Part I. Financial Information
Item 1. Financial Statements
NORTHWEST BIOTHERAPEUTICS, INC
(A Development Stage Company)
CONDENSED CONSOLIDATED
BALANCE SHEETS
(in thousands, except per share data)
|
|
June 30, 2013
(Unaudited)
|
|
|
December 31,
2012
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,985
|
|
|
$
|
7,346
|
|
Prepaid expenses and other current assets
|
|
|
363
|
|
|
|
112
|
|
Total current assets
|
|
|
2,348
|
|
|
|
7,458
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Laboratory equipment
|
|
|
60
|
|
|
|
60
|
|
Office furniture and other equipment
|
|
|
171
|
|
|
|
172
|
|
Less accumulated depreciation and amortization
|
|
|
(142
|
)
|
|
|
(137
|
)
|
Property and equipment, net
|
|
|
89
|
|
|
|
95
|
|
Deposit and other non-current assets
|
|
|
-
|
|
|
|
17
|
|
Total assets
|
|
$
|
2,437
|
|
|
$
|
7,570
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable (includes related party of $10,059 and $3,397 as of June 30, 2013 and December 31, 2012, respectively)
|
|
$
|
15,309
|
|
|
$
|
8,165
|
|
Accrued expenses (includes related party of $4 and $28 as of June 30, 2013 and December 31, 2012, respectively)
|
|
|
1,088
|
|
|
|
589
|
|
Note payable
|
|
|
934
|
|
|
|
934
|
|
Convertible note payable, net (includes related party of $50 as of June 30, 2013 and December 31, 2012, respectively)
|
|
|
1,343
|
|
|
|
1,056
|
|
Total current liabilities
|
|
|
18,674
|
|
|
|
10,744
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Convertible notes payable, net
|
|
|
-
|
|
|
|
1,882
|
|
Total liabilities
|
|
|
18,674
|
|
|
|
12,626
|
|
|
|
|
|
|
|
|
|
|
Redeemable common stock ($0.001 par value); 1,869,770 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively
|
|
|
11,017
|
|
|
|
11,017
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
|
|
Preferred stock ($0.001 par value); 40,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock ($0.001 par value); 450,000,000 shares authorized; 30,735,966 and 26,545,828 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively
|
|
|
31
|
|
|
|
27
|
|
Additional paid-in capital
|
|
|
317,991
|
|
|
|
303,188
|
|
Deficit accumulated during the development stage
|
|
|
(345,086
|
)
|
|
|
(319,098
|
)
|
Cumulative translation adjustment
|
|
|
(190
|
)
|
|
|
(190
|
)
|
Total stockholders' deficit
|
|
|
(27,254
|
)
|
|
|
(16,073
|
)
|
Total liabilities, redeemable common stock and stockholders' deficit
|
|
$
|
2,437
|
|
|
$
|
7,570
|
|
See accompanying notes to the unaudited
interim condensed consolidated financial statements
NORTHWEST BIOTHERAPEUTICS, INC
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(
Unaudited
)
(in thousands, except per share data)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Period from
Inception
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
(March 18, 1996)
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
to June 30, 2013
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research material sales
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
580
|
|
Contract research and development from related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,128
|
|
Research grants and other
|
|
|
272
|
|
|
|
330
|
|
|
|
409
|
|
|
|
330
|
|
|
|
2,242
|
|
Total revenues
|
|
|
272
|
|
|
|
330
|
|
|
|
409
|
|
|
|
330
|
|
|
|
3,950
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of research material sales
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
382
|
|
Research and development
|
|
|
8,383
|
|
|
|
7,040
|
|
|
|
19,991
|
|
|
|
10,589
|
|
|
|
139,163
|
|
General and administration
|
|
|
3,290
|
|
|
|
2,025
|
|
|
|
5,760
|
|
|
|
4,239
|
|
|
|
96,759
|
|
Depreciation and amortization
|
|
|
3
|
|
|
|
2
|
|
|
|
6
|
|
|
|
4
|
|
|
|
2,383
|
|
Loss on facility sublease
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
895
|
|
Asset impairment loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,445
|
|
Total operating costs and expenses
|
|
|
11,676
|
|
|
|
9,067
|
|
|
|
25,757
|
|
|
|
14,832
|
|
|
|
242,027
|
|
Loss from operations
|
|
|
(11,404
|
)
|
|
|
(8,737
|
)
|
|
|
(25,348
|
)
|
|
|
(14,502
|
)
|
|
|
(238,077
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation of reclassified equity instruments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
491
|
|
|
|
16,071
|
|
Conversion inducement expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(27,337
|
)
|
Accretion of redeemable securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,042
|
)
|
Derivative valuation gain (loss)
|
|
|
-
|
|
|
|
200
|
|
|
|
-
|
|
|
|
548
|
|
|
|
1,383
|
|
Gain on sale of intellectual property and property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,664
|
|
Interest expense
|
|
|
(190
|
)
|
|
|
(1,613
|
)
|
|
|
(640
|
)
|
|
|
(6,838
|
)
|
|
|
(55,646
|
)
|
Interest income and other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,707
|
|
Net loss
|
|
|
(11,594
|
)
|
|
|
(10,150
|
)
|
|
|
(25,988
|
)
|
|
|
(20,301
|
)
|
|
|
(300,277
|
)
|
Issuance of common stock in connection with elimination of Series A and Series A-1 preferred stock preferences
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,349
|
)
|
Modification of Series A preferred stock warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,306
|
)
|
Modification of Series A-1 preferred stock warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(16,393
|
)
|
Series A preferred stock dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(334
|
)
|
Series A-1 preferred stock dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(917
|
)
|
Warrants issued on Series A and Series A-1 preferred stock dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,664
|
)
|
Accretion of Series A preferred stock mandatory redemption obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,872
|
)
|
Series A preferred stock redemption fee
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,700
|
)
|
Beneficial conversion feature of Series D preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,274
|
)
|
Net loss applicable to common stockholders
|
|
$
|
(11,594
|
)
|
|
$
|
(10,150
|
)
|
|
$
|
(25,988
|
)
|
|
$
|
(20,301
|
)
|
|
$
|
(345,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share applicable to common stockholders - basic
|
|
$
|
(0.40
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.93
|
)
|
|
$
|
(0.13
|
)
|
|
|
|
|
Weighted average shares used in computing basic loss per share
|
|
|
29,105
|
|
|
|
162,357
|
|
|
|
28,078
|
|
|
|
157,869
|
|
|
|
|
|
See accompanying notes to the unaudited
interim condensed consolidated financial statements
NORTHWEST BIOTHERAPEUTICS, INC
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
(
Unaudited
)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
March 18, 1996
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
(Inception) to
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,594
|
)
|
|
$
|
(10,150
|
)
|
|
$
|
(25,988
|
)
|
|
$
|
(20,301
|
)
|
|
$
|
(345,086
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(40
