-L, and/or other DCVax product candidates, are approved for commercial sale, it
will be necessary to greatly scale up the volume of manufacturing, far above its level for the trials. Neither we nor our contract
manufacturers have experience with such scale-up. In addition, there are virtually no consultants or advisors in the industry who
have such experience and can provide guidance or assistance, because active immune therapies such as DCVax are a fundamentally
new category of product in two major ways: these active immune therapy products consist of living cells, not chemical or biologic
compounds, and the products are personalized. To our knowledge, no such products have successfully completed the necessary scale-up
for commercialization without material difficulties. For example, Dendreon has encountered substantial difficulties trying to scale
up the manufacturing of its Provenge product for commercialization.
The necessary specialized facilities,
equipment and personnel may not be available or obtainable for the scale-up of manufacturing of our product candidates.
The manufacture of living cells requires
specialized facilities, equipment and personnel which are entirely different than what is required for manufacturing of chemical
or biologic compounds. Scaling up the manufacturing of living cell products to volume levels required for commercialization will
require enormous amounts of these specialized facilities, equipment and personnel — especially where, as in the
case of our DCVax product candidates, the product is personalized and must be made for each patient individually. Since living
cell products are so new, and have barely begun to reach commercialization, the supply of the specialized facilities, equipment
and personnel needed for them has not yet developed. It may not be possible for us or our manufacturers to obtain all of the specialized
facilities, equipment and personnel needed for commercialization of our DCVax product candidates. This could delay or halt our
commercialization.
Our technology is novel, involves
complex immune system elements, and may not prove to be effective.
Data already obtained, or in the future
obtained, from pre-clinical studies and clinical trials do not necessarily predict the results that will be obtained from later
pre-clinical studies and clinical trials. Over the course of several decades, there have been many different immune therapy product
designs — and many product failures and company failures. To our knowledge, to date, only one active immune therapy,
Provenge, has been approved by the FDA. The human immune system is complex, with many diverse elements, and the state of scientific
understanding of the immune system is still limited. Some immune therapies previously developed by other parties showed surprising
and unexpected toxicity in clinical trials. Other immune therapies developed by other parties delivered promising results in early
clinical trials, but failed in later stage clinical trials. To date, we have only completed early stage trials in limited numbers
of patients. Although the results of those trials were quite positive, those results may not be achieved in our later stage clinical
trials, such as the 312-patient Phase III trial we are now conducting for GBM, and our product candidates may not ultimately be
found to be effective.
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. Costs and timing of clinical trials may
vary significantly over the life of a project owing to any or all of the following non-exclusive reasons:
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the duration of the clinical trial;
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the number of sites included in the
trials;
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the countries in which the trial is
conducted;
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the length of time required and ability
to enroll eligible patients;
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the number of patients that participate
in the trials;
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the number of doses that patients receive;
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the drop-out or discontinuation rates
of patients;
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per patient trial costs;
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third party contractors failing to
comply with regulatory requirements or meet their contractual obligations to us in a timely manner;
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our final product candidates having
different properties in humans than in lab testing;
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the need to suspect or terminate our
clinical trials;
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insufficient or inadequate supply of
quality of necessary materials to conduct our trials;
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potential additional safety monitoring,
or other conditions required by FDA or comparable foreign regulatory authorities regarding the scope or design of our clinical
trials, or other studies requested by regulatory agencies;
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problems engaging IRBs to oversee trials
or in obtaining and maintaining IRB approval of studies;
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the duration of patient follow-up;
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the efficacy and safety profile of
a product candidate;
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the costs and timing of obtaining regulatory
approvals; and
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the costs involved in enforcing or
defending patent claims or other intellectual property rights.
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Late stage clinical trials, such as our
Phase III clinical trial for GBM patients, are especially expensive, typically requiring tens of millions of dollars, and take
years to reach their outcomes. Such outcomes often fail to reproduce the results of earlier trials. It is often necessary to conduct
multiple late stage trials (including multiple Phase III trials) in order to obtain sufficient results to support product approval,
which further increases the expense. Sometimes trials are further complicated by changes in requirements while the trials are
under way (for example, when the standard of care changes for the disease that is being studied in the trial). 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 delay or stop the commercialization of our DCVax product candidates.
