UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September
30, 2014
OR
¨ TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______to
_______
Commission File Number: 001-35737
NORTHWEST BIOTHERAPEUTICS, INC.
(Exact name of registrant
as specified in its charter)
|
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
|
|
94-3306718
(I.R.S. Employer
Identification No.) |
|
4800 Montgomery
Lane, Suite 800, Bethesda, MD 20814
(Address of principal
executive offices) (Zip Code)
(240) 497-9024
(Registrant's telephone
number)
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check
mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check
mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ |
Accelerated filer ¨ |
Non-accelerated filer ¨ |
Smaller reporting company x |
(do not check if a smaller reporting company) |
Indicate by check
mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
As of November 18,
2014, the total number of shares of common stock, par value $0.001 per share, outstanding was 62,218,685.
NORTHWEST BIOTHERAPEUTICS, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Part I – Financial
Information
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amount)
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | |
| |
Current assets: | |
| | |
| |
Cash and cash equivalents | |
$ | 1,403 | | |
$ | 18,499 | |
Prepaid expenses and other current assets | |
| 167 | | |
| 147 | |
Total current assets | |
| 1,570 | | |
| 18,646 | |
| |
| | | |
| | |
Non-current assets: | |
| | | |
| | |
Property and equipment, net | |
| 23,914 | | |
| 83 | |
Deferred financing cost, net | |
| 1,230 | | |
| - | |
Interest in Escrow | |
| 2,625 | | |
| - | |
Other non-current assets | |
| 55 | | |
| 55 | |
Total non-current assets | |
| 27,824 | | |
| 138 | |
| |
| | | |
| | |
Total assets | |
$ | 29,394 | | |
$ | 18,784 | |
| |
| | | |
| | |
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' DEFICIT | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable (includes related party of $2,343 and $3,619 as of September 30, 2014 and December 31, 2013, respectively) | |
$ | 11,504 | | |
$ | 8,937 | |
Accrued expenses (includes related party of $8 and $5 as of September 30, 2014 and December 31, 2013, respectively) | |
| 790 | | |
| 842 | |
Convertible notes, net (includes related party of $50 and $50 as of September 30, 2014 and December 31, 2013, respectively) | |
| 238 | | |
| 288 | |
Notes payable - in dispute | |
| 934 | | |
| 934 | |
Derivative liability associated with warrants | |
| 28,048 | | |
| 8,688 | |
Interest make-whole derivative | |
| 1,783 | | |
| - | |
Total current liabilities | |
| 43,297 | | |
| 19,689 | |
| |
| | | |
| | |
Non-current liabilities: | |
| | | |
| | |
Convertible notes, net | |
| 15,717 | | |
| - | |
Environmental remediation liabilities | |
| 1,600 | | |
| - | |
Total non-current liabilities | |
| 17,317 | | |
| - | |
| |
| | | |
| | |
Total liabilities | |
| 60,614 | | |
| 19,689 | |
| |
| | | |
| | |
Redeemable common stock ($0.001 par value); 0 and 1,444,788 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively | |
| - | | |
| 8,913 | |
| |
| | | |
| | |
Stockholders' deficit: | |
| | | |
| | |
Preferred stock ($0.001 par value); 40,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively | |
| - | | |
| - | |
Common stock ($0.001 par value); 450,000,000 shares authorized; 62,218,685 and 45,666,315 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively | |
| 62 | | |
| 46 | |
Additional paid-in capital | |
| 446,744 | | |
| 375,213 | |
Accumulated deficit | |
| (477,836 | ) | |
| (384,887 | ) |
Cumulative translation adjustment | |
| (190 | ) | |
| (190 | ) |
Total stockholders' deficit | |
| (31,220 | ) | |
| (9,818 | ) |
Total liabilities, redeemable common stock and stockholders' deficit | |
$ | 29,394 | | |
$ | 18,784 | |
See accompanying notes to the unaudited
condensed consolidated financial statements
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
(in thousands, except per share data)
| |
Three months ended | | |
Nine months ended | |
| |
September 30, | | |
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Revenues: | |
| | |
| | |
| | |
| |
Research grants and other | |
$ | 582 | | |
$ | 400 | | |
$ | 582 | | |
$ | 809 | |
Total revenues | |
| 582 | | |
| 400 | | |
| 582 | | |
| 809 | |
Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 22,707 | | |
| 12,794 | | |
| 64,242 | | |
| 32,785 | |
General and administration | |
| 4,137 | | |
| 3,059 | | |
| 11,707 | | |
| 8,819 | |
Depreciation and amortization | |
| 346 | | |
| 3 | | |
| 352 | | |
| 9 | |
Total operating costs and expenses | |
| 27,190 | | |
| 15,856 | | |
| 76,301 | | |
| 41,613 | |
Loss from operations | |
| (26,608 | ) | |
| (15,456 | ) | |
| (75,719 | ) | |
| (40,804 | ) |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Inducement expense | |
| (8,166 | ) | |
| (7,451 | ) | |
| (18,506 | ) | |
| (7,451 | ) |
Change in fair value of derivatives | |
| 14,002 | | |
| 63 | | |
| 1,702 | | |
| 63 | |
Interest expense | |
| (271 | ) | |
| (66 | ) | |
| (426 | ) | |
| (706 | ) |
Net loss | |
$ | (21,043 | ) | |
$ | (22,910 | ) | |
$ | (92,949 | ) | |
$ | (48,898 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share applicable to common stockholders - basic and diluted | |
$ | (0.35 | ) | |
$ | (0.65 | ) | |
$ | (1.64 | ) | |
$ | (1.60 | ) |
Weighted average shares used in computing basic and diluted
loss per share | |
| 60,604 | | |
| 35,275 | | |
| 56,838 | | |
| 30,605 | |
See accompanying notes to the unaudited
condensed consolidated financial statements
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’
DEFICIT
(Unaudited)
|
|
Common
Stock |
|
|
Additional |
|
|
|
|
|
|
|
|
Cumulative |
|
|
Total Stockholders' |
|
|
|
Shares |
|
|
Amount |
|
|
Paid-in
Capital |
|
|
Subscription
Receivable |
|
|
Accumulated
Deficit |
|
|
|
Translation
Adjustment |
|
|
|
Equity
(Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2013 |
|
|
45,666 |
|
|
$ |
46 |
|
|
$ |
375,213 |
|
|
$ |
- |
|
|
$ |
(384,887 |
) |
|
$ |
(190 |
) |
|
$ |
(9,818 |
) |
Issuance of common stock for cash in
a private placement |
|
|
32 |
|
|
|
- |
|
|
|
224 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
224 |
|
Conversion of accounts payable to common
stock and warrants - Cognate |
|
|
1,482 |
|
|
|
2 |
|
|
|
5,925 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,927 |
|
Inducement expenses associated with
Conversion of accounts payable to common stock and warrants - Cognate |
|
|
- |
|
|
|
- |
|
|
|
2,800 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,800 |
|
Conversion of note payable and accrued
interest to common stock |
|
|
70 |
|
|
|
- |
|
|
|
217 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
217 |
|
Proceeds from warrants exercises |
|
|
722 |
|
|
|
1 |
|
|
|
2,691 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,692 |
|
Cashless warrants exercises |
|
|
41 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Redemption of redeemable securities |
|
|
1,445 |
|
|
|
1 |
|
|
|
8,912 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
8,913 |
|
Adjustment for issuance of common stock
in 2012 |
|
|
20 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Offering costs |
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1 |
) |
Issuance of common stock in exchange
for services - non-employees |
|
|
239 |
|
|
|
- |
|
|
|
1,567 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,567 |
|
Stock based compensation - Cognate |
|
|
5,101 |
|
|
|
5 |
|
|
|
2,455 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,460 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(46,041 |
) |
|
|
- |
|
|
|
(46,041 |
) |
Balance as of March 31, 2014 |
|
|
54,818 |
|
|
|
55 |
|
|
|
400,003 |
|
|
|
- |
|
|
|
(430,928 |
) |
|
|
(190 |
) |
|
|
(31,060 |
) |
Issuance of common stock for cash and
overallotment rights |
|
|
2,273 |
|
|
|
2 |
|
|
|
14,998 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,000 |
|
Offering costs |
|
|
- |
|
|
|
- |
|
|
|
(1,104 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,104 |
) |
Proceeds from the issuance of common
stock and warrants in a private placement |
|
|
259 |
|
|
|
- |
|
|
|
1,835 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,835 |
|
Proceeds from the issuance of common
stock and warrants - Cognate |
|
|
563 |
|
|
|
1 |
|
|
|
2,249 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,250 |
|
Inducement expenses associated with issuance
common stock and warrants for cash - Cognate |
|
|
- |
|
|
|
- |
|
|
|
1,525 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,525 |
|
Subscription receivable for issuance
of common stock |
|
|
16 |
|
|
|
- |
|
|
|
125 |
|
|
|
(125 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Proceeds from warrants exercises |
|
|
92 |
|
|
|
- |
|
|
|
395 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
395 |
|
Cashless warrants exercise |
|
|
13 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Conversion of accounts payable to common
stock and warrants - Cognate |
|
|
727 |
|
|
|
1 |
|
|
|
2,908 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,909 |
|
Inducement expenses associated with
issuance of common stock on conversion of accounts payable - Cognate |
|
|
- |
|
|
|
- |
|
|
|
1,426 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,426 |
|
Issuance of common stock for services
- non-employees |
|
|
25 |
|
|
|
- |
|
|
|
155 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
155 |
|
Stock based compensation - Cognate |
|
|
- |
|
|
|
- |
|
|
|
2,662 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,662 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(25,865 |
) |
|
|
- |
|
|
|
(25,865 |
) |
Balance as of June 30, 2014 |
|
|
58,785 |
|
|
|
59 |
|
|
|
427,177 |
|
|
|
(125 |
) |
|
|
(456,793 |
) |
|
|
(190 |
) |
|
|
(29,872 |
) |
Issuance of common stock and warrants
for cash |
|
|
883 |
|
|
|
1 |
|
|
|
4,499 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,500 |
|
Proceeds from warrants exercises |
|
|
497 |
|
|
|
- |
|
|
|
1,730 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,730 |
|
Conversion of accounts payable to common
stock and warrants - Cognate |
|
|
1,986 |
|
|
|
2 |
|
|
|
7,943 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,945 |
|
Inducement expenses associated with
issuance of common stock on conversion of accounts payable - Cognate |
|
|
- |
|
|
|
- |
|
|
|
4,427 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,427 |
|
Subscription receivable for issuance
of common stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
125 |
|
|
|
- |
|
|
|
- |
|
|
|
125 |
|
Issuance of common stock for services
- non-employees |
|
|
15 |
|
|
|
- |
|
|
|
95 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
95 |
|
Adjustment for issuance of common stock
in 2012 |
|
|
52 |
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
Stock based compensation - Cognate |
|
|
- |
|
|
|
- |
|
|
|
871 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
871 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(21,043 |
) |
|
|
- |
|
|
|
(21,043 |
) |
Balance as of September 30, 2014 |
|
|
62,218 |
|
|
$ |
62 |
|
|
$ |
446,744 |
|
|
$ |
- |
|
|
$ |
(477,836 |
) |
|
$ |
(190 |
) |
|
$ |
(31,220 |
) |
See accompanying notes to the unaudited
condensed consolidated financial statements
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
(in thousands)
| |
Nine months ended | |
| |
September 30, | |
| |
2014 | | |
2013 | |
Cash Flows from Operating Activities: | |
| | | |
| | |
Net Loss | |
$ | (92,949 | ) | |
$ | (48,898 | ) |
Reconciliation of net loss to net cash used in operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 352 | | |
| 9 | |
Amortization of debt discount and accretion on redeemable securities | |
| 71 | | |