|
)
|
|
|
(190
|
)
|
Total comprehensive loss
|
|
$
|
(11,594
|
)
|
|
$
|
(10,150
|
)
|
|
$
|
(25,988
|
)
|
|
$
|
(20,341
|
)
|
|
$
|
(345,276
|
)
|
See accompanying notes to the unaudited
interim condensed consolidated financial statement
NORTHWEST BIOTHERAPEUTICS, INC
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(
Unaudited
)
(in thousands)
|
|
Six Months Ended June 30,
|
|
|
Period from
Inception (March
18, 1996) to
|
|
|
|
2013
|
|
|
2012
|
|
|
June 30, 2013
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(25,988
|
)
|
|
$
|
(20,301
|
)
|
|
$
|
(300,277
|
)
|
Reconciliation of net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6
|
|
|
|
4
|
|
|
|
2,383
|
|
Amortization of deferred financing costs
|
|
|
-
|
|
|
|
-
|
|
|
|
320
|
|
Amortization of debt discount and accretion on redeemable securities
|
|
|
482
|
|
|
|
6,016
|
|
|
|
44,727
|
|
Derivative valuation gain
|
|
|
-
|
|
|
|
(548
|
)
|
|
|
(1,383
|
)
|
Accrued interest converted to stock
|
|
|
-
|
|
|
|
-
|
|
|
|
260
|
|
Accreted interest on convertible promissory note
|
|
|
61
|
|
|
|
-
|
|
|
|
1,545
|
|
Stock-based compensation costs
|
|
|
1,219
|
|
|
|
1,897
|
|
|
|
24,281
|
|
Stock and warrants issued for services and other expenses
|
|
|
1,528
|
|
|
|
-
|
|
|
|
25,482
|
|
Loan and accounts payable conversion inducement
|
|
|
-
|
|
|
|
-
|
|
|
|
19,518
|
|
Valuation of reclassified equity contracts
|
|
|
-
|
|
|
|
(491
|
)
|
|
|
(16,070
|
)
|
Asset impairment loss and gain on sale of properties
|
|
|
-
|
|
|
|
-
|
|
|
|
(936
|
)
|
Loss on facility sublease
|
|
|
-
|
|
|
|
-
|
|
|
|
895
|
|
Increase (decrease) in cash resulting from changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
-
|
|
|
|
(195
|
)
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
(251
|
)
|
|
|
(166
|
)
|
|
|
347
|
|
Accounts payable and accrued expenses
|
|
|
1,005
|
|
|
|
5,427
|
|
|
|
8,728
|
|
Related party accounts payable and accrued expenses
|
|
|
6,638
|
|
|
|
-
|
|
|
|
34,782
|
|
Deposits and other non-current assets
|
|
|
17
|
|
|
|
(17
|
)
|
|
|
16
|
|
Accrued loss on sublease
|
|
|
-
|
|
|
|
-
|
|
|
|
(265
|
)
|
Deferred rent
|
|
|
-
|
|
|
|
-
|
|
|
|
410
|
|
Net Cash used in Operating Activities
|
|
|
(15,283
|
)
|
|
|
(8,374
|
)
|
|
|
(155,237
|
)
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment, net
|
|
|
-
|
|
|
|
(27
|
)
|
|
|
(5,124
|
)
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
258
|
|
Proceeds from sale of intellectual property
|
|
|
-
|
|
|
|
-
|
|
|
|
1,816
|
|
Proceeds from sale of marketable securities
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
Refund of security deposit
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
Transfer of restricted cash
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,035
|
)
|
Net Cash used in Investing Activities
|
|
|
-
|
|
|
|
(27
|
)
|
|
|
(2,088
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of redeemable securities
|
|
|
-
|
|
|
|
-
|
|
|
|
5,302
|
|
Proceeds from issuance of notes payable
|
|
|
400
|
|
|
|
8,500
|
|
|
|
8,380
|
|
Proceeds from issuance of convertible notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
38,414
|
|
Proceeds from issuance of notes payable to related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
11,250
|
|
Repayment of note payable to related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,050
|
)
|
Repayment of convertible promissory note
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,262
|
)
|
Borrowing under line of credit, Northwest Hospital
|
|
|
-
|
|
|
|
-
|
|
|
|
2,834
|
|
Repayment of line of credit, Northwest Hospital
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,834
|
)
|
Payment on capital lease obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
(323
|
)
|
Payments on note payable
|
|
|
(688
|
)
|
|
|
-
|
|
|
|
(1,108
|
)
|
Proceeds from issuance preferred stock, net
|
|
|
-
|
|
|
|
-
|
|
|
|
28,708
|
|
Proceeds from exercise of stock options and warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
228
|
|
Proceeds from issuance common stock, net
|
|
|
10,210
|
|
|
|
347
|
|
|
|
83,933
|
|
Proceeds from sale of stock warrant
|
|
|
-
|
|
|
|
-
|
|
|
|
90
|
|
Payment of preferred stock dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,251
|
)
|
Series A preferred stock redemption fee
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,700
|
)
|
Deferred financing costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(320
|
)
|
Net Cash provided by Financing Activities
|
|
|
9,922
|
|
|
|
8,847
|
|
|
|
159,500
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
-
|
|
|
|
(40
|
)
|
|
|
(190
|
)
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(5,361
|
)
|
|
|
406
|
|
|
|
1,985
|
|
Cash and cash equivalents at beginning of period
|
|
|
7,346
|
|
|
|
24
|
|
|
|
-
|
|
Cash and cash equivalent at end of period
|
|
$
|
1,985
|
|
|
$
|
430
|
|
|
$
|
1,985
|
|
See accompanying notes to the unaudited
interim condensed consolidated financial statement
NORTHWEST BIOTHERAPEUTICS, INC
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(
Unaudited
)
(in thousands)
|
|
Six Months Ended June 30,
|
|
|
Period from Inception
(March 18, 1996) to
|
|
|
|
2013
|
|
|
2012
|
|
|
June 30, 2013
|
|
Supplemental disclosure of cash flow information - Cash paid during the period for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,879
|
|
Supplemental schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment acquired through capital leases
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
285
|
|
Issuance of common stock in connection with elimination of Series A and Series A-1 preferred stock preferences
|
|
|
-
|
|
|
|
-
|
|
|
|
12,349
|
|
Issuance of common stock in connection with conversion of liabilities
|
|
|
1,850
|
|
|
|
4,658
|
|
|
|
61,032
|
|
Issuance of redeemable common stock in connection with conversion of liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
3,673
|
|
Warrants issued on Series A and Series A-1 preferred stock dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
4,664
|
|
Liability for reclassified equity contracts
|
|
|
-
|
|
|
|
29,412
|
|
|
|
41,253
|
|
Accretion of mandatorily redeemable Series A preferred stock redemption obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
1,872
|
|
Debt discount on promissory notes
|
|
|
-
|
|
|
|
5,520
|
|
|
|
27,414
|
|
Issuance of Series C preferred stock warrants in connection with lease agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
43
|
|
Issuance of common stock to settle accounts payable
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
Liability for and issuance of common stock and warrants to Medarex
|
|
|
-
|
|
|
|
-
|
|
|
|
840
|
|
Issuance of common stock to landlord
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
Deferred compensation on issuance of stock options and restricted stock grants
|
|
|
-
|
|
|
|
-
|
|
|
|
759
|
|
Cancellation of options and restricted stock