We may be required to suspend or
discontinue clinical trials due to unexpected side effects or other safety risks that could preclude approval of our product candidates.
Our clinical trials may be suspended at
any time for a number of reasons. For example, we may voluntarily suspend or terminate our clinical trials if at any time we believe
that they present an unacceptable risk to the clinical trial patients. In addition, the FDA or other regulatory agencies may order
the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not
being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the
clinical trial patients.
Administering any product candidate to
humans may produce undesirable side effects. These side effects could interrupt, delay or halt clinical trials of our product
candidates and could result in the FDA or other regulatory authorities denying further development or approval of our product
candidates for any or all targeted indications. Ultimately, some or all of our product candidates may prove to be unsafe for human
use. Moreover, we could be subject to significant liability if any volunteer or patient suffers, or appears to suffer, adverse
health effects as a result of participating in our clinical trials.
We have limited experience in conducting
and managing clinical trials.
We rely on third parties to assist us,
on a contract services basis, in managing and monitoring all of our clinical trials. We do not have experience conducting late
stage clinical trials ourselves without third party service firms, other than our current Phase III trial, nor do we have experience
in supervising such third parties in managing late stage, multi-hundred patient clinical trials, other than our current Phase
III trial. Our lack of experience and/or our reliance on these third party service firms may result in delays or failure to complete
these trials successfully and on time. If the third parties fail to perform, we may not be able to find sufficient alternative
suppliers of those services in a reasonable time period, or on commercially reasonable terms, if at all. If we were unable to
obtain alternative suppliers of such services, we might be forced to delay, suspend or stop our 312-patient Phase III clinical
trial of DCVax-L for GBM.
Multiple late stage clinical trials
of DCVax-L for GBM, our lead product, may be required before we can obtain regulatory approval.
Typically, companies conduct multiple late
stage clinical trials of their product candidates before seeking product approval. Our current Phase III 312-patient clinical trial
of DCVax-L for GBM is our first late stage trial. We may be required to conduct additional late stage trials with DCVax-L for GBM
before we can obtain product approval. This would substantially delay our commercialization. There is also some possibility that
changes requested by the FDA could complicate the application process for product approval. In addition, a number of products are
under development for brain cancer and at least one has recently been approved in the U.S.. It is possible that the standard of
care for brain cancer could change while our Phase III trial is still under way. This could necessitate further clinical trials
with our DCVax-L product candidate for brain cancer.
Changes in manufacturing methods
for DCVax-L could require us to conduct equivalency studies and/or additional clinical trials.
With biologics products, “the process
is the product”: i.e., the manufacturing process is considered to be as integral to the product as is the composition of
the product itself. If any changes are made in the manufacturing process, and such changes are considered material by the regulatory
authorities, the company sponsor may be required to conduct equivalency studies to show that the product is equivalent under the
changed manufacturing processes as under the original manufacturing processes, and/or the company sponsor may be required to conduct
additional clinical trials. Our manufacturing processes have undergone some changes during the early clinical trials. Accordingly,
we may be required to conduct equivalency studies, and/or additional clinical trials, before we can obtain product approval, unless
the regulatory authorities are satisfied that the changes in processes do not affect the quality, efficacy or safety of the product.
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 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, or EMA, will regulate in Europe. 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, and there can be no
assurance that the regulatory authorities will find our data sufficient to support product approval of DCVax-L.
The time required to obtain regulatory
approval varies between countries. In the U.S., for products without “Fast Track” status, it can take up to eighteen
(18) months after submission of an application for product approval to receive the FDA's decision. Even with Fast Track status,
FDA review and decision can take up to twelve (12) months. At present, we do not have Fast Track status for our lead product,
DCVax-L for GBM. We plan to apply for Fast Track status, but there can be no assurance that FDA will grant us such status for
DCVax-L.
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 as well as case load at the regulatory agency at the time.
We may fail to comply with regulatory
requirements.
Our success will be dependent upon our
ability, and our collaborative partners’ abilities, to maintain compliance with regulatory requirements, including current
good manufacturing practices, or 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.
