Summary of NORTHWEST BIOTHERAPEUTICS INC

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" elsewhere in 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
Northwest Biotherapeutics, Inc. was formed in 1996 and incorporated in Delaware in July 1998. We are a development stage biotechnology company focused on discovering, developing, and commercializing immunotherapy products that safely generate and enhance immune system responses to effectively treat cancer. Currently approved cancer treatments are frequently ineffective, can cause undesirable side effects and provide marginal clinical benefits. Our approach in developing cancer therapies utilizes our expertise in the biology of dendritic cells, which are a type of white blood cell that activate the immune system. Our primary activities since incorporation have been focused on advancing proprietary dendritic cell immunotherapies for prostate and brain cancer, together with strategic and financial planning, and raising capital to fund our operations.
We have two basic technology platforms applicable to cancer therapeutics:
dendritic cell-based cancer vaccines, which we call DCVax®, and monoclonal antibodies for cancer therapeutics. DCVax® is our registered trademark. Our DCVax® dendritic cell-based cancer vaccine program is our main technology platform.
Our platform technology, DCVax®, uses a patient's own dendritic cells, the starter engine of the immune system. The dendritic cells are extracted from the body, loaded with tumor biomarkers or "antigens," thereby creating a personalized therapeutic vaccine. Injection of these cells back into the patient initiates a potent immune response against cancer cells, resulting in delayed time to progression and prolonged survival.
We are currently recruiting patients with newly diagnosed GBM in a 240 patient Phase II DCVax®-Brain clinical trial. Subject to our receipt of sufficient funding to carry out the study we plan to carry out the study at 40 to 50 clinical sites. The study was initially designed as a 141 patient randomized study, in which patients received either DCVax®-Brain in addition to standard of care or standard of care alone. However, patients were reluctant to enroll in the study when faced with a 33% chance of being randomized into the control arm of the study under which they would receive standard of care alone. In order to address this issue we have redesigned the study as a randomized, placebo controlled, double blinded study with a cross-over arm allowing control patients to be treated with DCVax®-Brain in the event that their cancer progresses. As of August 4, 2008, 11 sites are active and a further 31 sites are at various stages of the start-up process. Depending on trial results, we plan to seek product approval in both the U.S. and the E.U.
DCVax®-Brain has been granted orphan drug status in the U.S., the European Union and Switzerland. Such status will afford DCVax®-Brain 7 years of market exclusivity in the U.S. and 10 years in the European Union and Switzerland, if DCVax®-Brain is the first product of its type to reach product approval. We are also conducting a Phase I/II clinical trial using DCVax®-L for recurrent ovarian cancer at The University of Pennsylvania Center for Research on Early Detection and Cure of Ovarian Cancer and the Abramson Cancer Center. The trial involves two sequential studies, and comprises an innovative combination of multiple treatment modalities. DCVax®-L forms the cornerstone of the treatment regimen, and is complemented by administration of low doses of certain existing approved drugs to help improve the immune system environment, as well as by adoptive transfer of patients' DCVax®-L primed T cells. The funding for the study is being provided by the Ovarian Cancer Vaccine Initiative (a private philanthropic organization).