| 497 | |
Amortization of deferred financing cost | |
| 50 | | |
| - | |
Change in fair value of derivatives | |
| (1,702 | ) | |
| (63 | ) |
Accrued interest converted to common stock | |
| 76 | | |
| - | |
Accreted interest on convertible promissory note | |
| - | | |
| 61 | |
Stock-based compensation costs | |
| - | | |
| 1,350 | |
Non-employee stock based compensation - Cognate | |
| 18,656 | | |
| - | |
Stock and warrants issued for services | |
| 1,819 | | |
| 1,625 | |
Inducement expense | |
| 18,506 | | |
| 7,319 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other current assets | |
| (20 | ) | |
| (26 | ) |
Accounts payable and accrued expenses | |
| 3,654 | | |
| 1,119 | |
Related party accounts payable and accrued expenses | |
| 15,507 | | |
| 13,791 | |
Deposits and other non-current assets | |
| - | | |
| 17 | |
Net cash used in operating activities | |
| (35,980 | ) | |
| (23,199 | ) |
Cash Flows from Investing Activities: | |
| | | |
| | |
Purchase of property and equipment, net | |
| (22,332 | ) | |
| (54 | ) |
Funding of escrow - convertible notes | |
| (2,625 | ) | |
| - | |
Cash in custody account | |
| - | | |
| (4,500 | ) |
Net cash used in investing activities | |
| (24,957 | ) | |
| (4,554 | ) |
Cash Flows from Financing Activities: | |
| | | |
| | |
Payments on note payable | |
| - | | |
| (688 | ) |
Proceeds from issuance of notes payable to related parties | |
| - | | |
| 1,005 | |
Repayment of note payable to related parties | |
| - | | |
| (605 | ) |
Proceeds from issuance of convertible notes, net of deferred financing cost | |
| 16,220 | | |
| | |
Repayment of convertible promissory notes | |
| (25 | ) | |
| (209 | ) |
Repayment on redeemable securities | |
| - | | |
| (240 | ) |
Proceeds from exercise of warrants | |
| 4,817 | | |
| - | |
Proceeds from the issuance of common stock and warrants - Cognate | |
| 2,250 | | |
| - | |
Proceeds from issuance common stock and warrants | |
| 6,684 | | |
| 24,001 | |
Gross proceeds from issuance common stock and overallotment rights | |
| 15,000 | | |
| - | |
Offering costs | |
| (1,105 | ) | |
| - | |
Net cash provided by financing activities | |
| 43,841 | | |
| 23,264 | |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (17,096 | ) | |
| (4,489 | ) |
| |
| | | |
| | |
Cash and cash equivalents at beginning of period | |
| 18,499 | | |
| 7,346 | |
Cash and cash equivalents at end of period | |
$ | 1,403 | | |
$ | 2,857 | |
See accompanying notes to the unaudited
condensed consolidated financial statements
NORTHWEST BIOTHERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
(in thousands)
| |
Nine months ended September 30, | |
| |
2014 | | |
2013 | |
Supplemental schedule of non-cash financing activities: | |
| | |
| |
Issuance of common stock in connection with conversion of notes payable and accrued expenses | |
$ | 165 | | |
$ | 2,335 | |
Issuance of common stock and warrants in connection with conversion of accounts payable - Cognate | |
$ | 16,780 | | |
$ | 10,302 | |
Reclass of redeemable security to equity | |
$ | 8,913 | | |
$ | 1,307 | |
Deferred offering cost related to issuance of convertible notes | |
$ | 1,280 | | |
$ | - | |
Initial value of interest make-whole derivative issued in connection with the convertible debt | |
$ | 1,854 | | |
$ | - | |
Environmental remediation liabilities | |
$ | 1,600 | | |
$ | - | |
Fixed assets payable | |
$ | 251 | | |
$ | - | |
See accompanying notes to the unaudited
condensed consolidated financial statements
NORTHWEST BIOTHERAPEUTICS, INC.
Notes to Condensed Consolidated Financial
Statements
(Unaudited)
| 1. | Organization and Description of Business and Recent
Developments |
Northwest Biotherapeutics, Inc. and its
subsidiaries NW Bio Europe S.A.R.L, NW Bio Gmbh and Aracaris Capital, Ltd. (collectively, the “Company”, “we”,
“us” and “our”) were organized to discover and develop innovative immunotherapies for cancer.
The Company’s platform technology,
DCVax, is currently being tested for the treatment of certain types of cancers through clinical trials in the United States and
Europe that are in various phases.
Recent Developments
On August 19, 2014, the Company completed a private offering
of $17.5 million aggregate principal amount of 5% Senior Secured Convertible Promissory Notes (the “Senior Notes”)
with an initial conversion price of $7.30 per share, for total net proceeds to the Company of approximately $16.2 million after
deducting placement agent fees and other expenses. The Company capitalized these placement agent fees as deferred financing cost.
The primary purpose of the financing was for expansion of manufacturing capacity for the Company’s products in Europe.
On August 19, 2014, the Company completed
the acquisition of a facility and property in the U.K (“UK Facility”). The purchase price was £13 million (approximately
$20.8 million, excluding professional fees of $1.5 million associated with the purchase of the U.K Facility). The facility is
an existing building of approximately 65,000 square feet. The Company plans to re-purpose the facility and have it built out as
part of the expansion of manufacturing capacity for its products in Europe, potentially doubling the building’s square footage.
Such re-purposing requires approval of the applicable Planning Commission. If re-purposing is approved, then the specific design
and engineering of the proposed build out will also have to be approved. In addition to the facility, the acquisition included
about 25 acres of potentially developable land (as well as non-developable land). Any future development for business use will
require removal of certain existing structures, permission from the Planning Commission for the intended purpose, and then permission
from the Planning Commission for the specific designs and engineering.
On October 6, 2014, the Company entered
into a Stock Purchase, Amendment and Issuance Agreement (the “Agreement”) with an existing single institutional investor
for the sale of 2,272,727 shares of common stock at a purchase price of $5.05 per share, for a total purchase price of about $11.5
million. In the Agreement, the Company terminated the investor’s existing contractual over-allotment purchase right to purchase
up to $17,045,452.50 worth of shares of common stock for $7.50 per share at any time prior to April 14, 2015, and agreed to issue
the purchaser a warrant to purchase up to $14,085,250.00 worth of shares at an exercise price of $5.15 per share (2,735,000 warrants)
exercisable commencing six months after issuance and with an exercise period of 30 months. The offering closed on October 9, 2014.
On November 17, 2014, the Company entered
into a private offering of $25 million of unregistered shares of common stock of the Company, at a price of $5.79 per share (the
closing price of the stock on November 14, 2014, the trading day prior to the sale of shares). The shares were purchased by C.F.
Woodford Equity Income Fund of the U.K. The Company plans to use the proceeds to expand and accelerate its clinical trial
programs, including expansion of the Phase III trial of DCVax-L for GBM brain cancer, undertaking at least two simultaneous Phase
II trials of DCVax-Direct in two different cancers, as well as building its Hospital Exemption program and other early access programs.
The Company agreed to file a registration statement within two weeks after the closing, and to use best efforts to complete the
registration within sixty days thereafter. There are no warrants, overallotment rights, pre-emptive rights or other securities
or rights entitling the investor to purchase or obtain additional shares.
Also on November 17, 2014, the Company
completed a $10 million mortgage secured solely by the UK facility and property. The Company plans to use the proceeds
in connection with its expansion of manufacturing capacity in Europe. The mortgage has a term of 2 years, interest only
payments until maturity, and an interest rate of 12%.
| 2. | Liquidity and Financial Condition |
During the nine months ended September
30, 2014, the Company used approximately $36.0 million of cash in its operating activities including one-time expenditures relating
to the clinical trials and to certain initial costs for new manufacturing capacity in Europe. The Company incurred an aggregate
combined cash and non-cash loss of $92.9 million for the nine months ended September 30, 2014, including $37.8 million of non-cash charges associated with stock based compensation, a mark to market charge for the change in the fair value
of its derivative liability, and inducement expenses related to the exchange of Cognate accounts payable for common stock and warrants.
The Company had current assets of $1.6
million as of September 30, 2014, and current assets less accounts payable and accrued expenses and notes payable of approximately
negative $11.9 million at September 30, 2014. The accounts payable and notes payable include an aggregate of $2.4 million of trade
liabilities and convertible notes owed by the Company to related parties.
On April 9, 2014, the Company entered into
a Securities Purchase Agreement with a single institutional investor for the sale of 2,272,727 shares of common stock at a purchase
price of $6.60 per share, for a total purchase price of $15.0 million. Additionally, from the date of the closing until one year
after the closing date, the investor has a non-transferable Over-allotment Right to purchase up to 2,272,727 additional shares
of common stock at a price per share of $7.50, for an additional subscription amount of up to $17.05 million. See Note 11.
On August 13, 2014, the Company entered
into a purchase agreement with Oppenheimer & Co. Inc, with respect to the Company’s
issuance and sale of $17.5 million aggregate principal amount of the Senior Notes due on August 15, 2017 (the “Notes”). The
offering of the Notes was completed on August 19, 2014. See Note 7.
Because of recurring operating losses,
net operating cash flow deficits, and an accumulated deficit there is substantial doubt about the Company’s ability to continue
as a going concern. The financial statements have been prepared assuming the Company will continue as a going concern and do not
include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that might become necessary should the Company be able to continue as a going concern.
| 3. | Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying unaudited condensed consolidated
interim financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions
have been eliminated.
The accompanying unaudited condensed financial
statements as of September 30, 2014 and for the three and nine months then ended have been prepared in accordance with the accounting
principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant
to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”)
and on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated
balance sheet as of September 30, 2014, condensed consolidated statements of operations for the three and nine months ended September
30, 2014 and 2013, condensed consolidated statement of stockholders’ equity (deficit) for the nine months ended September
30, 2014, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2014 and 2013 are unaudited,
but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair
presentation of the financial position, operating results and cash flows for the periods presented. The results for the three and
nine months ended September 30, 2014 are not necessarily indicative of results to be expected for the year ending December 31,
2014 or for any future interim period. The condensed balance sheet at December 31, 2013 has been derived from audited financial
statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements.