Regulatory approval of our product
candidates 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, including the review of adverse experiences
and clinical results that are reported after our products are made available to patients, 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 such obligations
are not fulfilled. If post-approval studies are required, such studies may involve significant time and expense.
The manufacturer and manufacturing facilities
we use to make any of our products will also be subject to periodic review and inspection by the FDA or EMA, as applicable. The
discovery of any new or previously unknown problems with the product, manufacturer or facility may result in restrictions on the
product or manufacturer or facility, including withdrawal of the product from the market. We will continue to be subject to the
FDA or EMA requirements, as applicable, governing the labeling, packaging, storage, advertising, promotion, recordkeeping, and
submission of safety and other post-market information for all of our product candidates, even those that the FDA or EMA, as applicable,
had approved. If we fail to comply with applicable continuing regulatory requirements, we may be subject to fines, suspension
or withdrawal of regulatory approval, product recalls and seizures, operating restrictions and other adverse consequences.
Our product candidates will require
a different distribution model than conventional therapeutic products, and this may impede commercialization of our product candidates.
Our DCVax product candidates consist of
living human immune cells. Such products are entirely different from chemical or biologic drugs, and require different handling,
distribution and delivery than chemical or biologic drugs. One crucial difference is that our DCVax products must remain frozen
throughout the distribution and delivery process, until the time of administration to the patient, and cannot be handled at room
temperature until then. In addition, our DCVax product candidates are personalized and they involve ongoing treatment cycles over
several years for each patient. Each product shipment for each patient must be tracked and managed individually. For all of these
reasons, among others, we will not be able to simply use the distribution networks and processes that already exist for conventional
drugs. It may take time for shipping companies, hospitals, pharmacies and physicians to adapt to the requirements for handling,
distribution and delivery of these products, which may adversely affect our commercialization.
Our product candidates will require
different marketing and sales methods and personnel than conventional therapeutic products. Also, we lack sales and marketing
experience. These factors may result in significant difficulties in commercializing our 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 marketing or sales force and have
no experience in marketing or sales of products like our lead product, DCVax-L for GBM. To fully commercialize our product candidates,
we will need to recruit and train marketing staff and a sales force with technical expertise and ability to manage the distribution
of our DCVax-L for GBM. As an alternative, we could seek assistance from a corporate partner or a third party services firm with
a large distribution system and a large direct sales force. However, since our DCVax living cell, immune therapy products are
a fundamentally new and different type of product than are on the market today, we would still have to train such partner’s
or such services firms’ personnel about our products, and would have to make changes in their distribution processes and
systems to handle our products. We may be unable to recruit and train effective sales and marketing forces or our own, or of a
partner or a services firm, and/or doing so may be more costly and difficult than anticipated. Such factors may result in significant
difficulties in commercializing our product candidates, and we may be unable to generate significant revenues.
We may not obtain or maintain the
benefits associated with orphan drug status, including market exclusivity.
Although our lead product, DCVax-L for
GBM, has been granted orphan drug status in both the United States and the European Union, or EU, we may not receive the benefits
associated with orphan drug designation (including the benefit providing for market exclusivity for a number of years). This may
result from a failure to maintain orphan drug status, or result from a competing product reaching the market that has an orphan
designation for the same disease indication. Under U.S. and EU rules for orphan drugs, if such a competing product reaches the
market before ours does, the competing product could potentially obtain a scope of market exclusivity that limits or precludes
our product from being sold in the U.S. for seven years or from being sold in the EU for ten years. Also, in the EU, even after
orphan status has been granted, that status is re-examined shortly prior to the product receiving any regulatory approval. The
EMA must be satisfied that there is evidence that the product offers a significant benefit relative to existing therapies, in
order for the therapeutic product to maintain its orphan drug status. Accordingly, our product candidates will have to re-qualify
for orphan drug status prior to any potential product approval in the EU.
The availability and amount of potential
reimbursement for our product candidates by government and private payers is uncertain and may be delayed and/or inadequate.