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In February 2007, we, through our legal representative, applied to the Bundesamt für Gesundheit ("BAG" or "Office Fédéral de la Santé Publique") in Switzerland for an Authorization for Use ("Autorisation"). In June 2007, we, through our legal representative, received such Autorisation from the BAG to make DCVax®-Brain available at limited selected medical centers in Switzerland, as well as an authorization ("Autorisation pour activités transfrontalières avec des transplants") to export patients' cells and tissues from Switzerland, for vaccine manufacturing in the United States, and to import patients' DCVax®-Brain finished vaccines into Switzerland. These authorizations are conditional upon certain implementation commitments which must be fulfilled to the satisfaction of Swissmedic ("Institut Suisse des Agents Thérapeutiques") before the product may be made available (e.g., finalizing our arrangements for a clean-room suite for processing of patients' immune cells). We believe we have fulfilled these commitments and are awaiting Swissmedic confirmation.
In the BAG's processing of and decision on our application and data with respect to the authorizations described above, Swissmedic conducted an inspection of our facilities. A comprehensive evaluation of DCVax®-Brain will be conducted by Swissmedic during its processing of our Marketing Authorization Application ("MAA") which we filed with Swissmedic in December 2007. The assessment by Swissmedic of our MAA will include a full review by Swissmedic of the safety and efficacy data generated in our DCVax®-Brain clinical studies to date. This review is currently underway and we are addressing enquiries from Swissmedic concerning our application. This review is likely to take at least one year from our submission in December 2008. Until such a Market Authorization is granted, and assuming we complete our implementation commitments to the satisfaction of Swissmedic, DCVax®-Brain may only be made available at the selected Medical Centers in Switzerland under the Autorisation granted by the BAG. The term of the BAG Autorisation is five years from June 2007.
We completed an initial public offering of our common stock on the NASDAQ Stock Market ("NASDAQ") in December 2001 and an initial public offering of our common stock on the Alternative Investment Market ("AIM") of the London Stock Exchange in June 2007.
As described in further detail elsewhere in this report, since 2004 we have undergone a significant recapitalization pursuant to which (i) Toucan Capital Fund II, L.P. ("Toucan Capital") loaned us an aggregate of $6.75 million, which notes payable and accrued interest thereon were converted into shares of our Series A-1 cumulative convertible preferred stock (the "Series A-1 Preferred Stock") in April 2006 and subsequently converted into common stock in June 2007; and (ii) Toucan Partners, LLC ("Toucan Partners") loaned us an aggregate of $4.825 million (excluding $225,000 in proceeds from a demand note that was received on June 13, 2007 and repaid on June 27, 2007), which borrowings have, in a series of transactions, been converted into convertible notes with an aggregate outstanding principal of $4.825 million and related warrant coverage. In the fourth quarter of 2007, we repaid all of the remaining outstanding principal and accrued interest pursuant to these convertible notes in the aggregate amount of $5.3 million to Toucan Partners.
In addition, on January 26, 2005, Toucan Capital purchased 32.5 million shares of our Series A cumulative convertible preferred stock (the "Series A Preferred Stock") at a purchase price of $0.04 per share, for a net purchase price of $1.276 million, net of offering related costs of approximately $24,000. In June 2007, this Series A Preferred Stock was converted into common stock. On March 30, 2006, we sold approximately 2.6 million shares of common stock at a purchase price of $2.10 per share and raised aggregate gross proceeds of approximately $5.5 million in a closed equity financing with unrelated investors (the "PIPE Financing") The total cost of the offering recorded, including both cash and non-cash costs, was approximately $837,000.
On June 22, 2007, we placed 15,789,473 shares of our common stock with foreign institutional investors at a price of £0.95 per share. The gross proceeds from the placement were approximately £15.0 million, or $29.9 million, while net proceeds from the offering, after deducting commissions and expenses, were approximately £13.0 million, or $25.9 million.
On May 12, 2008, the Company entered into a loan agreement with Al Rajhi Holdings W.L.L. ("Al Rajhi") under which Al Rajhi provided the Company with debt financing in the amount of $4.0 million ("the "Loan"). Under the terms of the Loan, the Company received $4.0 million in return for an unsecured promissory note in the principal amount of $4,240,000 (reflecting an original issue discount of six percent, or $240,000). The Loan has a term of six months. The note may be paid at any time without a prepayment penalty and the term may be extended in Al Rajhi's discretion upon the Company's request. At June 30, 2008, the carrying value of the Loan was $4,069,000, net of unamortized discount of $171,000. The Company amortizes the discount using the effective interest method over the term of the Loan. During the three months ended June 30, 2008 the Company recorded interest expense related to the amortization of the discount of $69,000. Al Rajhi may elect to have the original issue discount amount paid at maturity in shares of common stock, at a price per share equal to the average closing price of the Company's Common Stock on the NASD Over-The-Counter Bulletin Board during the ten trading days prior to the execution of the Loan agreement. The intrinsic value of the Loan did not result in a beneficial conversion feature.