The accompanying condensed financial statements should be read in conjunction with the consolidated financial statements for the
year ended December 31, 2013, and notes thereto included in the Company’s annual report on Form 10-K, which was filed with
the SEC on April 1, 2014.
Recently
Issued Accounting Standards
In June 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-10, Elimination of
Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. The
amendments in this update remove the definition of a development stage entity from the Master Glossary of the Accounting Standards
Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities
from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date
information in the statements of income, cash flows and shareholder equity, (2) label the financial statements as those of a development
stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in
the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.
A public entity is required to apply the amendments for annual reporting periods beginning after December 15, 2014, and interim
periods therein. An entity should apply the amendments retrospectively for all comparative periods presented. Early
adoption is permitted. The Company adopted the guidance during the second quarter of 2014. Adoption of this standard
did not have a material impact on the Company’s financial position, results of operations, or cash flows.
The FASB has issued Accounting Standards
Update ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of
an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance
target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition.
As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further
clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will
be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already
been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning
after December 15, 2015. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact
on the Company’s consolidated financial position results of operation or cash flows.
The FASB has issued ASU No. 2014-15, Presentation
of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue
as a Going Concern. The guidance, which is effective for annual reporting periods ending after December 15, 2016, extends the
responsibility for performing the going-concern assessment to management and contains guidance on how to perform a going-concern
assessment and when going-concern disclosures would be required under U.S. GAAP. The Company has elected to early adopt the
provisions of ASU 2014-15 in connection with the issuance of these unaudited condensed consolidated financial statements.
Management’s evaluation regarding the events and conditions that raise substantial doubt regarding the Company’s ability
to continue as a going concern have been disclosed in Note 2.
Use of Estimates
In preparing financial statements in
conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well
as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates,
actual results reported in future periods may be affected by changes in these estimates. On an ongoing basis, the Company
evaluates its estimates and assumptions. These estimates and assumptions include valuing equity securities in share-based
payment arrangements, valuing environmental liabilities, estimating the fair value of equity instruments recorded
as derivative liabilities, and estimating the useful lives of depreciable assets and whether impairment charges may
apply.
Embedded Derivatives
The Company has
issued financial instruments such as debt in which a derivative instrument is “embedded.” Upon issuing the
financial instrument, the Company assesses whether the economic characteristics of the embedded derivative are clearly and
closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host
contract) and whether a separate, non-embedded instrument with the same terms as the embedded instrument would meet the
definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic
characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a
separate, stand-alone instrument with the same terms would qualify as a derivative instrument, the embedded derivative is
separated from the host contract and carried at fair value, with changes in fair value recorded in the
consolidated statements of operations. The convertible notes contain an interest make-whole payment provision pursuant to
which holders who convert their notes prior to maturity will receive, all interest due through the term of the note. Under
ASC 815-10-15-74(a), the interest make-whole payment is considered an embedded derivative and is separated from the host
contract, the convertible notes are carried at fair value. As of September 30, 2014, the carrying amount of embedded
derivatives associated with the convertible notes was approximately $1.8 million.
Property and Equipment
Property and equipment are stated at cost.
Depreciation and amortization are provided for using straight-line methods, in amounts sufficient to charge the cost of depreciable
assets to operations over their estimated service lives. Repairs and maintenance costs are charged to operations as incurred.
Environmental Remediation Liabilities
The Company records
environmental remediation liabilities for properties acquired. The environmental remediation liabilities are initially
recorded at fair value. The liability is reduced for actual costs incurred in connection with the clean-up activities for
each property. Upon completion of the clean-up, the environmental remediation liability is adjusted to equal the fair value
of the remaining operation, maintenance and monitoring activities to be performed for the property. The reduction in the
liability resulting from the completion of the clean-up is included in other income. As of August 20, 2014 and September 30,
2014, we estimate that the total environmental remediation costs associated with the purchase of the UK Facility will be
approximately $1.6 million. Contamination clean-up costs that improve the property from its original acquisition state are
capitalized as part of the property’s overall development costs. The Company engaged a third party specialist to
conduct certain surveys of the condition of the property which included, among other things, a preliminary analysis of
potential environmental remediation exposures. The Company determined, based on information contained in the
specialist’s report, that it would be required to estimate the fair value of an unconditional obligation to remediate
specific ground contamination at an estimated fair of approximately $1.6 million. The Company computed its preliminary
estimate of the fair value of this obligation using a probability weighted approach that measures the likelihood of the
following two potential outcomes: (i) a higher probability requirement of erecting a protective barrier around the affected
area at an estimated cost of approximately $1.0 million, and (ii) a lower probability requirement of having to excavate the
affected area at an estimated cost of approximately $20 million. The Company’s estimate is preliminary and therefore
subject to change as further studies are conducted, and as additional facts come to the Company’s attention.
Environmental remediation efforts are complex, technical and subject to various uncertainties. Accordingly, it is at least
reasonably possible that any changes in the Company’s estimate could materially differ from the management’s
preliminary discussed herein.
Impairment of Long-lived assets
The Company reviews its long-lived assets
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
In performing a review for impairment, the Company compares the carrying value of the assets with their estimated future undiscounted
cash flows from the use of the asset and eventual disposition. If the estimated undiscounted future cash flows are less than carrying
value, an impairment loss is charged to operations based on the difference between the carrying amount and the fair value of the
asset.
Deferred Financing Costs, net
The Company capitalizes costs related
to the issuance of debt which are included on the accompanying consolidated balance sheets. Deferred financing costs are
amortized using a method that approximates the interest method over the life of the related loan and are included as a
component of interest expense on the accompanying consolidated statements of operations. The Company recorded $1.2 million of
deferred financing costs related to convertible notes issued in August 2014 as of September 30, 2014, netted by
accumulated amortization expense of $0.05 million for the three months ended September 30, 2014.
Non-Employee Stock Based Compensation
The Company accounts for stock based compensation
awards issued to non-employees for services, as prescribed by ASC 505, at either the fair value of the services or the instruments
issued in exchange for such services (based on the same methodology described for employee stock based compensation), whichever
is more readily determinable. Subsequent to the measurement date, the Company recognizes and classifies any future changes in the
fair value in accordance with the relevant accounting literature on financial instruments ASC 815-40.
Research and Development Costs
Research and development costs are charged
to operations as incurred and consist primarily of clinical trial costs for the Company’s Phase III and Phase I/II clinical
trials, related party manufacturing costs, consulting costs, contract research and development costs, and compensation costs.
For overall clinical trial costs for
the three months ended September 30, 2014, the Company recognized cash research and development costs of $14.7 million and
combined aggregate cash and non-cash research and development costs of $22.7 million. For the nine months ended September 30,
2014, the Company recognized cash research and development costs of $45.4 million, and combined aggregate cash and non-cash
research and development costs of $64.2 million.
For overall clinical trial costs for the
three months ended September 30, 2013, the Company recognized cash research and development costs of $12.75 million and combined
aggregate cash and non-cash research and development costs of $12.8 million. For the nine months ended September 30, 2013, the
Company recognized cash research and development costs of $32.6 million, and combined aggregate cash and non-cash research and
development costs of $32.8 million.
For the three months ended September
30, 2014, the Company made cash payments of approximately $1.4 million to Cognate and owed Cognate $2.3 million for services
performed by Cognate (including manufacturing for both the Phase III and Phase I/II clinical trials, ongoing product and
process development, expansion of several company programs and services related to expansion of manufacturing capacity). For
the three months ended September 30, 2014, the Company recorded combined cash and non-cash expenses related to services
performed by Cognate of $16.9 million.
For the nine months ended September 30,
2014, the Company made cash payments of approximately $12.8 million to Cognate and owed Cognate $2.3 million for the services performed
by Cognate.
For the three months and nine months ended
September 30, 2013, the Company made cash payments of approximately $1.4 million and $7.4 million, respectively for the services
performed by Cognate. For the three months and nine months ended September 30, 2013, the Company recorded combined cash and non-cash
expenses of $8.6 and $19.2 million, respectively, related to the services performed by Cognate.
Comprehensive Loss
The Company’s comprehensive loss
is equal to its net loss for all periods presented.
4. Fair Value Measurements
Fair value is 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.
In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches,
the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including
assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable,
market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques the
Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks
the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair
value will be classified and disclosed in one of the following three categories:
Level 1 — Quoted prices for identical
assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.
Level 2 — Observable inputs other
than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable
inputs that can be corroborated by observable market data. Level 2 also includes derivative contracts whose value is determined
using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data.
Level 3 — Unobservable inputs supported
by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management
judgment or estimation; also includes observable inputs for nonbinding single dealer quotes not corroborated by observable market
data.
The Company has various processes and controls
in place to ensure that fair value is reasonably estimated. A model validation policy governs the use and control of valuation
models used to estimate fair value. The Company performs due diligence procedures over third-party pricing service providers in
order to support their use in the valuation process. Where market information is not available to support internal valuations,
independent reviews of the valuations are performed and any material exposures are escalated through a management review process.
While the Company believes its valuation methods are appropriate
and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of
certain financial instruments could result in a different estimate of fair value at the reporting date.
The following table classifies the Company’s
liabilities measured at fair value on a recurring basis into the fair value hierarchy as of September 30, 2014 and December 31,
2013 (in thousands):
| |
Fair value measured at September 30, 2014 | |
| |
| | |
Quoted prices in active | | |
Significant other | | |
Significant | |
| |
Fair value at | | |
markets | | |
observable inputs | | |
unobservable inputs | |
| |
September 30, 2014 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Warrant liability | |
$ | 28,048 | | |
$ | - | | |
$ | - | | |
$ | 28,048 | |
Interest make-whole derivative | |
| 1,783 | | |
| - | | |
| - | | |
| 1,783 | |
Total | |
$ | 29,831 | | |
$ | - | | |
$ | - | | |
$ | 29,831 | |
| |
Fair value measured at December 31, 2013 | |
| |
| | |
Quoted prices in active | | |
Significant other | | |
Significant | |
| |
Fair value at | | |
markets | | |
observable inputs | | |
unobservable inputs | |
| |
December 31, 2013 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Warrant liability | |
$ | 8,688 | | |
$ | - | | |
$ | - | | |
$ | 8,688 | |
There were no transfers between Level 1,
2 or 3 during the nine month period ended September 30, 2014.
