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.

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 May 9, 2008 the Company entered into a loan agreement with Al Rajhi Holdings, under which 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) for a period of six (6) months.

On August 19, 2008, the Company entered into a loan agreement with Toucan Partners, under which 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) for a period of six months.

On October 1, 2008 we entered into a loan agreement with SDS Capital for $1.0 million for a term of six (6) months at 12%. In connection with the loan the Company issued SDS warrants to purchase shares of the Company's common stock. The warrants have a term of five years from the issuance date.

On October 22, 2008 we entered into a loan agreement with a group of private investors and SDS Capital for $1.65 million for a term of six (6) months at 12%. In connection with the loan the Company issued the private investors and SDS warrants to purchase shares of the Company's common stock. The warrants have a term of five years from the issuance date.

On December 22, 2008, we entered into a loan agreement with Toucan Partners for $500,000 with a term of six months at 12% interest. In connection with the loan the Company issued Toucan Partners warrants to purchase shares of the Company's common stock. The warrants have a term of five years from the issuance date.

On January 16, 2009 we entered into a securities purchase agreement for $700,000 with Al Rajhi Holdings who purchased 1,000,000 shares of our common stock at $0.70 per share.

During March 2009, we entered into loan agreements with a group of private lenders for $760,000 for a term of two years at 6% per annum.

On March 27, 2009, we sold approximately 1.4 million shares of common stock at a purchase price of $0.53 per share and raised aggregate gross proceeds of approximately $0.7 million in a closed equity financing with unrelated investors.

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, 2008.

Recent Accounting Pronouncements

See Note 2 to Condensed Consolidated Financial Statements in this Form 10-Q.

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.

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, 2008 and 2009

We recognized a net loss of $4.1 million for the three months ended June 30, 2009 compared to a net loss of $6.1 million for the three months ended June 30, 2008. The decrease in net loss for the three months ended June 30, 2009 was primarily attributable to a decrease in research and development and general and administrative expenses offset by an increase in interest expense compared to the same period in 2008.

Research and Development Expense. Research and development expense decreased from $3.1 million for the three months ended June 30, 2008 to $2.5 million for the three months ended June 30, 2009. This decrease was primarily due to:

• reduced personnel costs; and

• reduced activity in Switzerland as we await a decision from Swissmedic related to the Market Authorization for DCVax®-Brain.

General and Administrative Expense. General and administrative expense decreased from $2.9 million for the three months ended June 30, 2008 to $0.8 million for the three months ended June 30, 2009. This decrease was primarily due to:

• reduced staffing costs; and

• reduced legal costs due to settlement of litigation;

Asset Impairment Loss- In July 2009 the Company's contract manufacturer, Cognate Bioservices, Inc., consolidated its Sunnyvale, California and Memphis, Tennessee manufacturing facilities and closed the Sunnyvale facility housing the Company's clean room. As the clean room cannot be relocated the Company provided an impairment allowance of $389,000 reducing the carrying value of the clean room to $0. The clean room will be written off when the Sunnyvale facility closes during the third quarter of 2009.

Total Other Income (Expense), Net. Interest expense net of interest income increased from $52,000 for the three months ended June 30, 2008 to $440,000 for the three months ended June 30, 2009. Interest expense for the three-month period ended June 30, 2009 increased over the same period in 2008 was due to higher average balances of notes payable and convertible notes payable.

Six Months Ended June 30, 2008 and 2009

We recognized a net loss of $8.7 million for the six months ended June 30, 2009 compared to a net loss of $11.7 million for the six months ended June 30, 2008. The decrease in net loss for the six months ended June 30, 2009 was primarily attributable to reductions in research and development and general and administrative expenses offset by increased interest costs compared to the same period in 2008.

Research and Development Expense. Research and development expense decreased from $6.2 million for the six months ended June 30, 2008 to $5.0 million for the six months ended June 30, 2009. This decrease was primarily due to:

• reduced activity in Switzerland as we await a decision from Swissmedic related to the Market Authorization for DCVax®-Brain; and

• reduced personnel costs.

General and Administrative Expense. General and administrative expense decreased from $5.5 million for the six months ended June 30, 2008 to $2.1 million for the six months ended June 30, 2009. This decrease was primarily due to:

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

• reduced legal costs due to settlement of litigation.

Depreciation and Amortization. Depreciation and amortization decreased from $22,000 during the six months ended June 30, 2008 to $0 for the six months ended June 30, 2009. This decrease was due to assets reaching the end of their useful lives.