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On August 19, 2008, the Company entered into a loan agreement with Toucan Partners, under which Toucan Partners provided the Company with debt financing in the amount of $1.0 million (the "Toucan Loan"). Under the terms of the Toucan Loan, the Company received $1.0 million in return for an unsecured promissory note in the principal amount of $1,060,000 (reflecting an original issue discount of six percent, or $60,000). The Toucan Loan has a term of six months. The note may be paid at any time without a prepayment penalty and the term may be extended in Toucan Partners' discretion upon the Company's request. Toucan Partners may elect to have the original issue discount amount paid at maturity in shares of common stock, at a price per share equal to the average closing price of the Company's common stock on the NASD Over-The-Counter Bulletin Board during the ten trading days prior to the execution of the loan agreement. The intrinsic value of the Toucan Loan did not result in a beneficial conversion feature.
As of August 19, 2008, we had approximately $1.1 million of cash on hand. We estimate that our available cash is sufficient to support our day to day operations through the end of September 2008. We need to raise additional capital to fund our clinical trials and other operating activities and to repay our indebtedness under the Loan and the Toucan Loan. We are in late stage discussions with several parties in regard to additional financing transactions with several other parties, which we hope to complete later this year. However, there can be no assurance that we will be able to complete any of the financings, or that the terms for such financings will be favorable to us. Our independent auditors have indicated in their report on our December 31, 2007 financial statements that there is substantial doubt about our ability to continue as a going concern. See " - Liquidity and Capital Resources" for additional information regarding our liquidity, cash flow and financings. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The critical accounting policies that involve significant judgments and estimates used in the preparation of our financial statements are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007. Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141(R), Business Combinations ("SFAS 141(R)"). SFAS 141(R) expands the scope of acquisition accounting to all transactions under which control of a business is obtained. Among other things, SFAS 141(R) requires that contingent consideration as well as contingent assets and liabilities be recorded at fair value on the acquisition date, that acquired in-process research and development be capitalized and recorded as intangible assets at the acquisition date, and also requires transaction costs and costs to restructure the acquired company be expensed. SFAS 141(R) is effective on a prospective basis as of January 1, 2009. We are assessing the impact of the adoption of this standard on our financial position and results of operations.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51 ("SFAS 160"). The statement changes how noncontrolling interests in subsidiaries are measured to initially be measured at fair value and classified as a separate component of equity. SFAS 160 establishes a single method of accounting for changes in a parent's ownership interest in a subsidiary that do not result in deconsolidation. No gains or losses will be recognized on partial disposals of a subsidiary where control is retained. In addition, in partial acquisitions, where control is obtained, the acquiring company will recognize and measure at fair value all of the assets and liabilities, including goodwill, as if the entire target company had been acquired. The statement is to be applied prospectively for fiscal years beginning on or after December 15, 2008. We will adopt the statement on January 1, 2009. We are currently evaluating the impact the adoption of this statement will have, if any, on our consolidated financial position or results of operations.