The following table presents changes in
Level 3 liabilities measured at fair value for the three and nine month periods ended September 30, 2014. Both observable and
unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level
3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes
in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes
in unobservable long-dated volatilities) inputs.
| |
Derivative Liability | |
| |
Interest | | |
Warrant | | |
| |
| |
Make-Whole | | |
Liability | | |
Total | |
Balance – December 31, 2013 | |
$ | - | | |
$ | 8,688 | | |
$ | 8,688 | |
Additions during the period | |
| - | | |
| 7,952 | | |
| 7,952 | |
Total unrealized losses include in net loss | |
| - | | |
| 16,984 | | |
| 16,984 | |
Balance – March 31, 2014 | |
| - | | |
| 33,624 | | |
| 33,624 | |
Additions during the period | |
| - | | |
| 2,138 | | |
| 2,138 | |
Total unrealized gains include in net loss | |
| - | | |
| (4,684 | ) | |
| (4,684 | ) |
Balance – June 30, 2014 | |
| - | | |
| 31,078 | | |
| 31,078 | |
Additions during the period | |
| 1,854 | | |
| 10,901 | | |
| 12,755 | |
Total unrealized gains include in net loss | |
| (71 | ) | |
| (13,931 | ) | |
| (14,002 | ) |
Balance – September 30, 2014 | |
$ | 1,783 | | |
$ | 28,048 | | |
$ | 29,831 | |
The Company’s interest make-whole
and warrant liabilities are measured at fair value using the Monte Carlo simulation valuation methodology. A summary of quantitative
information about significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities that
are categorized within Level 3 of the fair value hierarchy for the nine months ended September 30, 2014 is as follows ( dollars
and shares in thousands ):
Warrant Liability
Warrants issuance date | |
January
6, 2014 | | |
January
17, 2014 | | |
January
31, 2014 | | |
February
3, 2014 | | |
February
28, 2014 | | |
March
31, 2014 | |
|
Total |
Number of warrants issued | |
| 139 | | |
| 2,434 | | |
| 143 | | |
| 119 | | |
| 195 | | |
| 145 | |
|
3,175 |
Fair value of warrants at issuance date | |
$ | 308 | | |
$ | 5,501 | | |
$ | 383 | | |
$ | 327 | | |
$ | 844 | | |
$ | 589 | |
$ |
7,952 |
Warrants issuance date | |
April
30, 2014 | | |
May
30, 2014 | | |
June
30, 2014 | | |
Total | |
Number of warrants issued | |
| 171 | | |
| 193 | | |
| 281 | | |
| 645 | |
Fair value of warrants at issuance date | |
$ | 527 | | |
$ | 621 | | |
$ | 990 | | |
$ | 2,138 | |
Warrants issuance date | |
July
1, 2014 | | |
July
17, 2014 | | |
August
1, 2014 | | |
September
1, 2014 | | |
Total | |
Number of warrants issued | |
| 473 | | |
| 2,325 | | |
| 329 | | |
| 320 | | |
| 3,447 | |
Fair value of warrants at issuance date | |
$ | 1,671 | | |
$ | 7,162 | | |
$ | 1,071 | | |
$ | 997 | | |
$ | 10,901 | |
Date of
valuation | |
January
6, 2014 | | |
January
17, 2014 | | |
January
31, 2014 | | |
February
3, 2014 | | |
February
28, 2014 | | |
March
31, 2014 | |
Dividend yield (per share) | |
| 0 | % | |
| 0 | % | |
| 0 | % | |
| 0 | % | |
| 0 | % | |
| 0 | % |
Strike price | |
$ | 4.00 | | |
$ | 4.00 | | |
$ | 4.00 | | |
$ | 4.00 | | |
$ | 4.00 | | |
| $2.40
- $6.00 | |
Volatility (annual) | |
| 92.13 | % | |
| 93.12 | % | |
| 96.72 | % | |
| 91.79 | % | |
| 105.03 | % | |
| 74.43%-88.03% | |
Risk-free rate | |
| 1.73 | % | |
| 1.66 | % | |
| 1.55 | % | |
| 1.49 | % | |
| 1.49 | % | |
| 1.73 | % |
Contractual term (years) | |
| 5.0 | | |
| 5.0 | | |
| 5.00 | | |
| 5.00 | | |
| 5.00 | | |
| 4.33-4.85 | |
Date of
valuation | |
April
30, 2014 | | |
May
30, 2014 | | |
June
30, 2014 | |
Dividend yield (per share) | |
| 0 | % | |
| 0 | % | |
| 0 | % |
Strike price | |
$ | 4.00 | | |
$ | 4.00 | | |
$ | 4.00 | |
Volatility (annual) | |
| 84.18 | % | |
| 83.48 | % | |
| 79.79%-82.90% | |
Risk-free rate | |
| 1.74 | % | |
| 1.52 | % | |
| 1.62%-1.64% | |
Contractual term (years) | |
| 5.0 | | |
| 5.0 | | |
| 5.00 | |
Date of
valuation | |
July
1, 2014 | | |
July
17, 2014 | | |
August
1, 2014 | | |
September
1, 2014 | | |
September
30, 2014 | |
Dividend yield (per share) | |
| 0 | % | |
| 0 | % | |
| 0 | % | |
| 0 | % | |
| 0 | % |
Strike price | |
$ | 3.35 | | |
$ | 3.35 | | |
$ | 3.35 | | |
$ | 4.00 | | |
$ | 4.00 | |
Volatility (annual) | |
| 79.97 | % | |
| 78.25 | % | |
| 74.45 | % | |
| 85.73 | % | |
| 70.89 | % |
Risk-free rate | |
| 1.62 | % | |
| 1.71 | % | |
| 1.67 | % | |
| 1.63 | % | |
| 1.78 | % |
Contractual term (years) | |
| 5.0 | | |
| 5.0 | | |
| 5.00 | | |
| 5.00 | | |
| 5.00 | |
Make-whole interest
Date of valuation | |
| August 19, 2014 | | |
| September 30, 2014 | |
Contractual discount rate | |
| 2 | % | |
| 2 | % |
Volatility (annual) | |
| 69.67 | % | |
| 69.70 | %
|
Risk-free rate | |
| 0.89 | % | |
| 1.07 | % |
Contractual term (years) | |
| 3 | | |
| 2.9 | |
| |
| | | |
| | |
Make-whole interest issuance date | |
| August 19, 2014 | | |
| | |
Fair value of make-whole interest at issuance date | |
| $1,854 | | |
| | |
The development and determination of the
unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s
management.
| 5. | Stock-based Compensation |
Stock Based Compensation to Non-employees
Stock-based
compensation awards granted to non-employees are recognized over the related service period. The Company believes that
the fair values of the stock-based awards is more reliably measurable than the fair value of the services received. The
fair value of these awards are calculated at each reporting date. On January 17, 2014, in connection with the four
Cognate Agreements, the Company issued one-time initiation payments of 5,101,366 shares of common stock. The common stock is
vesting over thirty six months from the closing date. Stock-based compensation expense related
to Cognate was $0.9 million and $6.0 million for the three and nine months ended September 30,
2014. Approximately $2.0 million in compensation costs per calendar quarter may be recognized over the next 2.30 years based
on the fair market value of stock of $5.03.
The Company also entered
into a Lock-Up Agreement with Cognate on January 17, 2014, under which Cognate agreed to have all of the shares that are issued
as part of the Cognate Agreements (“Lock-Up Shares”) locked up for up to 36 months, in return for 15% warrant coverage
for each 6-month period of lock-up, on the same terms as the warrants in the Cognate Agreements. The parties had previously agreed
on such lock-ups in July, 2013. During the lock-ups, the Lock-Up Shares may not be sold or traded on the market. These lock-up
terms are subject to the same most favored nation treatment as provided in the Cognate Agreements as described in Note 1. On July
17, 2014, the Company issued 2,325,467 warrants. The warrants had a term of 5.0 years and an initial exercise price of $4.00.
Using a Monte Carlo simulation model, the Company valued the warrants at $3.08 and $2.38 per share on July 17, 2014 and September
30, 2014, respectively. The fair value of the warrants granted is based on the Monte Carlo simulation model using the following
assumptions:
Date of valuation | |
July 17, 2014 | | |
September 30, 2014 | |
Dividend yield (per share) | |
| 0 | % | |
| 0 | % |
Strike price | |
$ | 3.35 | | |
$ | 4.00 | |
Volatility (annual) | |
| 78.25 | % | |
| 70.89 | % |
Risk-free rate | |
| 1.71 | % | |
| 1.78 | % |
Contractual term (years) | |
| 5.00 | | |
| 5.00 | |
The Company has evaluated the terms of
the warrants with reference to the guidance provided in ASC 815-40-15. The Company has concluded that these warrants are not indexed
to the Company’s own stock due to the most favored nation provision. Therefore, these warrants have been classified as a
derivative liability as of July 17, 2014 and September 30, 2014.
6. |
Property and Equipment
|
Property and equipment consist of the
following at September 30, 2014 and December 31, 2013 (in thousands):
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
Leasehold improvements | |
$ | 69 | | |
$ | 69 | |
Office furniture and equipment | |
| 25 | | |
| 25 | |
Computer equipment and software | |
| 137 | | |
| 137 | |
Property | |
| 24,183 | | |
| - | |
| |
| 24,414 | | |
| 231 | |
Less: accumulated depreciation | |
| (500 | ) | |
| (148 | ) |
| |
$ | 23,914 | | |
$ | 83 | |
Depreciation
expense was approximately $0.4 million for the nine months ended September 30, 2014. The Company also capitalized a $1.6
million environmental liability addition to the UK Facility land in August 2014. The building is currently under construction
and the Company will incur various development costs in the future.
2014 Convertible Senior Notes
Overview
On August 19, 2014, the Company completed a private offering
of $17.5 million aggregate principal amount of Senior Notes with an initial conversion price of $7.30 per share, for total net
proceeds to the Company of approximately $16.2 million after deducting placement agent fees and other expenses. The Company capitalized
these placement agent fees as deferred financing cost.
The Senior Notes are due on August 15, 2017, and are not convertible during the first three months,
unless the current stock price is greater than 150% of the conversion price. Thereafter, the Senior Notes are convertible at any
time. Pursuant to a one-time potential price reset provision, the conversion price may be reset as described below. The initial
investors have a 3-month right to purchase an additional 30% on the same terms and conditions as the initial purchase. The Company
deposited approximately $2.6 million from the total proceeds in an escrow account. The escrow account will contain an amount of
highly liquid securities sufficient to fund, when due, the total aggregate amount of the six scheduled semi-annual interest payments
on the notes, excluding additional interest.
Conversion Price and Interest Make Whole
Pursuant to a one-time
potential price reset provision, on February 15, 2015, the initial conversion price of $7.30 shall be reset
(“Reset”) to the lower of (a) the initial conversion price or (b) 110% of the common stock price on the 10
trading days ending on February 15, 2015, but such adjustment will not be more than a 20% decrease from $7.30. Additionally,
the conversion price will be adjusted if the Company issues to all or substantially all of its stockholders any equity or
convertible debt at a purchase price that is less than the current exercise price or in certain fundamental transactions, with certain
exceptions. The conversion price will also adjust on any subsequent issuance of shares of common stock or common stock
equivalents based on a formula intended to maintain the fully diluted percentage ownership on an “if converted”
basis. The Company determined that the Reset is an input to the fair value of
a “fixed-for-fixed” conversion option. As a result this conversion option is indexed to the Company’s own stock.