The availability and extent of reimbursement
by governmental and/or private payers is essential for most patients to be able to afford expensive treatments, such as cancer
treatments. In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers
for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, as CMS decides
whether and to what extent a new medicine will be covered and reimbursed under Medicare. Private payers tend to follow CMS to
a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for fundamentally novel products
such as ours, as there is no body of established practices and precedents for these new products. To date, we are aware of only
one active immune therapy that has reached the stage of a reimbursement decision (Provenge). Although CMS approved coverage and
reimbursement for Provenge, and private payers followed suit, there remain substantial questions and concerns about reimbursement
for Provenge, and such questions and concerns appear to be impeding sales.
Reimbursement agencies in Europe can be
even more conservative than CMS in the U.S. A number of cancer drugs which have been approved for reimbursement in the U.S. have
not been approved for reimbursement in certain European countries, and/or the level of reimbursement approved in Europe is lower
than in the U.S.
Various factors could increase the difficulties
for our DCVax products to obtain reimbursement. Costs and/or difficulties associated with the reimbursement of Provenge could
create an adverse environment for reimbursement of other immune therapies, such as our DCVax products. Approval of other competing
products (drugs and/or devices) for the same disease indications could make the need for our products and the cost-benefit balance
seem less compelling. The cost structure of our product is not a typical cost structure for medical products, as the majority
of our costs are incurred up front, when the manufacturing of the personalized product is done. Our atypical cost structure may
not be accommodated in any reimbursement for our products. If we are unable to obtain adequate levels of reimbursement, our ability
to successfully market and sell our product candidates will be adversely affected.
The manner and level at which reimbursement
is provided for services related to our product candidates (e.g., for administration of our product to patients) is also important.
If the reimbursement for such services is inadequate, that may lead to physician resistance and adversely affect our ability to
market or sell our products.
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, or 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.
In markets outside the U.S., where we
plan to operate in the future, the prices of medical products are subject to direct price controls and/or to reimbursement with
varying price control mechanisms, as part of national health systems. In general, the prices of medicines under such systems are
substantially lower than in the U.S. Some jurisdictions operate positive and/or negative list systems under which products may
only be marketed once a reimbursement price has been agreed. Other countries 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. Accordingly,
in markets outside the U.S., the reimbursement for our products may be reduced compared with the U.S. and may be insufficient
to generate commercially reasonable revenues and profits.
Competition in the biotechnology
and biopharmaceutical industry is intense and most of our competitors have substantially greater resources than we do.
The biotechnology and biopharmaceutical
industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products.
Several companies, such as Novartis, Amgen and Bluebird Bio, Dendreon, Celldex Therapeutics, Inc., Activartis, Oxford Biomedica
plc, Argos Therapeutics, Inc., Agenus, Inc., Prima Biomed, Ltd., Avax Technologies, Inc., Immunocellular Therapeutics, Ltd., Bavarian
Nordic, Bellicum Pharmaceuticals, and others are actively involved in the research and development of immune therapies or cell-based
therapies for cancer. In addition, other novel technologies for cancer are under development or commercialization, such as the
electro-therapy device of NovoCure. Of these companies, only two have obtained approval of such therapy: Dendreon (for its Provenge
treatment of prostate cancer) and NovoCure. 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,
a substantial number of antibody-based products are approved for commercial sale for cancer therapy, and a large number of additional
ones are under development. 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, as well as some medical device companies (e.g.,
NovoCure and MagForce Nano Technologies AG).
We face extensive competition from companies
developing new treatments for brain cancer. These include a variety of immune therapies, as mentioned above, as well as a variety
of small molecule drugs and biologics drugs. There are also a number of existing drugs used for the treatment of brain cancer
that may compete with our product, including, Avastin® (Roche Holding AG), Gliadel® (Eisai Co. Ltd.), and Temodar®
(Merck & Co., Inc.), as well as NovoCure’s electrotherapy device.
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 and sales than we do. Smaller or early-stage companies may also prove to
be significant competitors, particularly if they enter into 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, and in obtaining sites for our clinical trials and enrolling patients.
Our competitors may develop more effective
or affordable products, or achieve earlier patent protection or earlier product marketing and sales. Any products developed by
us may be rendered obsolete and non-competitive.