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In December 2007, the FASB ratified the consensus reached by the Emerging Issues Task Force ("EITF") on Issue No. 07-1 ("EITF 07-1"), Accounting for Collaborative Arrangements. EITF 07-1 is effective for the Company beginning January 1, 2009 and will be applied retrospectively to all prior periods presented for all collaborative arrangements existing as of the effective date. EITF 07-1 defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. W e are assessing the impact of adoption of EITF 07-1 on our financial position and results of operations.
On January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements ("SFAS 157"), which clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the required disclosures on fair value measurements. In February 2008, the FASB issued Staff Position 157-2, Effective Date of FASB Statement No. 157 ("FSP 157-2"), that deferred the effective date of SFAS 157 for one year for nonfinancial assets and liabilities recorded at fair value on a non-recurring basis. The effect of adoption of SFAS 157 for financial assets and liabilities recognized at fair value on a recurring basis did not have a material impact on the Company's financial position and results of operations (See Note 3). The Company is assessing the impact of the adoption of SFAS 157 for nonfinancial assets and liabilities on the Company's financial position and results of operations.
On January 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115 ("SFAS 159"). SFAS 159 permits companies to irrevocably elect to measure certain financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. The Company did not elect the fair value option under SFAS 159 for any of its financial assets or liabilities upon adoption.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"), which is effective January 1, 2009. SFAS 161 requires enhanced disclosures about derivative instruments and hedging activities to allow for a better understanding of their effects on an entity's financial position, financial performance, and cash flows. Among other things, SFAS 161 requires disclosure of the fair values of derivative instruments and associated gains and losses in a tabular format. Since SFAS 161 requires only additional disclosures about our derivatives and hedging activities, the adoption of SFAS 161 will not affect our financial position or results of operations should we acquire derivatives in the future. In May 2008, the FASB issued Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement ) ("FSP APB 14-1"). FSP APB 14-1 states that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of Accounting Principles Board Opinion No. 14 and that issuers of such instruments should account separately for the liability and equity components of the instrument in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and must be applied retrospectively to all periods presented. We are assessing the impact of the adoption of this standard on our financial position and results of operations. Results of Operations
Operating expenses:
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 general and administrative expenses. Research and development:
Discovery and preclinical research and development expenses include scientific personnel-related salary and benefit expenses, costs of laboratory supplies used in our internal research and development projects, travel, regulatory compliance, and expenditures for preclinical and clinical trial operation and management when we are actively engaged in clinical trials.
Because we are a development stage company, we do not allocate research and development costs on a project basis. We adopted this policy, in part, due to the unreasonable cost burden associated with accounting at such a level of detail and our limited number of financial and personnel resources. We shifted our focus, starting in 2002, from discovering, developing, and commercializing immunotherapy products to conserving cash and primarily concentrating on securing new working capital to re-activate our two DCVax® clinical trial programs.

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General and administrative:
General and administrative expenses include administrative personnel related salary and benefit expenses, cost of facilities, insurance, travel, legal support, property and equipment and amortization of stock options and warrants. Three Months Ended June 30, 2007 and 2008 We recognized a net loss of $6.1 million for the three months ended June 30, 2008 compared to a net loss of $8.0 million for the three months ended June 30, 2007. The decrease in net loss was primarily attributable to a decrease in interest expense for the three months ended June 30, 2008 as compared to the same period in 2007, offset by an increase in research and development and general and administrative expenses for the three months ended June 30, 2008 compared to the same period in 2007.
Research and Development Expense. Research and development expense increased from $2.2 million for the three months ended June 30, 2007 to $3.1 million for the three months ended June 30, 2008. This increase was primarily due to:
• increased monthly contract manufacturing costs for our DCVax® product;

• increased costs in Switzerland relating to the Authorization for Use, and the application for Marketing Authorization, relating to DCVax®-Brain;

• increased support costs related to the development of a clinical trial program and potential compassionate use/named patient programs in certain countries outside the U.S.;

• increased clinical trials costs in the U.S. due to the initiation of additional clinical sites and screening and enrollment of patients in our Phase II DCVax®-Brain clinical trial; and

• increased personnel costs as we build our clinical organization.

General and Administrative Expense. General and administrative expense increased from $1.4 million for the three months ended June 30, 2007 to $2.9 million for the three months ended June 30, 2008. This increase was primarily due to:
• costs associated with our AIM listing in the United Kingdom;

• potentially non-recurring start-up costs (mainly consulting and travel costs) for international programs, locations such as in Switzerland, Spain and Israel;

• higher staffing costs associated with expansion of our business activities in the U.S. and internationally;

• legal costs associated with ongoing litigation;

• additional rent expense related to our new headquarters located in Bethesda, Maryland; and

• SFAS 123(R) expense associated with stock option grants to executives.