The convertible notes contain an interest make-whole payment provision pursuant to
which holders who convert their notes prior to maturity will receive, all interest due through the term of the note. Under
ASC 815-10-15-74(a), the interest make-whole payment is considered an embedded derivative and is separated from the host
contract, the convertible notes are carried at fair value. As of September 30, 2014, the carrying amount of embedded
derivatives associated with the convertible notes was approximately $1.8 million.
Summary of Key Terms
Issuer: |
|
Northwest Biotherapeutics, Inc. (the “Company”) |
|
|
|
Ticker / Exchange for Common Stock: |
|
NWBO Nasdaq Common Market (the “NASDAQ”) |
|
|
|
Pricing Date: |
|
August 13, 2014 |
|
|
|
Trade Date: |
|
August 14, 2014 |
|
|
|
Closing Date: |
|
August 19, 2014 |
|
|
|
Notes: |
|
5% Senior Convertible Notes due 2017 |
|
|
|
Aggregate Principal Amount Offered: |
|
$17.5 million |
|
|
|
Issue Price: |
|
100%, plus accrued interest, if any, from the Closing Date |
|
|
|
Maturity: |
|
August 15, 2017 |
|
|
|
Interest Rate: |
|
5% per annum |
|
|
|
Interest Payment: |
|
February 15 and August 15, commencing February 15, 2015 |
|
|
|
Conversion Premium: |
|
10% above the last reported sale price of our common stock on August 13, 2014 |
|
|
|
Conversion Price: |
|
Approximately $7.30 per share |
|
|
|
Initial Conversion Ratio: |
|
136.9113 shares of common stock per $1,000 principal amount of notes |
|
|
|
Conversion Price Reset: |
|
The conversion price shall be reset to the lower of (a) the initial conversion price or (b) 110% of the common stock price on the 10 trading days ending on February 15, 2015. However, in no event shall the reset conversion price be lower than 80% of the initial conversion price, subject to customary adjustments. |
|
|
|
Convertibility: |
|
The Notes are not convertible during the first three months, unless the current stock price is greater than 150% of the conversion price. Thereafter, the Notes are convertible at anytime |
|
|
|
Addition Purchase Right: |
|
The initial investor shall have a 3 month right to purchase an additional 30% at the same terms and conditions as the initial purchase. |
|
|
|
Make Whole Provision: |
|
In addition, holders of the Notes who convert their Notes after
February 15, 2015 will receive an additional payment. The additional payment shall equal the unpaid interest payments on the bonds
through August 15, 2017. We will satisfy our obligation to pay any additional payment in shares of our common stock, without a
cash payment in lieu of any fractional shares. We may elect to pay such payment in cash.
Notwithstanding the foregoing, the number of shares we may deliver
in connection with a conversion of notes, including those delivered in connection with the additional payment described above,
will not exceed 150.6024 shares per $1,000 principal amount of notes, subject to adjustment at the same time and in the same manner
as the conversion rates as set forth under "Description of the Notes - Conversion Rate Adjustments.”
If we pay such addition payment, the number of shares of common
stock a holder will receive will be that number of shares equal to the amount of the additional payment to be paid to such holder,
divided by the current conversion price. .
Notwithstanding the forgoing, if in connection with any conversion
the conversion rate is adjusted as described under "Adjustment to Conversion Rate Upon Conversion Upon a Make-Whole Fundamental
Change" in the Offering Memorandum, then such holder will not receive the additional payment with respect to such note. |
|
|
|
Record Dates: |
|
February 1 and August 1 |
Debt Discount
As of
September 30, 2014, the debt discount associated with the convertible debt was approximately $1.8 million. This debt discount
was a result of the make-whole interest derivative, and will be amortized over the term of convertible note. There was no
beneficial conversion feature associated with this transaction.
Other Notes Payable
During the nine months ended September
30, 2014, the Company converted notes and relevant accrued interest of $0.1 million into approximately 0.07 million shares of common
stock. During the nine months ended September 30, 2013, $0.9 million of notes were converted into 0.4 million shares of common
stock.
Notes payable consist of the following at September 30, 2014
and December 31, 2013:
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
Notes payable - current | |
| | |
| |
12% unsecured orginally due July 2011 - in dispute (1) | |
| 934 | | |
| 934 | |
| |
| 934 | | |
| 934 | |
Convertible notes payable, net - current | |
| | | |
| | |
6% unsecured (2) | |
| 135 | | |
| 160 | |
8% unsecured note due 2014 (3) | |
| 53 | | |
| 53 | |
| |
| 188 | | |
| 213 | |
Convertible Notes payable related party, net - current | |
| | | |
| | |
6% due on demand (4) | |
| 50 | | |
| 75 | |
| |
| 50 | | |
| 75 | |
| |
| | | |
| | |
Convertible notes payable, net of debt discount of $1,783 as of September 30, 2014 - non-current | |
| | | |
| | |
5% secured due 2017 | |
| 15,717 | | |
| - | |
| |
| 15,717 | | |
| - | |
| |
| | | |
| | |
Total notes payable, net | |
$ | 16,889 | | |
$ | 1,222 | |
(1) This $0.934 million note, which was
originally due in July 2011 is currently under dispute with the creditor as to the validity of the note payable balance, which
the Company believes has already been paid in full and is not outstanding.
(2) This $0.135 million note as of September
30, 2014 consists of two separate 6% notes in the amounts of $0.110 million and $0.025 million. In regard to the $0.110 million
note, the Company has made ongoing attempts to locate the creditor to repay or convert this note, but has been unable to locate
the creditor to date. In regard to the $0.025 million note, the holder has elected to convert these notes into equity, the Company
has delivered the applicable conversion documents to the holder, and the Company is waiting for the holder to execute and return
the documents.
(3) This $0.530 million note was due May
25, 2014, and is currently past due.
(4) This $0.050 million demand note as
of September 30, 2014 is held by an officer of the Company. The holder has made no demand for payment, but reserves the right to
make a demand at any time.
8. Net Loss per Share Applicable to
Common Stockholders
Options, warrants, and convertible debt
outstanding were all considered anti-dilutive for the three and nine month periods ended September 30, 2014, and 2013, due to net
losses. The following securities were not included in the diluted net loss per share calculation because their effect was anti-dilutive
as of the periods presented (in thousands):
| |
For the nine months ended | |
| |
September 30, | |
| |
2014 | | |
2013 | |
Common stock options | |
| 1,551 | | |
| 1,551 | |
Over-allotment rights | |
| 2,273 | | |
| - | |
Common stock warrants - equity treatment | |
| 14,134 | | |
| 15,321 | |
Common stock warrants - liability treatment | |
| 12,555 | | |
| 2,233 | |
Convertible notes | |
| 2,479 | | |
| 127 | |
Excluded potentially dilutive securities | |
| 32,992 | | |
| 19,232 | |
9. Related Party Transactions
Cognate BioServices
Under the January 17, 2014 DCVax®-L
Manufacturing Services Agreement and the DCVax-Direct Agreement, a modified set of provisions applies going forward to any shut
down or suspension. Such shut down provisions have been included in all of the agreements with Cognate since 2005. Under
the modified provisions, if the Company, in breach of the Agreement, shuts down or suspends its DCVax-L program or DCVax-Direct
program with Cognate, the Company will be liable for certain fees in addition to any other remedies. The fees are based on the
stage at which the shut down or suspension occurs:
| • | Prior to the last dose of the last patient enrolled in
the Phase III trial for DCVax®-L or after the last dose of the last patient enrolled in the Phase III clinical trial for DCVax®-L
but before any submission for product approval in any jurisdiction or after the submission of any application for market authorization
but prior to receiving a marketing authorization approval: in any of these cases, the fee shall be $3 million. |
| • | At any time after receiving the equivalent of a marketing
authorization for DCVax®-L in any jurisdiction, the fee shall be $5 million. |
For the three and nine months ended September
30, 2014, the Company made net disbursements to Cognate of approximately $1.4 million and $12.7 million, respectively, including
charges relating to manufacturing for both the Phase III and Phase I/II clinical trials, ongoing product and process development,
and expansion of several Company programs under these service agreements.
As of September 30, 2014 and December 31,
2013, the Company owed Cognate (including third party sub-contract amounts) approximately $2.3 million and $3.6 million, included
in accounts payable related party, respectively.
Cognate Accounts Payable Conversions
and inducement charge -Nine months ended September 30, 2014
Under the July 2013 Conversion and
Lock-up Agreement, for the nine months ended September 30, 2014, $16.8 million in accounts payable due to Cognate was
converted into common stock and warrants. 4.2 million shares of common stock were issued based on an above-market $4.00 per
share conversion price while the closing market price was $3.55 on July 31, 2013. 50% warrant coverage of the common stock
issued, resulting in 2.2 million warrants issued with an initial exercise price of $4.00. The shares and warrants are subject
to most favored nation treatment with respect to the terms (including in regards to warrants) provided to any other investors
or creditors, including share issuances upon the exercise of previously issued derivative securities.
The fair value of the shares was based
upon the closing stock price of the stock on the date of conversion and in aggregate was approximately $25.5 million ($6.07 per
share) without factoring in a discount in value for the 36-month lock-up at inception. The fair value of the warrants was based
on the Monte Carlo simulation model, the inputs of which are disclosed in Note 4 and was approximately $7.3 million. The Company
recorded an $16.0 million of inducement expense in connection with these transactions.
The conversion shares are subject to a
lock-up period of 36 months from the date of their issuance. Under the lock-up, the shares cannot be sold or traded. The fair value
of the shares does not include a liquidity discount related to the 36 month lock-up period as such liquidity discount.
The Company classified the warrants as
liabilities measured at fair value and re-measured the instruments at fair value each reporting period.
Cognate common stock purchase and inducement
charge -Nine months ended September 30, 2014
On June 30, 2014, the Company issued Cognate
562,500 shares of common stock and 281,250 warrants, in return for a payment of $2.3 million received from Cognate. The shares
and warrants are subject to most favored nation treatment with respect to the terms (including in regards to warrants) provided
to any other investors or creditors, including share issuances upon the exercise of previously issued derivative securities.
10. Redeemable Common Stock
During the first quarter of 2014, the redemption
provision on all 1.4 million redeemable shares outstanding as of December 31, 2013 lapsed and $8.9 million was transferred from
redeemable common stock to stockholders’ equity (deficit).
11. Stockholders’ Deficit
Common Stock Issuances
First Quarter 2014
During the quarter ended March 31, 2014,
the Company issued in aggregate 238,496 shares of common stock in exchange for consulting services for which performance was complete.
The fair value of the common stock recognized was $1.6 million.
During the quarter ended March 31, 2014,
the Company issued 5,101,366 shares of common stock to Cognate as stock based compensation vesting over 36 months. The fair value
of the common stock recognized was $2.5 million during the three months ended March 31, 2014.
During the quarter ended March 31, 2014,
the Company issued in aggregate 32,000 shares of common stock for cash. The fair value of the common stock recognized was $0.2
million.