Total Other Income (Expense), Net. Net interest expense increased from ($10,000) for the six months ended June 30, 2008 to $1,191,000 for the six months ended June 30, 2009 The increase over the same period in 2008 was due to higher average balances of notes payable and convertible notes payable.

Liquidity and Capital Resources

Toucan Capital and Toucan Partners

Toucan Capital loaned the Company an aggregate of $6.75 million during 2004 and 2005. In April 2006, the $6.75 million of notes payable plus all accrued interest due to Toucan Capital were converted into shares of the Company's Series A-1 cumulative convertible Preferred Stock (the "Series A-1 Preferred Stock").

On January 26, 2005, the Company entered into a securities purchase agreement with Toucan Capital pursuant to which it purchased 32.5 million shares of the Company's 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.

On June 1, 2007, the Company, Toucan Capital, and Toucan Partners entered into a conversion agreement ("Conversion Agreement") which became effective on June 22, 2007 upon the admission of the Company's Common Stock to trade on Alternative Investment Market ("AIM") of the London Stock Exchange ("Admission"). Under the conversion agreement Toucan Capital and Toucan Partners agreed to eliminate a number of rights, preferences and protections associated with the preferred stock in exchange for 4,287,851 and 2,572,710 shares of common stock, respectively and Toucan Capital converted its preferred shares into 15,011,635 shares of common stock. Additionally in connection with the conversion agreement the Company exchanged warrants issued to purchase Series A-1 Preferred Stock and Series A Preferred Stock for warrants to purchase common stock of the Company. As a result of the conversion Toucan Capital now holds warrants to purchase 14,150,732 shares of Common Stock at an exercise price of $0.60 per share and 7,884,357 shares of Common Stock at an exercise price of $0.15 per share and Toucan Partners holds warrants to purchase 8,831,541 shares of Common Stock at an exercise price of $0.60 per share.

From November 14, 2005 through March 9, 2006, Toucan Partners loaned the Company $4.825 million. In April 2007 this amount was converted into convertible demand notes (the "2007 Convertible Notes") and related warrants (the "2007 Warrants") carrying an interest rate of 10% per annum. The notes and related interest were repaid in full in the fourth quarter of 2007.

In May 2007 Toucan Partners loaned the Company an aggregate amount of $725,000, and issued warrants to purchase shares of the Company's capital stock to Toucan Partners in connection with this loan. These notes and warrants are on the same terms as the 2007 Convertible Notes and 2007 Warrants. The notes and related interest were repaid in full in the fourth quarter of 2007.

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 had a term of six months. On February 19, 2009, Toucan Partners agreed to extend the term of the loan. The terms and period of the extension are currently being negotiated by management. 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. Since February 20, 2009 the Company has been accruing interest related to the Toucan Loan on the same terms as those included in the original agreement. At June 30, 2009, the carrying value of the Loan was $1,135,598. The Company amortizes the discount using the effective interest method over the term of the loan. During the three and six month periods ended June 30, 2009, the Company recorded interest expense related to the amortization of the discount of $44,836 and $89,179 respectively. 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.

On December 22, 2008, the Company entered into a Loan Agreement and Promissory Note with Toucan Partners. Under the Note, Toucan has loaned the Company $500,000 (the "Toucan December Loan"). The Note is an unsecured obligation of the Company and accrues interest at the rate of 12% per year. The term of the Note is six months, with a maturity date of June 22, 2009. Toucan Partners have agreed to extend the term of the loan. The terms and period of the extension are currently being negotiated by management. The Note may be prepaid without the consent of Toucan. The Note contains customary representations and warranties, and affirmative and negative covenants regarding the operation of the Company's business during the term of the Note. In connection with the Note, the Company issued to Toucan Partners a warrant to purchase 132,500 shares of the Company's common stock at an exercise price equal to $0.40 per share, which was the closing price of the Company's Common Stock on the NASD Over-The-Counter Bulletin Board on December 22, 2008. The warrant expires 5 years from the date of issuance.

Upon issuing the Note to Toucan Partners, the Company recognized the note and warrants based on their relative fair values of $453,000 and $47,000, respectively, in accordance with APB Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants ("APB 14"). The fair value of the note was determined using the Black-Scholes option pricing model. The relative fair value of the warrants was classified as a component of additional paid-in capital in accordance with SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS 150") and EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock ("EITF 00-19"), with the corresponding amount reflected as a contra-liability to the debt. The fair value of the warrants was determined using the Black Scholes model, assuming a term of five years, volatility of 197%, no dividends, and a risk-free interest rate of 1.53%.