|
|
|
-
|
|
|
|
-
|
|
|
|
849
|
|
Financing of prepaid insurance through note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
491
|
|
Stock subscription receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
480
|
|
Modification of Series A preferred stock warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
2,306
|
|
Modification of Series A-1 preferred stock warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
16,393
|
|
Conversion of convertible promissory notes and accrued interest to Series A-1 preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
7,707
|
|
Conversion of convertible promissory notes and accrued interest to Series D preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
5,324
|
|
Conversion of debt to accounts payable
|
|
|
-
|
|
|
|
-
|
|
|
|
1,428
|
|
Conversion of convertible promissory notes and accrued interest to stock
|
|
|
-
|
|
|
|
-
|
|
|
|
269
|
|
See accompanying notes to the unaudited
interim condensed consolidated financial statement
NORTHWEST BIOTHERAPEUTICS, INC
(A Development Stage Company)
1. Basis of Presentation
The accompanying unaudited condensed consolidated
interim financial statements include the accounts of Northwest Biotherapeutics, Inc. and its subsidiaries, NW Bio Europe S.A.R.L.
and NW Bio GmBh (collectively, the “Company”, “we”, “us”, and “our”). All material
intercompany balances and transactions have been eliminated. The accompanying unaudited condensed consolidated interim financial
statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K/A for the year
ended December 31, 2012. The year-end balance sheet data was derived from audited financial statements, but does not include all
disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). All normal
recurring adjustments which are necessary for the fair presentation of the results for the interim periods are reflected herein.
Operating results for the six month periods ended June 30, 2013 and 2012 are not necessarily indicative of results to be expected
for the full year.
2. Liquidity and Going Concern
The Company has experienced recurring losses
from operations. Net cash outflows from operations were approximately $15.3 million for the six months ended June 30, 2013.
The Company had a working capital deficit of $16.3 million at June 30, 2013 (excluding redeemable common stock amounting to $11.0
million).
Since inception of the Company, the
accumulated cash deficit is $155.2 million and non-cash deficit is $189.9 million for a combined total deficit accumulated
during the development stage of $345.1 million at June 30, 2013. The Company is past due on several notes and as a
consequence has triggered cross-default provisions on its remaining indebtedness including its remaining convertible note
obligations. As a result all of the company’s debt obligations are in default and demands could be made for
payment at any time.
The Company has raised capital by issuing
common stock and debt securities, including issuances to related parties. As of June 30, 2013 the Company had approximately $2.0
million of cash and cash equivalents and had current liabilities of $18.7 million (of which approximately $10.0 million or 62%
was owed to a related party vendor and was converted into equity in July 2013) and redeemable common stock of $11.0 million. The
Company will need to raise additional capital in the near future to continue to fund its clinical trials and other operating activities
and there can be no assurance that its efforts to seek such funding will be successful. The Company may seek funding from Toucan
Capital or Toucan Partners or their affiliates or other third parties. Such parties are under no obligation to provide the Company
with any additional funds, and any such funding may be dilutive to stockholders and may contain restrictive covenants. There can
be no assurance that the Company will be able to complete any such financings or that the terms of such financings will be attractive
to the Company. If the Company’s capital raising efforts are unsuccessful, its inability to obtain additional cash as needed
could have a material adverse effect on the Company’s financial position, results of operations and the Company’s ability
to continue its existence.
In April 2013, the Company entered into
an agreement with one healthcare-dedicated institutional investor for a registered direct placement of $10.0 million of common
stock at the closing market price of $3.90 per share. The number of shares of common stock issued was 2,564,103. The Company issued
to the investor warrants exercisable for 1,025,641 shares of common stock. The Company also issued to the placement agent warrants
exercisable for 128,205 shares of common stock. The warrants have an exercise price of $4.29 per share and are exercisable beginning
six months after closing, with a term of five years after closing. Net proceeds to the Company amounted to $9.2 million after deducting
deal related costs.
On August 8, 2013, the Company entered into a securities purchase
agreement with institutional investors for the sale of an aggregate of $15.0 million of units in a registered direct offering.
Each unit consists of one share of common stock, one long-term warrant to purchase 0.25 of a share of common stock and one over-allotment
warrant to purchase 0.25 of a share of common stock. The offering closed on August 14, 2013. The purchase price paid by the investors
was $3.35 per unit. The long-term warrants have an exercise price of $4.00 per share and are exercisable commencing six months
from the date of issuance and for five years thereafter. The over-allotment warrants have an exercise price of $3.35 per share
and are exercisable immediately for one year from date of issuance. The Company received aggregate gross offering proceeds of $15.0
million and net offering proceeds of approximately $13.7 million, after deducting placement agent fees and estimated offering fees
and expenses.
In October and November 2012, the Company
issued 1.9 million shares of redeemable common stock, at a purchase price of $4.80 per share to accredited investors (collectively,
the “Investors”) in separate private placement transactions and as part of conversions of debt into redeemable common
stock. Total cash received amounted to $5.3 million and total conversions of debt into redeemable common stock amounted to $3.6
million. These transactions were completed pursuant to a Securities Purchase Agreement (the “Agreement”) which the
Company entered into with each of the respective investors. The Agreements provide a one-time window during which such investors
can redeem the securities for cash at a premium to the original issuance ranging from 15% to 25%. The redemption windows occur
within 9 months from the date of issuance. During the 3rd quarter of 2013, the Company entered into restructuring agreements on
the redeemable common stock to extend the maturity dates.