During the quarter ended March 31, 2014,
the Company converted accounts payable due to Cognate of approximately $5.9 million into 1,481,644 shares. The Company recorded
$2.8 million of inducement expense associated with the issuance of the common shares. In addition, the Company issued warrants
that were valued at $2.5 million at the date of issuance related to the conversion of accounts payable. Total inducement charge
was $5.3 million.
During the quarter ended March 31, 2014,
the Company converted notes and relevant accrued interest of $0.2 million into approximately 0.07 million shares of common stock.
During the quarter ended March 31, 2014,
the Company issued an aggregate of 721,827 shares of common stock from the exercise of warrants previously issued. The Company
received proceeds of approximately $2.7 million from the exercise of these warrants.
During the quarter ended March 31, 2014,
1,444,788 redeemable shares with a carrying value of $8.9 million were no longer redeemable and were reclassified to stockholders’
equity.
Second Quarter 2014
On April 9, 2014, the Company entered into
a Securities Purchase Agreement with a single institutional investor for the sale of 2,272,727 shares of common stock at a purchase
price of $6.60 per share, for a total purchase price of $15.0 million. Additionally, from the date of the closing until one year
after the closing date, the investor had a non-transferable over-allotment right to purchase up to 2,272,727 additional shares
of common stock at a price per share of $7.50, for an additional subscription amount of up to $17.05 million. This over-allotment
right was cancelled on October 9, 2014. See Note 12 for further explanation.
On June 30, 2014, the Company issued Cognate
562,500 shares of common stock and 281,250 warrants for proceeds of $2.3 million. The shares and warrants are subject to most favored
nation treatment with respect to the terms (including in regards to warrants) provided to any other investors or creditors, including
share issuances upon the exercise of previously issued derivative securities.
During the quarter ended June 30, 2014, the
Company issued 200,000 shares of common stock to an individual investor at $7.00 per share. The total proceeds of $1.4 million
were received by the Company during the first quarter in 2014, and were recorded as shares payable on the balance sheet as of March
31, 2014. The $1.4 million shares payable were re-classed to stockholders’ deficit during the second quarter in 2014.
During the quarter ended June 30, 2014, the
Company issued 58,614 shares of common stock for cash to an individual investor for proceeds of $435,540.
During the quarter ended June 30, 2014, the
Company issued 16,200 shares of common stock for cash to an individual investor, but the proceeds were not received until
July 2014. The Company recorded $125,550 as a subscription receivable and to offset an addition-paid-in-capital on the balance
sheet as of September 30, 2014. During the third quarter of 2014, this subscription receivable was eliminated.
During the quarter ended June 30, 2014,
the Company issued an aggregate of 92,100 shares of common stock from the exercise of warrants previously issued. The Company received
proceeds of $394,925 from the exercise of these warrants.
During the quarter ended June 30, 2014,
the Company issued an aggregate of 12,533 shares of common stock from the cashless exercise of warrants previously issued.
During the quarter ended June 30, 2014,
the Company issued an aggregate of 24,924 shares of common stock in exchange for consulting services. The fair value of the common
stock recognized was $155,607.
During the quarter ended June 30, 2014,
the Company converted accounts payable due to Cognate of approximately $2.9 million into 727,291 shares of common stock and 363,646
warrants. The Company recorded $1.4 million of inducement expense associated with the issuance of the common shares. In addition,
as noted in Note 4 the Company issued warrants that were valued at $1.1 million at the date of issuance related to the conversion
of accounts payable. Total inducement charge was $2.5 million.
Third Quarter 2014
During the quarter ended September 30, 2014, the Company entered into a Securities Purchase Agreement
with an individual investor for the sale of 435,202 shares of restricted common stock at purchase price of $5.17 per share and
448,207 shares of restricted common stock at a purchase price of $5.02 per share, for aggregate proceeds of $4.5 million. Additionally,
the Company also agreed to reset the expiration date of the investor’s 1,398,625 warrants to September 15, 2018. The modification
of the warrants in connection with this transaction was accounted for as a component of equity.
During the quarter ended September 30,
2014, the Company issued an aggregate of 497,133 shares of common stock from the exercise of warrants previously issued. The Company
received proceeds of $1.7 million from the exercise of these warrants.
During the quarter ended September 30,
2014, the Company converted accounts payable due to Cognate of approximately $7.9 million into 1,986,205 shares of common stock
and 1.1 million warrants. The Company recorded $4.5 million of inducement expense associated with the issuance of the common shares.
In addition, as noted in Note 4, the warrants were valued at $3.8 million at the date of issuance, resulting in a total inducement
charge for the quarter of $8.3 million.
During the quarter ended September 30,
2014, the Company issued an aggregate of 14,519 shares of common stock in exchange for consulting services. The fair value of the
common stock recognized was $94,999.
On August 12, 2014, the Company issued
3,013 common shares at a purchase price of $5.60 per share and 1,507 warrants to an individual investor. The proceeds of $15,000
were received by the Company in August 2012. Therefore the Company made a reclassification between additional paid-in-capital and
common stock par value during the quarter ended September 30, 2014, and the excess amount of $1,873 were recorded as interest expense.
On September 19, 2014, the Company issued
49,107 shares of common stock at purchase price of $5.60 per share and 14,732 warrants to an individual investor. The proceeds
of $275,000 were received by the Company in August 2012. Therefore the Company made a reclassification between additional paid-in-capital
and common stock par value during the quarter ended September 30, 2014.
Stock Purchase Warrants
The following is a summary of warrant activity
for the nine months ended September 30, 2014:
| |
Number of | | |
Weighted Average | |
| |
Warrants | | |
Exercise Price | |
Outstanding as of December 31, 2013 | |
| 20,116 | | |
$ | 5.23 | |
Warrants issued in connection with conversion of Cognate accounts payable* | |
| 741 | | |
| 4.00 | |
Warrants issued in exchange for services* | |
| 2,434 | | |
| 4.00 | |
Warrants issued in connection with common stock issued | |
| 150 | | |
| 5.00 | |
Warrants exercised on a cashless basis | |
| (73 | ) | |
| - | |
Warrants exercised for cash | |
| (722 | ) | |
| 3.66 | |
Expired in first quarter of 2014 | |
| (6 | ) | |
| 9.54 | |
Outstanding as of March 31, 2014 | |
| 22,640 | | |
| 5.12 | |
Warrants issued in connection with conversion of Cognate accounts payable* | |
| 364 | | |
| 4.00 | |
Warrants issued to Cognate in connection with common stock issued for cash* | |
| 281 | | |
| 4.00 | |
Warrants exercised for cash | |
| (90 | ) | |
| 4.25 | |
Over-allotment rights issued in connection with registered direct offering | |
| 2,273 | | |
| 7.50 | |
Warrants issued to placement agent in connection with registered direct offering | |
| 113 | | |
| 8.25 | |
Outstanding as of June 30, 2014 | |
| 25,581 | | |
| 5.32 | |
Warrants issued in connection with conversion of Cognate accounts payable* | |
| 1,121 | | |
| 4.00 | |
Warrants issued to Cognate for services* | |
| 2,326 | | |
| 4.00 | |
Warrants issued for services | |
| 17 | | |
| 6.33 | |
Warrants exercised for cash | |
| (497 | ) | |
| 3.48 | |
Expired in third quarter of 2014 | |
| (1 | ) | |
| 7.63 | |
Adjustment related to prior issued warrants | |
| 415 | | |
| 6.44 | |
Outstanding as of September 30, 2014 ** | |
| 28,962 | | |
$ | 4.90 | |
*The warrants contain “down
round protection” and the Company classifies these warrant instruments as liabilities measured at fair value and re-measures
these instruments at fair value each reporting period.
** Approximately 9,622,907
warrants issued to Cognate, during the six year period from 2008 through 2014, with a weighted average exercise price and remaining
contractual term of $3.00 and 3.8 years, respectively. The weighted average exercise price gives effect to adjustments related
to the most favored nation clause that occurred during the period.
12. Subsequent Events
On October 6, 2014, the Company entered
into a Stock Purchase, Amendment and Issuance Agreement (the “Agreement”) with an existing single institutional investor
for the sale of 2,272,727 shares of common stock at a purchase price of $5.05 per share, for a total purchase price of about $11.5
million. In the Agreement, the Company terminated the investor’s existing contractual over-allotment purchase right to purchase
up to $17,045,452.50 worth of shares of common stock for $7.50 per share at any time prior to April 14, 2015, and agreed to issue
the purchaser a warrant to purchase up to $14,085,250.00 worth of shares at an exercise price of $5.15 per share (2,735,000 warrants)
exercisable commencing six months after issuance and with an exercise period of 30 months. The offering closed on October 9, 2014.
On November 12, 2014, the Board approved
the issuance of 10,577,176 restricted stock units (“RSUs”) to employees and Board members of the Company, pursuant
to the equity compensation plan approved by shareholders in December 2013. These are the first such equity awards to employees
in 3.7 years, since June, 2011, and are also the first such awards to Board members. These RSUs will vest on various dates
over a period of 5 years, and will also be subject to both service and performance conditions.
On November 12, 2014, the Board approved
the issuance of 8,052,092 shares of common stock to Cognate for services and most favored nation provisions in accordance with
the Cognate agreements.
On November 12, 2014, the Board approved
the issuance of 3,812,555 warrants to Cognate for services and most favored nation provisions in accordance with the Cognate agreements.
The warrants will have a term of 5.0 years and an initial exercise price of $4.00, and will
be subject to a most favored nation provision.
On November 17, 2014, the Company entered
into a private offering of $25 million of unregistered shares of common stock of the Company, at a price of $5.79 per share (the
closing price of the stock on November 14, 2014, the trading day prior to the sale of shares). The shares were purchased by C.F.
Woodford Equity Income Fund of the UK. The Company plans to use the proceeds to expand and accelerate its clinical trial programs,
including expansion of the Phase III trial of DCVax-L for GBM brain cancer, undertaking at least two simultaneous Phase II trials
of DCVax-Direct in two different cancers, as well as building its Hospital Exemption program and other early access programs.
The Company agreed to file a registration statement within two weeks after the closing, and to use best efforts to complete the
registration within sixty days thereafter. There are no warrants, overallotment rights, pre-emptive rights or other securities
or rights entitling the investor to purchase or obtain additional shares.
Also on November 17, 2014, the Company completed a $10 million mortgage secured solely by the UK facility
and property. The Company plans to use the proceeds in connection with its expansion of manufacturing capacity in Europe.
The mortgage has a term of 2 years, interest only payments until maturity, and an interest rate of 12%.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of
our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial
statements and the notes to those statements included with this report. In addition to historical information, this report contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements
are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words
“believe,” “expect,” “intend,” “anticipate,” and similar expressions are used to
identify forward-looking statements, but some forward-looking statements are expressed differently. Many factors could affect our
actual results, including those factors described under “Risk Factors” in our Form 10-K for the year ended December
31, 2013 and in Part II Item 1A of this report. These factors, among others, could cause results to differ materially from those
presently anticipated by us. You should not place undue reliance on these forward-looking statements.