Competing generic medicinal products
may be approved.
In the EU, there exists a process for
approval of generic biological medicinal products once patent protection and other forms of data and market exclusivity have expired.
Arrangements for approval of generic biologics products exist and are under consideration in the U.S., as well. Other jurisdictions
are considering adopting legislation that would allow the approval of generic biological medicinal products. If generic medicinal
products are approved, competition from such products may substantially reduce sales of our products.
We may be exposed to potential product
liability claims, and our existing insurance may not cover these claims in whole or in part. In addition, insurance against such
claims may not be available to us on reasonable terms 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. We carry insurance
coverage but this insurance may not cover any claims made. In the future, insurance coverage may not be available to us on commercially
reasonable terms (including acceptable cost), if at all. Insurance that we obtain may not be adequate to cover claims against
us. Regardless of whether they have any merit or not, and regardless of their eventual outcome, product liability claims may result
in substantially decreased demand for our product candidates, injury to our reputation, withdrawal of clinical trial participants
or physicians, and/or loss of revenues. Thus, whether or not we are insured, a product liability claim or product recall may result
in losses that could be material.
We store, handle, use and dispose of controlled
hazardous, radioactive and biological materials in our business. Our current use of these materials generally is below thresholds
giving rise to burdensome regulatory requirements. Our development efforts, however, may result in our becoming subject to additional
requirements, and if we fail to comply with applicable requirements we could be subject to substantial fines and other sanctions,
delays in research and production, and increased operating costs. In addition, if regulated materials were improperly released
at our current or former facilities or at locations to which we send materials for disposal, we could be liable for substantial
damages and costs, including cleanup costs and personal injury or property damages, and we could incur delays in research and
production and increased operating costs.
Insurance covering certain types of claims
of environmental damage or injury resulting from the use of these materials is available but can be expensive and is limited in
its coverage. We have no insurance specifically covering environmental risks or personal injury from the use of these materials
and if such use results in liability, our business may be seriously harmed.
Our intellectual property rights
may be overturned, narrowed or blocked, and may not provide sufficient commercial protection for our product candidates, or third
parties may infringe upon our intellectual property.
Patent laws afford only limited protection
and may not protect our rights to the extent necessary to sustain any competitive advantage we may have. In addition, 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 those countries. Moreover patents and patent applications relating
to living cell products are relatively new, involve complex factual and legal issues, and are largely untested in litigation — and
as a result, are uncertain. Third parties may challenge our existing patents, and such challenges could result in overturning
or narrowing some of our patents. Even if our patents are not challenged, third parties could assert that their patents block
some or all of our patents
As of December 31, 2012, we have over 180
issued and pending patents worldwide relating to our product candidates and related matters such as manufacturing processes.
The issued patents expire at various dates
from 2015 to 2026. Our issued patents may be challenged, and such challenges may result in reductions in scope or invalidations.
Our pending patent applications may not result in issued patents. Moreover, our patents and patent applications may not be sufficiently
broad to prevent others from using substantially similar 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 (including
execution of confidentiality agreements) to protect our proprietary information, especially proprietary information that is not
covered by patents or patent applications. These measures, however, may not provide adequate protection for our trade secrets
or other proprietary information. In addition, others may independently develop substantially equivalent proprietary information
or techniques or otherwise gain access to our trade secrets.
We may be exposed to claims or lawsuits — with
or without merit — on various subjects, including that our products infringe patents or other proprietary rights
of other parties.
There is a substantial amount of litigation
involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. The patent
landscape is especially uncertain in regard to cell therapy products, as it involves complex legal and factual questions for which
important legal principles remain unresolved. Infringement and other intellectual property claims — with or without
merit — can be expensive and time-consuming to litigate and can divert management’s attention. We have already
been exposed to one frivolous patent lawsuit by a large company, which we vigorously defended and forced the large company to
withdraw all of the claims made. We have also been exposed to frivolous claims (without a lawsuit) by a competitor asserting or
implying inaccurately that a recent patent issued to them somehow covers our products (which it does not). In the future, we may
again be exposed to claims by third parties — with or without merit — that our products infringe
their intellectual property rights. Such claims or lawsuits may involve substantial costs and diversion of management attention
to defend.