NORTHWEST BIOTHERAPEUTICS, INC
(A Development Stage Company)
In order to continue with the Company’s current activities
under the DCVax®-L program, the Company will have to obtain substantial amounts of further funding, as described in the Risk
Factors section in the Company’s annual report on Form 10-K/A for the year ended December 31, 2012. The Company’s on-going
funding requirements will depend on many factors, including the extent to which the Company realizes and draws upon various sources
of non-dilutive funding. One such source of non-dilutive funding is a $5.5 million German grant awarded on May 1, 2012, by the
German government through its Saxony Development Bank. The grant will provide funding on a matching basis for up to 50% of the
costs incurred by the Company for the DCVax-L clinical trial and manufacturing in Germany. The Company anticipates beginning to
draw upon the grant in the next several months.
On July 31, 2013, Cognate BioServices agreed to convert an aggregate
of $11.6 million in accounts payable into shares of common stock at a conversion price of $4.00 per share, which resulted in the
issuance in August 2013 of an aggregate of 2.9 million shares of common stock. The conversion shares are subject to a lock-up period of 18 months from the date of their
issuance. Under the lock-up, the shares cannot be sold or traded. The conversions and lock-up are subject to a most favored nation
provision with respect to terms provided to other investors.
On a going forward basis, commencing with August 2013, the Company
and Cognate agreed to establish a regular ongoing arrangement for payment of at least half of each invoice in common stock of the
Company, and the remainder in cash, at $4.00 per share subject to a most favored nation provision with respect to terms provided
to other investors. The arrangement will continue until terminated by mutual agreement.
The financial statements for the fiscal
year ended December 31, 2012 states that because of recurring operating losses, net operating cash flow deficits, and a deficit
accumulated during the development stage, there is substantial doubt about the Company’s ability to continue as a going concern.
A “going concern” opinion indicates that the financial statements have been prepared assuming the Company will continue
as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
3. Stock-based Compensation
Compensation expense for all stock-based
awards is measured on the grant date based on the fair value of the award and is recognized as an expense, on a straight-line basis,
over the employee's requisite service period (generally the vesting period of the equity award). The fair value of each option
award is estimated on the grant date using a Black-Scholes option valuation model. Stock-based compensation expense is recognized
only for those awards that are expected to vest using an estimated forfeiture rate. We estimate pre-vesting option forfeitures
at the time of grant and reflect the impact of estimated pre-vesting option forfeitures in compensation expense recognized. For
options and warrants issued to non-employees, the Company recognizes stock compensation costs utilizing the fair value methodology
over the related period of benefit.
Stock-based compensation expense was as follows for the three
and six months ended June 30, 2013 and 2012 (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Research and development
|
|
$
|
76
|
|
|
$
|
131
|
|
|
$
|
151
|
|
|
$
|
289
|
|
General and administration
|
|
|
535
|
|
|
|
724
|
|
|
|
1,068
|
|
|
|
1,608
|
|
Total stock-based compensation expense
|
|
$
|
610
|
|
|
$
|
855
|
|
|
$
|
1,219
|
|
|
$
|
1,897
|
|
There were no options to purchase common stock granted during
the six month ended June 30, 2013, although certain options previously granted were vested.
4.
|
Fair Value Measurements
|
Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. U.S. GAAP establishes a three tier fair value hierarchy which prioritizes the inputs used in measuring fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level
1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). Level 1, 2, and 3 inputs are defined as follows:
·
|
Level 1 inputs are observable inputs such as quoted prices for identical instruments in active markets;
|
NORTHWEST BIOTHERAPEUTICS, INC
(A Development Stage Company)
·
|
Level 2 inputs are inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
|
·
|
Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
The Company's liability for reclassified
equity contracts was measured using significant unobservable (Level 3) inputs.
In 2011, as a result of the Company entering
into convertible promissory notes and issuing stock options and warrants to purchase common stock, the Company's total potential
outstanding common stock exceeded the Company’s authorized shares by approximately 6.8 million shares as of December 31,
2011. As a result, the Company was required to value a number of shares equal to the excess issuable on exercise of warrants and
options and on conversion of convertible notes and recognize the value as a liability. Effective February 6, 2012, the Company’s
stockholders approved an increase in the number of authorized shares sufficient to cover the excess. At that time, the liability
was re-measured, with changes in value included in other income (expense), and then reclassified to additional paid-in capital
(thereby removing it from the Company’s liabilities).
The Company concluded that certain conversion
features and warrant agreements included down-round provisions that were not indexed to the Company’s stock (and are therefore
recorded as derivative liabilities). The Company recognized the derivative liabilities at their respective fair values using a
binomial model adjusted for the probability of issuance using a Monte Carlo simulation. Changes in the fair value were recorded
in derivative valuation gain (loss) in the condensed consolidated statements of operations. Key assumptions for determining fair
values during the periods presented included expected terms ranging from 3 to 15 months, volatility ranging from 95% to 190% and
risk-free interest rate of 0.18%.
The Company's embedded derivative liability
was measured using significant unobservable (Level 3) inputs. The following table represents the Company’s embedded derivative
liability activity for the three months and six months ended June 30, 2013 and 2012:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Beginning balance
|
|
|
-
|
|
|
$
|
253
|
|
|
|
-
|
|
|
$
|
601
|
|
Liabilities reclassified
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Change in value of liabilities reclassified
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities reclassified to equity
|
|
|
-
|
|
|
|
(200
|
)
|
|
|
-
|
|
|
|
(548
|
)
|
Ending balance
|
|
|
-
|
|
|
$
|
53
|
|
|
|
-
|
|
|
$
|
53
|
|
5. Notes Payable
The Company regularly issues notes and
the proceeds from the notes are used to finance operations. The notes may contain conversion features and may be issued along with
warrants to purchase common stock. For convertible notes, the Company allocates the proceeds received between convertible notes
payable and warrants on a relative fair value basis or the residual method, whichever is applicable. The resulting discount for
warrants is amortized using the effective interest method over the life of the debt instrument. After allocating a portion of the
proceeds to the warrants, the effective conversion price of the convertible note payable can be determined. If the effective conversion
price is lower than the market price of the Company's common stock on the date of issuance, a beneficial conversion feature is
recorded as an additional discount to the convertible notes payable. The beneficial conversion feature discount is also amortized
using the effective interest method over the life of the debt instrument. The amortization is recorded as interest expense on the
condensed consolidated statements of operations. During the six months ended June 30, 2013 and June 30, 2012, the Company received
proceeds from the issuance of notes of $0.4 million and $8.5 million, respectively. The notes are payable on various dates through
May 2015 and have interest rates between 0% and 12%. During the six months ended June 30, 2013 and June 30, 2012, the Company recorded
a debt discount related to the beneficial conversion feature for convertible notes and detachable warrants of $0 million and $3.2
million, respectively.
During the six months ended June 30, 2013,
the Company converted notes payable of $1.9 million into approximately 0.7 million shares of common stock. During the six months
ended June 30, 2012 $3.7 million notes were converted into 0.6 million shares of common stock.