Overview
We are a biotechnology company focused
on developing 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 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 all solid tumor 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. We believe
the broad applicability of DCVax to many cancers provides multiple opportunities for commercialization and partnering.
Our DCVax platform technology involves
dendritic cells, the master cells of the immune system, and is designed to reinvigorate and educate the immune system to attack
cancers. The dendritic cells are able to mobilize the overall immune system, including T cells, B cells and antibodies, natural
killer cells and many others. Such mobilization of 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 fair value of warrant liabilities, accrued expenses and stock-based compensation. We
based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts
of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates.
Our critical accounting policies and significant
estimates are detailed in our Annual Report on Form 10-K for the year ended December 31, 2013. Our critical accounting policies
and significant estimates have not changed substantially from those previously disclosed in our Annual Report on Form 10-K for
the year ended December 31, 2013.
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). Such costs have increased
and will continue to increaseas we bring on an additional clinical trial programs which under way in parallel (as we have with
our 60-patient Phase I/II trial with DCVax-Direct for all types of inoperable solid tumors), and general and administrative expenses.
Such expenses also increase in later stage trials (such as our ongoing Phase III trial) as we begin to prepare for commercialization,
which involves process optimization, validation and scale-up. The associated administrative expenses increase as such operating
activities grow.
Our operating costs include ongoing 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 systems, disposable sets to be used with the manufacturing automation
systems, and 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 UK and Germany (with
DCVax-L for brain cancer), early access programs in Europe, 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. Additional substantial costs relate to the expansion of manufacturing facilities and capacity, in both the US and Europe.
Research and development:
Discovery and preclinical research and
development expenses include costs for substantial external scientific personnel, technical and regulatory advisers, and others,
costs of laboratory supplies used in our internal research and development projects, travel, regulatory compliance, and expenditures
for preclinical and clinical trial operation and management when we are actively engaged in clinical trials.
Because we are pre-revenue company, we
do not allocate research and development costs on a project basis. We adopted this policy, in part, due to the unreasonable cost
burden associated with accounting at such a level of detail and our limited number of financial and personnel resources.
General and administrative:
General and administrative expenses include
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 September 30, 2014
and 2013
We recognized a net loss of $18.2 million
in cash outlays and $2.8 million in non-cash accounting charges (including increase in stock-based compensation, inducement expense
and the issuance of warrants), for a combined (cash and non-cash) total net loss of $21.0 million for the three months ended September
30, 2014 compared to a net loss of $22.9 million for the three months ended September 30, 2013. This decrease was primarily attributable
to unrealized gain from revaluation of our outstanding derivative liabilities as of September 30, 2014 due to the decrease of stock
price on the revaluation date compared with the issuance date.
Research and Development Expense
Research and development expense was a
combined (cash and non-cash) total of $22.7 million for the three months ended September 30, 2014 compared to $12.8 million for
the three months ended September 30, 2013. The increase was primarily attributable to costs associated with launching, manufacturing
for, and conducting (including CRO costs) the Phase III DCVax-L trial in Europe and the Phase I/II DCVax-Direct, which were just
beginning as of this period last year, as well as expansion of the our German subsidiary and its operations, expansion of the ongoing
Phase III trial in the U.S. and expansion of the manufacturing capacity for our products in Europe.
As of September 30, 2014, we had over 60
clinical trial sites in operation in the U.S and Europe in our Phase III trial with DCVax-L, compared to about 50 clinical trial
sites in the U.S and 1 European site at September 30, 2013.
General and Administrative Expense
General and administrative expense included
$1.0 million of cash expenses, and $3.1 of non-cash charges (i.e. amortization of previously issued stock based compensation and
restricted stock and warrants issued for services), for a combined cash and non-cash total of $4.1 million for the three months
ended September 30, 2014 compared to $3.1 million for the three months ended September 30, 2013. The increase in general and administrative
expenses from the prior period is a result of increased in legal expenses of $1.0.
Change in fair value of derivatives
During the three months ended September
30, 2014 and September 30, 2013 we recognized a non-cash gain on derivative liabilities of $14.0 million and $0.06 million, respectively,
due primarily to the change in value of the warrants issued to Cognate in connection with the extinguishment of accounts payable.
Inducement expense
During the three months ended September
30, 2014 and September 30, 2013 we recognized an inducement expense of $8.2 million and $7.5 million, respectively. The increase
in the inducement expense for the three months ended September 30, 2014 was related to an increase of the conversion of accounts
payable to common stock and warrants to Cognate in connection with the extinguishment of accounts payable, and the fair value of
the common stock and warrants were higher than the conversion price.
Interest (Expense)
Interest expense (including non-cash elements
such as amortization of debt discount) increased to $0.3 million for the three months ended September 30, 2014 from $0.07 million
for the three months ended September 30, 2013. The increase in interest expense is primarily related to the issuance of senior
convertible notes with an aggregate principal amount of $17.5 million at 5% annual interest rate.
Nine Months Ended September 30, 2014
and 2013
During the nine months ended September
30, 2014, we recognized a net loss of $55.1 million in cash outlays (net of $2.3 million in cash received from Cognate in return
for common stock and warrants) and $37.8 million in cash and non-cash accounting charges (including increase in stock-based compensation,
inducement expense and the issuance of warrants), for a combined (cash and non-cash) total net loss of $92.9 million compared to
a net loss of $48.9 million for the nine months ended September 30, 2013. This increase was primarily attributable to an increase
in research and development expense associated with expanding our existing Phase III clinical trial with DCvax-L, expanding and
accelerating Phase I/II clinical trial with DCVax-Direct, expanding our German subsidiary and UK operations, initial arrangements
for expanding our manufacturing capacity in Europe, and an increased inducement expense related to issuance of derivative liabilities.
Research and Development Expense
Research and development expense was a
combined (cash and non-cash) total of $64.2 million for the nine months ended September 30, 2014 compared to $32.8 million for
the nine months ended September 30, 2013. The increase was primarily attributable to costs associated with launching, manufacturing
for, and conducting (including CRO costs) the Phase III DCVax-L trial in Europe and the Phase I/II DCVax-Direct, which were essentially
not under way as of this period last year, as well as establishment and expansion of our German and UK subsidiaries and operations,
and expansion of the ongoing Phase III trial in the U.S.
As of September 30, 2014, we had over 60 clinical trial sites in operation in the U.S., UK and Germany
in our Phase III trial with DCVax-L, compared to 50 clinical trial sites in the U.S and one UK center at September 30, 2013.
General and Administrative Expense
General and administrative expense
was $11.7 million for the nine months ended September 30, 2014 compared to $8.8 million for the nine months ended September
30, 2013. The increase in general and administrative expenses from the prior period is mainly a result of an increase in
consulting expenses of $2.5 million and an increase in legal expenses of $2.1 million due to the expansion of our platform,
offset by a $1.2 million decrease in stock based compensation expense and $0.3 million decrease in professional expenses and
insurance expenses.
Change in fair value of derivatives
During the nine months ended September
30, 2014 and September 30, 2013 we recognized a non-cash loss and gain on derivative liabilities of $1.7 million and $0.06 million,
respectively, due primarily to the change in value of the warrants issued to Cognate in connection with the extinguishment of accounts
payable.
Inducement expense
During the nine months ended September
30, 2014 and September 30, 2013 we recognized an inducement expense of $18.5 million and $7.4 million, respectively. This increase
in inducement expense during the nine months ended September 30, 2014 was related to the conversion of more accounts payable to
common stock and warrants to Cognate in connection with the extinguishment of accounts payable, and the fair value of the common
stock and warrants were higher than the conversion price.
Interest (Expense)
Interest expense (including non-cash elements
such as amortization of debt discount) decreased to $0.4 million for the nine months ended September 30, 2014 from $0.7 million
for the nine months ended September 30, 2013. The decrease in interest expense is primarily related to the retirement of $1.8 million
in notes payable during 2013 and 2014.
Liquidity and Capital Resources
We have experienced recurring losses from
operations. During the nine months ended September 30, 2014, net cash outflows from operations was $36.0 million, including one-time
expenditures related to the clinical trials and to certain initial costs for new manufacturing capacity in Europe.
At September 30, 2014, current assets
totaled $1.6 million, compared to $18.6 million at December 31, 2013. Current assets less current liabilities produces
working capital deficit in the amount of $39.9 million at September 30, 2014, compared to a deficit of $1.0 million
at December 31, 2013 (excluding redeemable common stock amounting to $8.9 million). The working capital deficit increase as
of September 30, 2014 as compared to December 31, 2013 is primarily related to non-cash charges relating to the conversion
of $16.8 million of accounts payable to Cognate to common stock and warrants during the nine months ended September 30,
2014, and a decrease of $17.1 million in cash and cash equivalents.
On a going forward basis, commencing with August 2013, and continuing throughout the lock-up period, we
and Cognate agreed to establish an arrangement for regular ongoing payment of at least half of all invoices in unregistered, restricted
common stock of our company at $4.00 per share (the closing market price was $3.55 at that time), and the remainder in cash, subject
to a most favored nation treatment with respect to terms provided to other investors or creditors (including with respect to any
warrants), including share issuances upon exercise of previously issued derivative securities. Under the Cognate Agreements executed
in January 2014, this arrangement will continue for 18 months from the execution of those agreements or 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 to date, Toucan has provided ongoing financings to us through the purchase of
common stock, preferred stock (which was all converted to common stock), loans and debt securities. As of September 30, 2014, Toucan
(other than Cognate) held approximately 5% of common stock outstanding.
On August 19, 2014, we completed the acquisition
of a facility and property in the U.K (“UK Facility”). The purchase price was £13 million ($20.8 million, excluding
professional fees of $1.5 million associated with the purchase of the U.K Facility). The facility is an existing building of approximately
65,000 square feet. We plan to re-purpose the facility and have it built out as part of the expansion of manufacturing capacity,
potentially doubling the building’s square footage. Such re-purposing requires approval of the applicable Planning Commission.
If re-purposing is approved, then the specific design and engineering of the proposed build out will also have to be approved.
In addition to the facility, the acquisition included about 25 acres of potentially developable land (as well as non-developable
land). Any future development for business use will require removal of certain existing structures, permission from the Planning
Commission for the intended purpose, and then permission from the Planning Commission for the specific designs and engineering.
We engaged a third party specialist to conduct certain surveys of the condition of the property which
included, among other things, a preliminary analysis of potential environmental remediation exposures. We determined, based on
information contained in the specialists report, that it would be required to estimate the fair value of an unconditional obligation
to remediate specific ground contamination at an estimated fair of approximately $1.6 million. We computed our preliminary estimate
of the fair value of this obligation using a probability approach that measures likelihood of the following two potential outcomes:
(i) a higher probability (>95%) requirement of erecting a protective barrier around the affected area at an estimated cost of
approximately $1.0 million, or (iii) lower probability (<5%) requirement of having to excavate the affected area at an estimated
cost of approximately $20 million. Our estimate is preliminary and therefore subject to change as further studies are conducted,
and as additional facts come to our attention. Environmental remediation obligations are complex and technical. Accordingly, It
is at least reasonably possible that any changes in our estimates could materially differ from management’s preliminary estimates.