In addition, because patents can take
many years to issue, and patent applications are not published until up to eighteen months after they are filed, there may be
currently pending applications, unknown to us, which may later result in issued patents that our products may inadvertently infringe.
There could also be existing patents of which we are not aware that one or more of our products may inadvertently infringe.
DCVax is our only technology in
clinical development.
Unlike many pharmaceutical companies that
have a number of products in development and which utilize many different technologies, we are dependent on the success of our
DCVax platform technology. While the DCVax technology has a wide scope of potential use, and is embodied in several different
product lines for different clinical situations, if the core DCVax technology is not effective or is not commercially viable,
our business could fail. We do not currently have other technologies that could provide alternative support for us.
Collaborations play an important
role in our business, and could be vulnerable to competition or termination.
We work with scientists and medical professionals
at academic and other institutions, including UCLA, among others, some of whom have conducted research for us or have assisted
in developing our research and development strategy. These scientists and medical professionals are collaborators, not our employees.
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 and our programs
as required by any license, consulting or sponsored research agreements we may have with them. 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.
Our business could be adversely
affected by new legislation and/or product related issues.
Changes in applicable legislation and/or
regulatory policies or discovery of problems with the product, production process, site or manufacturer may result in delays in
bringing products to market, the imposition of restrictions on the product’s sale or manufacture, including the possible
withdrawal of the product from the market, or may otherwise have an adverse effect on our business.
Our business could be adversely
affected by animal rights activists.
Our business activities have
involved animal testing, as such testing is required before new medical products can be tested in clinical trials in human
patients. Animal testing has 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 that 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 also adversely affect our business.
Risks Related to our Common Stock
The market price of our common stock
may be volatile and adversely affected by several factors.
The share prices of publicly traded biotechnology
and emerging pharmaceutical companies, particularly companies without consistent product revenues and earnings, can be highly volatile
and are likely to remain highly volatile in the future. The price which investors may realize in sales of their shares of our common
stock may be materially different than the price at which our common stock is quoted, and will be influenced by a large number
of factors, some specific to us and our operations, and some unrelated to our operations. Such factors may cause the price of our
stock to fluctuate frequently and substantially. Such factors may include large purchases or sales of our common stock, positive
or negative events relating to other companies developing immune therapies for cancer, positive or negative events relating to
healthcare and the overall pharmaceutical and biotech sector, currency fluctuations, legislative or regulatory changes, and/or
general economic conditions. In the past, shareholder class action litigation has been brought against other companies that experienced
volatility in the market price of their shares. Whether or not meritorious, litigation brought against a company following fluctuations
in the trading price of its common stock can result in substantial costs, divert management’s attention and resources, and
harm the company’s financial condition and results of operations.
Toucan Capital and its affiliates
are the principal holders of our shares of common stock, and this concentration of ownership may have a negative effect on the
market price of our common stock.
As of March 31, 2013, Toucan Capital and
its affiliates (including Cognate BioServices, Toucan Partners and Linda Powers, who also serves as our Chief Executive Officer
and Chairperson of the Board of Directors), collectively, owned an aggregate of 10,898,882 shares of our common stock, representing
approximately 40 percent of our issued and outstanding common stock. This concentration of ownership may adversely affect the
trading price of our common stock because investors may perceive disadvantages in owning stock of companies with controlling stockholders.
Toucan Capital and its affiliates have 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. This influence 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.
The requirements of the Sarbanes-Oxley
Act of 2002 and other U.S. securities laws impose substantial costs, and may drain our resources and distract our management.
We are subject to certain of the requirements
of the Sarbanes-Oxley Act of 2002 in the U.S., as well as the reporting requirements under the Exchange Act. The Exchange Act
requires, among other things, 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, with respect to our business and financial condition. The Sarbanes-Oxley
Act recommends among other things, that we maintain effective disclosure controls and procedures and internal controls over financial
reporting. Our existing controls have some weaknesses, as described below. Meeting the requirements of the Exchange Act and the
Sarbanes-Oxley Act may strain our resources and may divert management's attention from other business concerns, both of which
may have a material adverse effect on our business.