During the six months ended June 30, 2013, the Company repaid
$0.7 million of notes payable.
The Company is past due on several notes and as a consequence
has triggered cross-default provisions on its remaining indebtedness including its remaining convertible note obligations.
As a result all of the company’s debt obligations are in default and demands could be made for payment at any time.
NORTHWEST BIOTHERAPEUTICS, INC
(A Development Stage Company)
Notes payable consist of the following
at June 30, 2013 and December 31, 2012 (in thousands):
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Notes payable - current
|
|
|
|
|
|
|
12% unsecured originally due July 2011
|
|
$
|
934
|
|
|
$
|
934
|
|
|
|
|
934
|
|
|
|
934
|
|
Convertible notes payable, net - current
|
|
|
|
|
|
|
|
|
6% unsecured
|
|
|
160
|
|
|
|
435
|
|
8% unsecured due April 2013
|
|
|
100
|
|
|
|
71
|
|
10% unsecured convertible note originally due November 2012, net of discount of $0 and $4 in 2013 and 2012, respectively.
|
|
|
208
|
|
|
|
500
|
|
|
|
|
468
|
|
|
|
1,006
|
|
Convertible notes payable related party, net - current
|
|
|
|
|
|
|
|
|
6% due on demand
|
|
|
50
|
|
|
|
50
|
|
8% unsecured note due 2014, net of discount of $45 in 2013 and $0 in 2012
|
|
|
825
|
|
|
|
-
|
|
|
|
|
875
|
|
|
|
50
|
|
Long term convertible notes payable, net
|
|
|
|
|
|
|
|
|
0% unsecured
|
|
$
|
-
|
|
|
$
|
53
|
|
4% unsecured note due September 2014, net of discount of $0 in 2013 and $415 in 2012
|
|
|
-
|
|
|
|
419
|
|
8% unsecured note due 2014, net of discount of $0 in 2013 and $114 in 2012
|
|
|
-
|
|
|
|
1,410
|
|
|
|
$
|
-
|
|
|
$
|
1,882
|
|
Total notes payable, net
|
|
$
|
2,277
|
|
|
$
|
3,872
|
|
6. Net Loss per Share Applicable to Common Stockholders
Options, warrants, and convertible debt
outstanding were all considered anti-dilutive for the six months ended June 30, 2013, and 2012, due to net losses.
The following securities were not included
in the diluted net income (loss) per share calculation because their effect was anti-dilutive as of the periods presented (in thousands):
|
|
Six Months Ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Common stock options
|
|
|
1,551
|
|
|
|
1,574
|
|
Common stock warrants
|
|
|
13,145
|
|
|
|
4,900
|
|
Convertible notes
|
|
|
229
|
|
|
|
2,709
|
|
Excluded potentially dilutive securities
|
|
|
14,925
|
|
|
|
9,183
|
|
7. Related Party Transactions
a.
Cognate BioServices
In April, 2011, the Company
entered into a new service agreement with Cognate Bioservices, Inc. (“Cognate”), a contract manufacturing and services
organization in which Toucan Capital has a majority interest. In addition, two of the principals of Toucan Capital are members
of Cognate’s board of directors and Linda Powers who is a director of Cognate and managing director of Toucan Capital is
Chairperson of the Company’s Board of Directors and Chief Executive Officer of the Company. This agreement replaces the agreement
dated May 17, 2007 between the Company and Cognate, which had expired. Under the service agreement, the Company agreed to continue
to utilize Cognate’s services, for certain consulting and manufacturing services to the Company for its ongoing DCVax®-Brain
Phase III clinical trial. The scope of services is comparable to the prior agreement, and the structure and process for payments
are simplified. Under the terms of the current agreement the Company pays Cognate a monthly facility fee and a fixed fee (in lieu
of cost-plus charges) for each patient in the study, subject to specified minimum number of patients per month, plus charges for
certain patient and product data services if such services are requested by the Company, and charges for the 2-year processes of
technology transfer to third parties, training of such parties’ personnel, drafting of Standard Operating procedures (SOPs)
tailored to such third parties, and collaboration to obtain regulatory approvals and certifications relating to the product and
manufacturing. The current service agreement will expire on March 31, 2016.
NORTHWEST BIOTHERAPEUTICS, INC
(A Development Stage Company)
During the six months ended
June 30, 2013, at the Company’s request Cognate and third party sub-contractors carried out an intensive development program
relating to the DCVax-Direct product. The program proceeded on accelerated timetables in connection with the launch of the Company’s
Phase I/II clinical trial with DCVax-Direct for all solid tumor cancers. The development program included design, engineering,
sourcing, production, testing, modification and validation of the manufacturing automation equipment, disposables sets to be used
with the manufacturing automation equipment, manufacturing processes, product ingredients, product release assays, and other matters,
as well as development of Standard Operating Procedures (SOPs), batch production records, and other necessary materials.
During the three months ended June 30, 2013 and 2012,
respectively, the Company recognized approximately $5.2 million and $3.8 million, respectively, of research and development costs
related to these service agreements. For the six months ended June 30, 2013 and 2012, the Company recognized approximately $14.2
million and $6.0 million, respectively, of research and development costs related to these service agreements. As of June 30, 2013
and December 31, 2012, the Company owed Cognate (including third party sub-contract amounts) approximately $10.0 million and $1.8
million, respectively.
On July 31, 2013, Cognate BioServices agreed to convert
an aggregate of $11.6 million in accounts payable, $10.0 million which was accrued as of June 30, 2013, into shares of common stock
at a conversion price of $4.00 per share which resulted in the issuance in August 2013 of an aggregate of 2.9 million shares of
common stock. The conversion shares
are subject to a lock-up period of 18 months from the date of their issuance. Under the lock-up, the shares cannot be sold or traded.
The conversions and lock-up are subject to a most favored nation provision with respect to terms provided to other investors.
On a going forward basis, commencing with August
2013, the Company and Cognate agreed to establish a regular ongoing arrangement for payment of at least half of each invoice in
common stock of the Company, and the remainder in cash, at $4.00 per share subject to a most favored nation provision with respect
to terms provided to other investors. The arrangement will continue until terminated by mutual agreement.
In July 2013, the Company received
a short-term loan of $0.6 million from Cognate. The terms are in the process of being determined.
b.
Toucan Capital and Toucan Partners
In March 2013, the Company received
a short-term loan of $0.2 million from Toucan. The short-term loan was paid-in-full during the three months ended June 30, 2013.
c.
Other Related Parties
In March 2013, the Company received
a short-term loan of $0.2 million from an executive officer. The short-term loan was paid-in-full during the three months ended
June 30, 2013.