Operating Activities
During the nine months ended
September 30, 2014, we used $36 million in cash for operating activities, including one-time expenditures related to the
clinical trials and to certain initial costs for new manufacturing capacity in Europe compared with $23.2 million in cash
that we used for operating activities during the nine months ended September 30, 2013. The increase in cash used in operating
activities was primarily attributable to an increase in research and development expense associated with expanding our
existing Phase III clinical trial with DCVax-L, expanding and accelerating Phase I/II clinical trial with DCVax-Direct,
expanding our German subsidiary operations, and initial arrangements for expanding our manufacturing capacity in Europe. The
DCVax-Direct Phase I trial was not under way yet during most of the nine months ended September 30, 2013, whereas virtually
all of the enrollment in the trial and all of the manufacturing for the trial took place during the nine months ended
September 30, 2014.
As of September 30, 2014, we had an aggregate
of over 60 clinical trial sites in operation in the U.S, UK and Germany in our Phase III trial with DCVax-L, compared to 50 clinical
trial sites at September 30, 2013, with all but one site in the U.S only.
Investing Activities
During the nine months ended September
30, 2014, we used $22.3 million in cash for investing activities compared with $4.6 million during the nine months ended September
30, 2013. The increase in cash used in investing activities was primarily related to the purchase of a UK facility and for a purchase
price of £13 million (a total of $22.3 million, including all related capitalized costs).
Financing Activities
During the nine months ended September
30, 2014, our financing activities primarily consisted of net proceeds after expenses of $23.9 million from issuance of common
stock and/or warrants, net proceeds of $16.2 million from issuance of convertible notes (offset by related interest payment transferred
to escrow account for $2.6 million), and net proceeds of $4.8 million from the exercise of warrants; partially offset by the payment
of $0.03 million of convertible promissory notes.
In order to continue with our current activities
under our DCVax®-L and DCVax-Direct 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 for the year ended December 31, 2013. Our on-going funding requirements
will depend on many factors, including the number and pace of clinical trials we undertake in parallel, the results of the reimbursement
negotiations in Germany, the implementation of our Hospital Exemption approval in Germany, and 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 provides 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 drew our first tranche
of funds from this grant during the three months ended September 30, 2014.
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 with DCVax-L 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 capacity for 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.
As we are dependent on our ability to obtain
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, our financial statements indicate there is substantial doubt about our
ability to continue as a going concern. We can give no assurance that our plans and efforts to achieve the above steps
will be successful.
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 for the year ended December 31, 2013, our disclosure controls and procedures were not
effective to ensure the segregation of duties and ensure that the information required to be disclosed by us in the reports that
we file or submit under the Exchange Act 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.
Based on management's evaluation as of
December 31, 2013, our management identified the material weaknesses set forth below in our internal control over financial reporting:
|
Our company’s process for internally reporting material information in a systematic manner to allow for timely filing of material information is ineffective, due to inherent limitations from being a small company and insufficient personnel for segregation of duties, and there exist material weaknesses in internal control over financial reporting that contribute to the weaknesses in our disclosure controls and procedures. These weaknesses include: |
|
• |
insufficient segregation of duties and oversight of work performed in our finance and accounting function due to limited personnel; and |
|
• |
lack of controls in place to ensure that all material transactions and developments impacting the financial statements are reflected; and |
|
• |
complications applying complex accounting principles. |
Our company's management concluded that
in light of the material weaknesses described above, our company did not maintain effective internal control over financial reporting
as of September 30, 2014 based on the criteria set forth in Internal Control- 1992 Integrated Framework issued by the COSO.
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 September 30, 2014, that has materially affected,
or is reasonably expected to materially affect, our internal controls over financial reporting.
Part II - Other Information
Item 1A. Risk Factors.
There have been no material changes to the
discussion of risk factors included in our most recent Annual Report on Form 10-K, except as noted below.
Our management and our independent auditors have identified
internal control deficiencies, which our management and our independent auditor believe constitute material weaknesses.
During the quarter ended September 30, 2014,
as we had in connection with the preparation of our financial statements for the year ended December 31, 2013, and prior years,
our management and our independent auditor identified certain internal control deficiencies that, in the aggregate, represent material
weaknesses, including:
| • | insufficient segregation of duties and oversight of
work performed in our finance and accounting function due to limited personnel; |
| • | lack of controls in place to ensure that all material
transactions and developments impacting the financial statements are reflected; and |
| • | complications applying complex accounting principles. |
We have begun taking
appropriate and reasonable steps, and plan to continue and complete such steps in due course and 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 is also uncertain. Our ability to retain or attract qualified individuals to serve on our Board and to take on key management
roles within our 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.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds.
On August 27, 2014
and September 16, 2014, we sold to an individual investor 435,202 shares of common stock at $5.17 per share and 448,207 shares
of common stock at $5.02 per share, respectively. The total proceeds received were $4.5 million.
During the quarter
ended September 30, 2014, we converted accounts payable owed to Cognate in the amount of approximately $7.9 million into 1,986,205
shares of common stock and warrants to purchase 1,121,404 shares of common stock. The shares and warrants are subject to most favored
nation treatment with respect to the terms (including in regards to warrants) provided to any other investors or creditors, including
share issuances upon the exercise of previously issued derivative securities. The shares are also subject to a 36-month lock-up
as described above.
During the quarter
ended September 30, 2014, we issued 14,519 shares of common stock in exchange for consulting services valued at $94,999.
On November 17, 2014,
we sold $25 million of unregistered shares of common stock of the Company (4,317,789 shares), at a price of $5.79 per share (the
closing price of the stock on November 14, 2014, the trading day prior to the sale of shares).
The securities sold
in these transactions were exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(a)
(2) thereof.
Item 5. Other Information
On November 17, 2014, the Company entered
into a private offering of $25 million of unregistered shares of common stock of the Company, at a price of $5.79 per share (the
closing price of the stock on November 14, 2014, the trading day prior to the sale of shares). The shares were purchased by C.F.
Woodford Equity Income Fund of the UK. In connection with the offering, the Company agreed to file a registration statement within
two weeks after the closing and to use best efforts to complete the registration within sixty days thereafter.
Also on November 17, the Company completed
a $10 million mortgage secured solely by the Company’s UK facility and property. The Company plans to use the proceeds in
connection with its expansion of manufacturing capacity in Europe. The mortgage has a term of 2 years and accrues interest
at the rate of 12%.
On November 12, 2014, the Board approved
the issuance of 10,577,176 restricted stock units (“RSUs”) to employees and board members of the Company, pursuant
to the equity compensation plan approved by shareholders in December 2013. These are the first such equity awards to employees
in 3.7 years, since June, 2011, and are also the first such awards to Board members. These RSUs will vest on various dates over
a period of 5 years, and will also be subject to both service and performance conditions.
On November 12, 2014, the Board approved
the issuance of 8,052,092 shares of common stock to Cognate for services and most favored nation provisions in accordance with
the Cognate agreements.
On November 12, 2014, the Board approved
the issuance of 3,812,555 warrants to Cognate for services and most favored nation provisions in accordance with the Cognate agreements.
The warrants will have a term of 5.0 years and an initial exercise price of $4.00, and will be subject
to a most favored nation provision.
On October 6, 2014, the Company entered
into a Stock Purchase, Amendment and Issuance Agreement (the “Agreement”) with an existing single institutional investor
for the sale of 2,272,727 shares of common stock at a purchase price of $5.05 per share, for a total purchase price of approximately
$11.5 million. In the Agreement, the investor’s existing contractual over-allotment purchase right to purchase up to $17,045,452.50
worth of shares of our common stock for $7.50 per share at any time prior to April 14, 2015 was terminated. The Company also issued
the purchaser a warrant to purchase up to $14,085,250.00 of shares at an exercise price of $5.15 per share, or up to $14,085,250
in aggregate, exercisable commencing six months after issuance and with an exercise period of 30 months.
On August 27, 2014 and September 16, 2014,
the Company sold an aggregate of 435,202 shares of restricted common stock at $5.17 per share and 448,207 shares of restricted
common stock at $5.02 per share, respectively for total proceeds of $4.5 million.
On August 19, 2014, the Company completed
the acquisition of a facility and property in the UK (“UK Facility”). The purchase price of the property was £13
million (approximately $20.8 million, excluding professional fees of $1.5 million). The facility is an existing building of approximately
65,000 square feet The Company plans to re-purpose the facility and have it built out as part of the expansion of manufacturing
capacity for its products in Europe, potentially doubling the building’s square footage. Such re-purposing requires approval
of the applicable Planning Commission. If re-purposing is approved, then the specific design and engineering of the proposed build
out will also have to be approved. In addition to the facility, the acquisition included about 25 acres of potentially developable
land (as well as non-developable land). Any future development for business use will require removal of certain existing structures,
permission from the Planning Commission for the intended purpose, and then permission from the Planning Commission for the specific
designs and engineering.
Also on August 19, 2014, the Company completed
a private offering of $17.5 million aggregate principal amount of 5% Senior Secured Convertible Promissory Notes (the “Senior
Notes”) with an initial conversion price of $7.30 per share, for total net proceeds to the Company of approximately $16.2
million after deducting placement agent fees and other expenses.
Item 6. Exhibits
10.1 |
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Contract for the Sale and Purchase of Land and Buildings at Sawston, England, dated July 3,
2014, by and among Spicers Limited, Aracaris Capital Limited and Cognate Bioservices, Inc. |
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10.2 |
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Stock Purchase Agreement, dated November 17, by and among the Company and C.F. Woodford Equity Income Fund. |
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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: November 19, 2014 |
By: |
/s/ Linda F. Powers |
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Name: |
Linda F. Powers |
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Title: |
President and Chief Executive Officer |
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|
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Principal Executive Officer |
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Principal Financial and Accounting Officer |
Exhibit 10.1
Exhibit 10.2
Exhibit 31.1
SECTION 302 CERTIFICATION
I, Linda F. Powers, certify that:
(1) I have
reviewed this quarterly report on Form 10-Q of Northwest Biotherapeutics, Inc.;
(2) Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
(3) Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
(4) I am
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15 (f)), for the
registrant and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision,
to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries, is made known
to me by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) I have
disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors
and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: November 19, 2014 |
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By: |
/s/ Linda F. Powers |
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Name: |
Linda F. Powers |
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Title: |
President and Chief Executive Officer |
|
|
|
Principal Executive Officer |
|
|
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Principal Financial and Accounting Officer |
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT
OF 2002
In connection with
the quarterly report of Northwest Biotherapeutics, Inc. (the “Company”) on Form 10-Q for the quarter ended September
30, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Linda F. Powers, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: November 19, 2014 |
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By: |
/s/ Linda F. Powers |
|
|
Name: |
Linda F. Powers |
|
|
Title: |
President and Chief Executive Officer |
|
|
|
Principal Executive Officer |
|
|
|
Principal Financial and Accounting Officer |
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