Depreciation and Amortization. Depreciation and amortization decreased from $6,000 during the three months ended June 30, 2007 to $0 for the three months ended June 30, 2008. The decrease in the quarter was due to a true-up adjustment of cumulative depreciation at June 30, 2008.
Total Other Income (Expense), Net. Interest expense decreased from $4.7 million for the three months ended June 30, 2007 to approximately $69,000 for the three months ended June 30, 2008. Interest expense for the three-month period ended June 30, 2007 was primarily related to the debt discount and interest accretion associated with our then-outstanding convertible promissory notes and related warrants. As of December 31, 2007, all of the related notes were repaid. Accordingly, we did not accrue interest expense on those notes during the three months ended June 30, 2008.

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Six Months Ended June 30, 2007 and 2008
We recognized a net loss of $11.7 million for the six months ended June 30, 2008 compared to a net loss of $9.9 million for the six months ended June 30, 2007. The increase in net loss was primarily attributable to an increase in research and development and general and administrative expenses for the six months ended June 30, 2008 compared to the same period in 2007, offset by a decrease in interest expense for the six months ended June 30, 2008 as compared to the same period in 2007.
Research and Development Expense. Research and development expense increased from $3.5 million for the six months ended June 30, 2007 to $6.2 million for the six months ended June 30, 2008. This increase was primarily due to:
• increased monthly contract manufacturing costs for our DCVax® product;

• increased costs in Switzerland relating to the Authorization for Use, and the application for Marketing Authorization, relating to DCVax®-Brain;

• increased support costs related to the development of a clinical trial program and potential compassionate use/named patient programs in certain countries outside the U.S.;

• increased clinical trial costs due to the initiation of additional clinical sites and screening and enrollment of patients in our Phase II DCVax®-Brain clinical trial; and

• increased personnel costs as we build our clinical organization.

General and Administrative Expense. General and administrative expense increased from $1.9 million for the six months ended June 30, 2007 to $5.5 million for the six months ended June 30, 2008. This increase was primarily due to:
• costs associated with our AIM listing in the United Kingdom;

• potentially non-recurring start-up costs (mainly consulting and travel costs) for international programs, locations such as in Switzerland, Spain and Israel;

• higher staffing costs associated with expansion of our business activities in the United States and internationally;

• legal costs associated with ongoing litigation;

• additional rent expense related to our new headquarters located in Bethesda, Maryland; and

• SFAS 123(R) expense associated with stock option grants to executives.

Depreciation and Amortization. Depreciation and amortization increased from $16,000 during the six months ended June 30, 2007 to $22,000 for the six months ended June 30, 2008.
Total Other Income (Expense), Net. Interest expense decreased from $4.9 million for the six months ended June 30, 2007 to approximately $81,000 for the six months ended June 30, 2008. Interest expense for the six-month period ended June 30, 2007 was primarily related to the debt discount and interest accretion associated with our then-outstanding convertible promissory notes and related warrants. As of December 31, 2007, all of the related notes were repaid. Accordingly, we did not accrue interest expense on those notes during the six months ended June 30, 2008.
Liquidity and Capital Resources
Toucan Capital and Toucan Partners
Since 2004, we have undergone a significant recapitalization pursuant to which Toucan Capital loaned us an aggregate of $6.75 million and Toucan Partners loaned us an aggregate of $4.825 million (excluding $225,000 in proceeds from a demand note that was received on June 13, 2007 and repaid on June 27, 2007). Our Chairperson is the managing director of Toucan Capital and the managing member of Toucan Partners.
On January 26, 2005, we entered into a securities purchase agreement with Toucan Capital pursuant to which it purchased 32.5 million shares of our Series A Preferred Stock at a purchase price of $0.04 per share, for a net purchase price . . .