8. Stockholders’ Deficit
a.
Common Stock Issuances
Issuances of common stock during the three and six
months ended June 30, 2013 were as follows (shares and dollars in thousands):
|
|
|
|
|
Purchase/
|
|
|
Fair Value/
|
|
|
|
Shares
|
|
|
Conversion
|
|
|
Proceeds/ Debt
|
|
|
|
Issued
|
|
|
Price
|
|
|
Conversion
|
|
Shares issued for consulting services
|
|
|
236
|
|
|
$
|
3.75
|
|
|
$
|
883
|
|
Conversion of notes payable
|
|
|
359
|
|
|
|
2.60
|
|
|
|
934
|
|
Total 1st Quarter 2013
|
|
|
595
|
|
|
|
3.06
|
|
|
|
1,817
|
|
Shares issued for consulting services
|
|
|
179
|
|
|
|
3.62
|
|
|
|
645
|
|
Shares issued for cash
|
|
|
282
|
|
|
|
3.55
|
|
|
|
1,000
|
|
Shares issued for cash and warrants*
|
|
|
2,564
|
|
|
|
3.90
|
|
|
|
10,000
|
|
Conversion of notes payable
|
|
|
402
|
|
|
|
2.28
|
|
|
|
916
|
|
Cashless warrants exercise
|
|
|
168
|
|
|
|
-
|
|
|
|
-
|
|
Total 2nd Quarter 2013
|
|
|
3,595
|
|
|
|
3.49
|
|
|
|
12,561
|
|
Total Six Months Ended June 30, 2013
|
|
|
4,190
|
|
|
$
|
3.43
|
|
|
$
|
14,378
|
|
* Includes the issuance of 1,025,641 investors’ warrants
exercisable for 1,025,641 shares of common stock. The warrants have an exercise price of $4.29 per share.
NORTHWEST BIOTHERAPEUTICS, INC
(A Development Stage Company)
During the first quarter ended March 31,
2013, the Company issued approximately 0.2 million shares of common stock to existing stockholders in connection with an agreement
with the stockholders and a consultant. The shares of common stock were valued at the closing price of the Company’s common
stock on the date issued and amounted to approximately $0.6 million.
In April 2013, we entered into an agreement
with one healthcare-dedicated institutional investor for a registered direct placement of $10.0 million of common stock at the
closing market price of $3.90 per share. We issued to the investor warrants exercisable for 1,025,641 shares of common stock. The
warrants have an exercise price of $4.29 per share and are exercisable beginning six months after closing, with a term of five
years after closing.
b.
Stock Purchase Warrants
Through June 30, 2013, the Company has
issued warrants to strategic partners, consultants and investors with exercise prices ranging from $2.40 to $51.84 and with terms
ranging from three to five years. Each warrant is exercisable into one share of common stock. The following is a summary of warrant
activity for the six months ended June 30, 2013:
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Outstanding as of December 31, 2012
|
|
|
12,086,501
|
|
|
$
|
6.81
|
|
Issued in first quarter of 2013
|
|
|
109,035
|
|
|
|
6.40
|
|
Expired in first quarter of 2013
|
|
|
(18,125
|
)
|
|
|
15.45
|
|
Outstanding as of March 31, 2013
|
|
|
12,177,411
|
|
|
$
|
6.82
|
|
Issued in second quarter of 2013
|
|
|
1,153,846
|
|
|
|
4.29
|
|
Exercised on a cashless basis in second quarter of 2013
|
|
|
(168,354
|
)
|
|
|
5.60
|
|
Expired in second quarter of 2013
|
|
|
(17,500
|
)
|
|
|
12.00
|
|
Outstanding as of June 30, 2013
|
|
|
13,145,403
|
|
|
$
|
6.78
|
|
9. Subsequent Events
In July 2013, the Company received a short-term
loan of $0.6 million from Cognate. The terms are in the process of being determined.
On July 31, 2013, Cognate BioServices agreed to convert an aggregate
of $11.6 million in accounts payable into shares of common stock at a conversion price of $4.00 per share, which resulted in the
issuance in August 2013 of an aggregate of 2.9 million shares of common stock. The conversion shares are subject to a lock-up period of 18 months from the date of their
issuance. Under the lock-up, the shares cannot be sold or traded. The conversions and lock-up are subject to a most favored nation
provision with respect to terms provided to other investors.
On a going forward basis, commencing with August 2013, the Company
and Cognate agreed to establish a regular ongoing arrangement for payment of at least half of each invoice in common stock of the
Company, and the remainder in cash, at $4.00 per share subject to a most favored nation provision with respect to terms provided
to other investors. The arrangement will continue until terminated by mutual agreement.
On August 8, 2013, the Company entered into a securities purchase
agreement with institutional investors for the sale of an aggregate of $15.0 million of units in a registered direct offering.
Each unit consists of one share of common stock, one long-term warrant to purchase 0.25 of a share of common stock and one over-allotment
warrant to purchase 0.25 of a share of common stock. The offering closed on August 14, 2013. The purchase price paid by the investors
was $3.35 per unit. The long-term warrants have an exercise price of $4.00 per share and are exercisable commencing six months
from the date of issuance and for five years thereafter. The over-allotment warrants have an exercise price of $3.35 per share
and are exercisable immediately for one year from date of issuance. The Company to received aggregate gross offering proceeds of
$15.0 million and net offering proceeds of approximately $13.7 million, after deducting placement agent fees and estimated offering
fees and expenses.
NORTHWEST BIOTHERAPEUTICS, INC
(A Development Stage Company)
Management’s Evaluation of Subsequent
Events
Management evaluates events that have occurred
after the balance sheet date but before the financial statements are issued. Based upon the evaluation, management did not identify
any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial
statements.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of
our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial
statements and the notes to those statements included with this report. In addition to historical information, this report contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements
are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words
“believe,” “expect,” “intend,” “anticipate,” and similar expressions are used to
identify forward-looking statements, but some forward-looking statements are expressed differently. Many factors could affect our
actual results, including those factors described under “Risk Factors” in our Form 10-K/A for the year ended December
31, 2012. These factors, among others, could cause results to differ materially from those presently anticipated by us. You should
not place undue reliance on these forward-looking statements.
Overview
We are a 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.
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. As of June 30, 2013, our Phase III
clinical trial in GBM is being conducted at over 50 sites across the United States and at one site in the U.K. We are also in the
process of adding further U.S. sites and up to 30 European sites.
In parallel with these developments in
our Phase III brain cancer program, during the quarter ended June 30, 2013, we launched the Phase I/II clinical trial with DCVax-Direct
for solid tumor cancers. The lead site is MDAnderson in Houston.