Our management and our independent
auditor have identified internal control deficiencies, which our management and our independent auditor believe constitute material
weaknesses.
In connection with the preparation of
our financial statements for the year ended December 31, 2012, and prior years, our management and our independent auditor identified
certain internal control deficiencies that, in the aggregate, represent material weaknesses, including:
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insufficient segregation of duties
and oversight of work performed in our finance and accounting function due to limited personnel, and
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lack of controls in place to ensure
that all material transactions and developments impacting the financial statements are reflected.
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As part of our independent auditors’
communications with our audit committee with respect to audit procedures for the year ended December 31, 2012, our independent
auditors informed the audit committee that these deficiencies constituted material weaknesses, as defined by Auditing Standard
No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and
Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board, or PCAOB.
We have begun taking appropriate and reasonable steps, and will continue and complete such steps in due course, to make the necessary
improvements to address these deficiencies, but the timing of such steps is uncertain and the availability of funding and resources
for such steps are also uncertain. Our ability to retain qualified individuals to serve on our Board and to take on key management
roles within the Company is also uncertain. Our failure to successfully complete the remedies of the existing weaknesses could
lead to heightened risk for financial reporting mistakes and irregularities, and/or lead to a loss of public confidence in our
internal controls that could have a negative effect on the market price of our common stock.
We do not intend to pay any cash
dividends in the foreseeable future and, therefore, any return on your investment in our common stock must come from increases
in the market price of our common stock.
We have not paid any cash dividends on
our common stock to date in our history, and we do not intend to pay cash dividends on our common stock in the foreseeable future.
We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business. Also, any credit
agreements which we may enter into with institutional lenders may restrict our ability to pay dividends. Therefore, any return
on your investment in our capital stock must come from increases in the fair market value and trading price of our common stock.
Such increases in the trading price of our stock may not occur.
Our certificate of incorporation
and bylaws, our shareholder rights plan and Delaware law have anti-takeover provisions that could discourage, delay or prevent
a change in control, which may cause our stock price to decline.
Our certificate of incorporation and bylaws
and Delaware law contain provisions which could make it more difficult for a third party to acquire us, even if closing such a
transaction would be beneficial to our stockholders. We are authorized to issue up to 40,000,000 shares of preferred stock. This
preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our Board
of Directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including
the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights
and sinking fund provisions. No preferred stock is currently outstanding. The issuance of any preferred stock could materially
adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock. In particular,
specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets
to, a third party and thereby preserve control by the present management.
Provisions of our certificate of incorporation
and bylaws and Delaware law also could have the effect of discouraging potential acquisition proposals or making a tender offer
or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also
prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, the certificate of incorporation
and bylaws and Delaware law, as applicable, among other things:
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provide the Board of Directors with the
ability to alter the bylaws without stockholder approval;
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establish staggered terms for board members;
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place limitations on the removal of directors;
and
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provide that vacancies on the Board of
Directors may be filled by a majority of directors in office, although less than a quorum.
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We expect to adopt a shareholder rights
plan and declare a dividend distribution of one right for each outstanding share of common stock as fixed by our Board of Directors.
Each right, when exercisable, will entitle the registered holder to purchase from us shares of a new series of preferred stock
on the terms stated in the rights plan. The rights will generally separate from the common stock and become exercisable if any
person or group acquires or announces a tender offer to acquire 15% or more of our outstanding common stock without the consent
of our Board of Directors. Because the rights may substantially dilute the stock ownership of a person or group attempting to take
us over without the approval of our Board of Directors, our stockholder rights plan could make it more difficult for a third party
to acquire us (or a significant percentage of our outstanding capital stock) without first negotiating with our Board of Directors.
We are also subject to Section 203 of the
Delaware General Corporation Law which, subject to certain exceptions, prohibits “business combinations” between a
publicly-held Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who
becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the
date that such stockholder became an interested stockholder.
These provisions are expected to discourage
certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of
our company to first negotiate with its Board. These provisions may delay or prevent someone from acquiring or merging with us,
which may cause the market price of our common stock to decline.