As a result of the financings described above, as of June 30, 2009, Toucan Capital held:

• an aggregate of 19,299,486 shares of common stock;

• warrants to purchase 14,150,732 shares of common stock at an exercise price of $0.60 per share; and

• warrants to purchase 7,884,357 shares of common stock at an exercise price of $0.15 per share.

As a result of the financings described above, as of June 30, 2009, Toucan Partners and its managing member Ms. Linda Powers held:

• an aggregate of 2,572,710 shares of common stock;

• warrants to purchase 8,832,541 shares of common stock at an exercise price of $0.60 per share; and

• warrants to purchase 132,500 shares of common stock at an exercise price of $0.40 per share.

The investments made by Toucan Capital and Toucan Partners were made pursuant to the terms and conditions of a Recapitalization Agreement originally entered into on April 26, 2004 with Toucan Capital (the "Recapitalization Agreement"). The Recapitalization Agreement originally contemplated the investment of up to $40 million through the issuance of new securities to Toucan Capital and a syndicate of other investors to be determined.

We and Toucan Capital amended the Recapitalization Agreement in conjunction with each successive loan agreement. The amendments generally (i) updated certain representations and warranties of the parties made in the Recapitalization Agreement, and (ii) made certain technical changes in the Recapitalization Agreement in order to facilitate the bridge loans described therein.

In accordance with the Recapitalization Agreement, we accrued and paid certain legal and other administrative costs on Toucan Capital's behalf. During the three months ending June 30, 2009 and 2008, respectively, the Company recognized approximately $0 and $148,000 of general and administrative costs related to the recapitalization agreement, rent expense, as well as legal, travel and other costs incurred by Toucan Capital on the Company's behalf. During the six months ending June 30, 2009 and 2008, respectively, the Company recognized approximately $0 and $298,000 of general and administrative costs related to the recapitalization agreement, rent expense, as well as legal, travel and other costs incurred by Toucan Capital on the Company's behalf.

As of June 30, 2009, Toucan Capital and Toucan Partners collectively, held 21,872,196 shares of our common stock, representing approximately 48.5% of our outstanding common stock. Further, as of June 30, 2009, Toucan Capital and Toucan Partners collectively, beneficially owned (including unexercised warrants) 52,872,326 shares of our common stock, representing a beneficial ownership interest of approximately 69.5%.

Other Financings

On November 13, 2003, we borrowed an aggregate of $335,000 from certain members of our current and former management. These notes were either been repaid or converted into common stock prior to December 31, 2006.

On March 30, 2006, we completed the PIPE Financing pursuant to which we raised aggregate gross proceeds of approximately $5.5 million.

On June 22, 2007, we placed 15,789,473 shares of our common stock with foreign institutional investors at a price of Ł0.95 per share. The gross proceeds from the placement were approximately Ł15.0 million, or $29.9 million, while net proceeds from the offering, after deducting commissions and expenses, were approximately Ł13.0 million, or $25.9 million. The net proceeds from the placement are being used to fund clinical trials, product and process development, working capital needs and repayment of certain existing debt.

On January 16, 2009 we entered into a securities purchase agreement for $700,000 with Al Rajhi Holdings who purchased 1,000,000 shares of our common stock at $0.70 per share.

During March 2009, we entered into loan agreements with a group of private lenders for $760,000 for a term of two years at 6% per annum.

As of August 12, 2009, we had approximately $265,000 of cash on hand. We need to raise additional capital to fund our clinical trials and other operating activities. We are exploring 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.

We are seeking additional funds through the issuance of additional common stock or other securities (equity or debt) convertible into shares of common stock, which could dilute the ownership interest of our stockholders. We may seek funding from Toucan Capital or Toucan Partners or their affiliates or other third parties. Such parties are under no obligation to provide us any additional funds, and any such funding may be dilutive to stockholders and may contain restrictive covenants that could limit our ability to take certain actions. If our capital raising efforts are unsuccessful, our inability to obtain additional cash as needed could have a material adverse effect on our financial position, results of operations and our ability to continue our existence. Our independent registered public accounting firm has indicated in its report on our financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2008 that there is substantial doubt about our ability to continue as a going concern.

Sources of Cash

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