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 overall 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.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial
condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP.
The preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets,
liabilities, revenues and expenses.
On an ongoing basis, we evaluate our estimates
and judgments, including those related to accrued expenses and stock-based compensation. We based our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that
are not readily apparent from other sources. Actual results may differ from these estimates.
Our critical accounting policies and significant
estimates are detailed in our Annual Report on Form 10-K/A for the year ended December 31, 2012. Our critical accounting policies
and significant estimates have not changed substantially from those previously disclosed in our Annual Report on Form 10-K/A for
the year ended December 31, 2012.
Recent Accounting Pronouncements
Management does not believe that any recently
issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial
statements.
Results of Operations
Operating costs:
Operating costs and expenses consist primarily
of research and development expenses, including clinical trial expenses which increase when we are actively participating in clinical
trials and are especially high when we are in a large ongoing international phase III trial, as we now are and when we also have
an additional clinical trial program, under way in parallel, as we now have with our 60-patient Phase I/II trial with DCVax-Direct
for all types of inoperable solid tumors and general and administrative expenses.
Our operating costs include the development
work relating to the DCVax-Direct product and its manufacturing, such as the design, engineering, sourcing, production, testing,
modification and validation of the manufacturing automation equipment, disposables sets to be used with the manufacturing automation
equipment, manufacturing processes, product ingredients, product release assays, and other matters, as well as development of Standard
Operating Procedures (SOPs), batch production records, and other necessary materials.
Our operating costs also include the costs
of preparations for the launch of new or expanded clinical trial programs including the Phase III trial in the US and UK (with
DCVax-L for brain cancer) and the Phase I/II trial (with DCVax-Direct for all inoperable solid tumor cancers). The preparation
costs include upfront payments to the clinical trial sites and the CROs managing the trials and other service providers, and expenses
related to institutional approvals, training of medical and other site personnel, trial supplies and other.
Research and development:
Discovery and preclinical research and
development expenses include scientific personnel-related salary and benefit expenses, costs of laboratory supplies used in our
internal research and development projects, travel, regulatory compliance, and expenditures for preclinical and clinical trial
operation and management when we are actively engaged in clinical trials.
Because we are a development stage company,
we do not allocate research and development costs on a project basis. We adopted this policy, in part, due to the unreasonable
cost burden associated with accounting at such a level of detail and our limited number of financial and personnel resources.
General and administrative:
General and administrative expenses include
administrative personnel related salary and benefit expenses, cost of facilities, insurance, travel, legal support, property and
equipment and amortization of stock options and warrants.
Three Months Ended June 30, 2013 and 2012
We recognized a net loss of $8.2 million
in cash outlays and $3.4 million in non-cash accounting charges (i.e. increase in accounts payable, stock-based compensation, issuance
of warrants and debt discount charges etc.), for a combined (cash and non-cash) total net loss of $11.6 million for the three months
ended June 30, 2013 compared to a net loss of $10.2 million for the three months ended June 30, 2012.
Research and Development Expense.
Research and development expense was a combined (cash and non-cash) total of $8.4 million for the three months ended June 30, 2013
compared to $7.0 million for the three months ended June 30, 2012. The increase was primarily attributable to the DCVax-Direct
manufacturing and product development work described above, and the preparation costs for the launch of two clinical trial programs,
one in the US and one in the UK, as described above, as well as expansion of the ongoing Phase III trial in the US, and increased
manufacturing of DCVax®-L for the Phase III trial.
As of June 30, 2013 we had over 50 clinical
trial sites in operation in the U.S in our Phase III trial with DCVax-L, compared to 25 clinical trial sites at June 30, 2012.
At June 30, 2013, we also had substantially expanded other clinical trial related operations compared with June 30, 2012 including,
for example, extensive preparations and launch of the Phase III DCVax-L clinical trial in the UK as described above, and launch
of the Phase I/II DCVax-Direct trial in the US as described above, in addition to costs related to fully operational and approved
manufacturing in Germany, cost of an established wholly owned German subsidiary, manufacturing activity in the U.K. and nearly
30 clinical trial sites in the U.K. and Germany in varying stages of preparation.
General and Administrative Expense.
General and administrative expense included $1.9 million of cash expenses, and $1.4 million of non-cash charges (i.e. amortization
of previously issued stock based compensation and restricted stock and warrants issued for services), for a combined total of $3.3
million for the three months ended June 30, 2013 compared to $2.0 million for the three months ended June 30, 2012. The increase
in general and administrative expenses from the prior period is as a result of increased administrative costs for the Company’s
expanded product programs, and increased public relations and investor relations services and other consulting expenses of $1.5
million, offset by a $0.2 million decrease in stock based compensation expense.
Interest (Expense).
Interest expense
(including non-cash elements such as amortization of debt discount) decreased to $0.2 million for the three months ended June 30,
2013 from $1.6 million for the three months ended June 30, 2012. The decrease in interest expense is primarily related to the retirement
of $27.8 million in notes payable during 2012.
Six Months Ended June 30, 2013 and 2012
We recognized a net loss of $26.0 million
for the six months ended June 30, 2013 compared to a net loss of $20.3 million for the six months ended June 30, 2012.
Research and Development Expense.
Research and development expense was $20.0 million for the six months ended June 30, 2013 compared to $10.6 million for the six
months ended June 30, 2012. The increase was primarily attributable to an increased number of clinical trial sites open and recruiting
across the United States in our ongoing Phase III clinical trial of DCVax®-L immune therapy for Glioblastoma multiform (GBM)
brain cancer and initiation of this trial in Europe.
General and Administrative Expense.
General and administrative expense was $5.8 million for the six months ended June 30, 2013 compared to $4.2 million for the six
months ended June 30, 2012. The increase was primarily due to an increase of $2.3 million in consulting and professional services
offset by a decrease of $0.5 million in stock based compensation.
Valuation of reclassified equity contracts.
During the six months ended June 30, 2013 and June 30, 2012, the Company recognized a non-cash gain amounting to $0 and $0.5 million
from the decrease in value of reclassified equity contracts, respectively.
Derivative valuation gain and loss.
During the six months ended June 30, 2013 and June 30, 2012 we recognized a gain on derivative liabilities of $0 and $ 0.5 million
due to the change in value of the financial instruments, respectively.
Interest (Expense).
Interest expense
decreased to $0.6 million for the six months ended June 30, 2013 from $6.8 million for the six months ended June 30, 2012. Interest
expense decreased for the six month period ended June 30, 2013 primarily related to the repayment or conversions of debt into equity
that were initiated during the six month period ended June 30, 2012.
Liquidity and Capital Resources
We have experienced recurring losses from
operations. Net cash outflows from operations were $15.3 million for the six months ended June 30, 2013.
At June 30, 2013, cash and cash equivalents
totaled $2.0 million, compared to $7.4 million at December 31, 2012. Working capital was a deficit of $16.3 million at June 30,
2013, compared to a deficit of $3.3 million at December 31, 2012 (excluding redeemable common stock amounting to $11.0 million).
The working capital deficit increase as of June 30, 2013 as compared to December 31, 2012 is primarily related to a $8.2 million
increase in related party accounts payable for expansion manufacturing and development work relating to DCVax-Direct, including
the work by third party sub-contractors.
On July 31, 2013, Cognate BioServices agreed to convert an aggregate
of $11.6 million in accounts payable into shares of our common stock at a conversion price of $4.00 per share, which resulted in
the issuance in August 2013 of an aggregate of 2.9 million shares of common stock. The conversion shares are subject to a lock-up period of 18 months from the date
of their issuance. Under the lock-up, the shares cannot be sold or traded. The conversions and lock-up are subject to a most favored
nation provision with respect to terms provided to other investors.
On a going forward basis, commencing with August 2013, we and
Cognate agreed to establish a regular ongoing arrangement for payment of at least half of each invoice in common stock of the Company,
and the remainder in cash, at $4.00 per share subject to a most favored nation provision with respect to terms provided to other
investors. The arrangement will continue until terminated by mutual agreement.
Since 2004, Toucan Capital Fund II, L.P.
(“Toucan Capital”), Toucan Partners LLC (“Toucan Partners”), entities controlled by Ms. Linda Powers, our
CEO and the managing director of Toucan Capital and managing member of Toucan Partners, and Ms. Linda Powers (collectively “Toucan”)
have provided substantial funding to us. From 2004 through June 30, 2013, Toucan provided ongoing financings to us through the
purchase of common stock, preferred stock (which was all converted to common stock), and debt securities. Toucan (other than Cognate
BioServices) held approximately 17% of common stock outstanding as of June 30, 2013.
Operating Activities
We used $15.3 million in cash for operating
activities during the six months ended June 30, 2013. The increase in cash used in operating activities was primarily attributable
to the DCVax-Direct manufacturing and product development work described above, the preparations for launch of the Phase I/II clinical
trial with DCVax-Direct for solid tumor cancers, increased manufacturing of DCVax®-L for the ongoing Phase III brain cancer
trial in the US, an increased number of clinical trial sites open and recruiting across the United States in our ongoing Phase
III brain cancer trial and the preparation costs for the launch of two clinical trial programs: the 60-patient Phase I/II trial
with DCVax-Direct in the U.S., and the Phase III trial with DC-Vax-L for brain cancer in the UK, as described above.
As of June 30, 2013 we had over 50 clinical
trial sites in operation in the U.S. in our Phase III trial with DCVax-L, compared to 25 clinical trial sites at June 30, 2012.
At June 30, 2013, we also had substantially expanded other clinical trial related operations compared with June 30, 2012 including,
for example, extensive preparations for launch of the Phase III DCVax-L clinical trial in the UK as described above, and launch
of the Phase I/II DCVax-Direct trial in the U.S. as described above, in addition to costs related to fully operational and approved
manufacturing in Germany, an established wholly owned German subsidiary, manufacturing activity in the U.K. preparations for up
to 30 clinical trial sites in the U.K. and Germany.
Financing Activities
During the six months ended June 30, 2013,
our financing activities primarily consisted of proceeds from the issuance of common stock and warrants amounting to $11.0 million
offset by the repayment of $0.7 million of notes payable and deferred financing costs of $0.8 million.
In April 2013, we entered into an agreement
with one healthcare-dedicated institutional investor for a registered direct placement of $10.0 million of common stock at the
closing market price of $3.90 per share. We issued to the investor warrants exercisable for 1,025,641 shares of common stock. The
warrants have an exercise price of $4.29 per share and are exercisable beginning six months after closing, with a term of five
years after closing.
Our financial statements indicate there
is substantial doubt about our ability to continue as a going concern as we are dependent on our ability to obtain short term financing
and ultimately to generate sufficient cash flow to meet our obligations on a timely basis, as well as successfully obtain financing
on favorable terms to fund our long term plans. We can give no assurance that our plans and efforts to achieve the above
steps will be successful.
In order to continue with our current activities
under our DCVax®-L program, we will have to obtain substantial amounts of further funding, as described in the Risk Factors
section in our annual report on Form 10-K/A for the year ended December 31, 2012. Our on-going funding requirements will depend
on many factors, including the extent to which we realize and draw upon various sources of non-dilutive funding. One such source
of non-dilutive funding is a $5.5 million German grant awarded on May 1, 2012, by the German government through its Saxony Development
Bank. The grant will provide funding on a matching basis for up to 50% of the costs incurred by us for the DCVax-L clinical
trial and manufacturing in Germany. We anticipate beginning to draw upon the grant in the next several months.
Other factors affecting our ongoing funding
requirements include the number of staff we employ, the number of sites and pace of patient enrollment in our Phase III brain cancer
trial and our Phase I/II clinical trial with DCVax-Direct, the costs of further development work relating to DCVax-Direct, the
costs of expansion of manufacturing of both DCVax-L and DCVax-Direct, the cost of establishing clinical studies and compassionate
use/named patient programs in other countries, and unanticipated developments. The extent of resources available to us will determine
the pace at which we can move forward with both our DCVax-L program and our DCVax-Direct program.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management,
including our principal executive, financial and accounting officer, we conducted an evaluation of our disclosure controls and
procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based
on this evaluation, our principal executive, financial and accounting officer concluded that as of the end of the period covered
by this report, in light of certain material weaknesses in our internal control over financial reporting described in our annual
report on Form 10-K/A for the year ended December 31, 2012, our disclosure controls and procedures were not effective to ensure
that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of
1934 is accumulated and communicated to management, including our chief executive officer, financial and accounting officer, to
allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported
within the time periods prescribed by the SEC.
Changes in Internal Control over Financial Reporting
There has been no change in our internal
controls over financial reporting that occurred during the fiscal quarter ended June 30, 2013, that has materially affected, or
is reasonably expected to materially affect, our internal controls over financial reporting.
Part II - Other Information
Item 6. Exhibits
31.1
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Certification of President (Principal Executive Officer and Principal Financial and Accounting Officer), Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of President, Chief Executive Officer and Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
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NORTHWEST BIOTHERAPEUTICS, INC
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Dated: August 14, 2013
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By:
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/s/ Linda M. Powers
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Name:
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Linda M. Powers
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Title:
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President and Chief Executive Officer
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Principal Executive Officer
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Principal Financial and Accounting Officer
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