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NWBO > SEC Filings for NWBO > Form 10-Q on 15-May-2014All Recent SEC Filings

Show all filings for NORTHWEST BIOTHERAPEUTICS INC

Form 10-Q for NORTHWEST BIOTHERAPEUTICS INC


15-May-2014

Quarterly Report


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. These factors, among others, could cause results to differ materially from those presently anticipated by us. You should not place undue reliance on these forward-looking statements.

Overview

We are a development stage biotechnology company focused on developing immunotherapy products to treat cancers more effectively than current treatments, without toxicities of the kind associated with chemotherapies, and, through a proprietary batch manufacturing process, on a cost-effective affordable basis initially in both the United States and Europe.

We have developed a platform technology, DCVax, which uses activated dendritic cells to mobilize a patient's own immune system to attack their cancer. The DCVax technology is expected to be applicable to 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 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.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

Results of Operations

Operating costs:

Operating costs and expenses consist primarily of research and development expenses, including clinical trial expenses which increase when we are actively participating in clinical trials and are especially high when we are in a large ongoing international phase III trial (as we now are) and when we also have an additional clinical trial program under way in parallel (as we have with our 60-patient Phase I/II trial with DCVax-Direct for all types of inoperable solid tumors), and general and administrative expenses.

Our operating costs include 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 equipment, disposable sets to be used with the manufacturing automation equipment, manufacturing processes, product ingredients, product release assays, and other matters, as well as development of standard operating procedures (SOPs), batch production records, and other necessary materials.

Our operating costs also include the costs of preparations for the launch of new or expanded clinical trial programs including the Phase III trial in the UK and Germany (with DCVax-L for brain cancer) and the Phase I/II trial (with DCVax-Direct for all inoperable solid tumor cancers). The preparation costs include upfront payments to the clinical trial sites and the CROs managing the trials and other service providers, and expenses related to institutional approvals, training of medical and other site personnel, trial supplies and other.

Research and development:

Discovery and preclinical research and development expenses include costs for both internal and 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 a development stage company, we do not allocate research and development costs on a project basis. We adopted this policy, in part, due to the unreasonable cost burden associated with accounting at such a level of detail and our limited number of financial and personnel resources.

General and administrative:

General and administrative expenses include administrative personnel related salary and benefit expenses, cost of facilities, insurance, travel, legal support, property and equipment and amortization of stock options and warrants.

Three Months Ended March 31, 2014 and 2013

We recognized a net loss of $10.6 million in cash outlays and $35.4 million in non-cash accounting charges (i.e. increase in stock-based compensation, inducement expense and the issuance of warrants etc.), for a combined (cash and non-cash) total net loss of $46.0 million for the three months ended March 31, 2014 compared to a net loss of $14.4 million for the three months ended March 31, 2013.

Research and Development Expense. Research and development expense was a combined (cash and non-cash) total of $20.0 million for the three months ended March 31, 2014 compared to $11.6 million for the three months ended March 31, 2013. The increase was primarily attributable to the DCVax-Direct manufacturing and product development work and the preparation costs for the launch of two clinical trial programs, one in the US and one in the UK, as well as expansion of the ongoing Phase III trial in the US, and increased manufacturing of DCVax®-L for the Phase III trial.

As of March 31, 2014 we had over 51 clinical trial sites in operation in the US and UK in our Phase III trial with DCVax-L, compared to approximately 40 clinical trial sites in the US only at March 31, 2013. At March 31, 2014, we also had substantially expanded other clinical trial related operations compared with March 31, 2013 including, for example, extensive preparations and launch of the Phase III DCVax-L clinical trial in the UK as described above, and launch of the Phase I/II DCVax-Direct trial in the US as described above, in addition to costs related to fully operational and approved manufacturing in Germany, cost of an established wholly owned German subsidiary, manufacturing activity in the UK and preparations in regard to nearly 30 clinical trial sites in the UK and Germany.

General and Administrative Expense. General and administrative expense included $2.2 million of cash expenses, and $1.5 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 $3.7 million for the three months ended March 31, 2014 compared to $2.5 million for the three months ended March 31, 2013. The increase in general and administrative expenses from the prior period is as a result of increase in consulting expenses of $1.4 million and increase in legal expenses of $0.4 million due to the expansion of our platform, offset by a $0.6 million decrease in stock based compensation expense.

Change in fair value of derivatives. During the three months ended March 31, 2014 and March 31, 2013 we recognized a non-cash loss on derivative liabilities of $17.0 million and $0 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 March 31, 2014 and March 31, 2013 we recognized an inducement expense of $5.3 million and $0 million, respectively. This inducement expense during the three months ended March 31, 2014 was related to the conversion of accounts payable to common stock and warrants to Cognate in connection with the extinguishment of accounts payable.

Interest (Expense). Interest expense (including non-cash elements such as amortization of debt discount) decreased to $0.1 million for the three months ended March 31, 2014 from $0.5 million for the three months ended March 31, 2013. The decrease in interest expense is primarily related to the retirement of $1.8 million in notes payable during 2013.

Liquidity and Capital Resources

We have experienced recurring losses from operations. Net cash outflows from operations were $10.6 million for the three months ended March 31, 2014.

At March 31, 2014, current assets totaled $12.4 million, compared to $18.6 million at December 31, 2013. Working capital excluding the warrant liability was of $2.4 million at March 31, 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 decrease as of March 31, 2014 as compared to December 31, 2013 is primarily related to the conversion of $5.9 million of accounts payable to Cognate to common stock and warrants.

On a going forward basis, commencing with August 2013, and continuing throughout the lock-up period (up to 36 months), we and Cognate agreed to establish an arrangement for regular ongoing payment of at least half of all invoices in common stock of our company, and the remainder in cash, at $4.00 per share subject to a most favored nation treatment with respect to terms provided to other investors or creditors (including with respect to any warrants). The arrangement will continue for 18 months from the execution of the Cognate agreements or until terminated by mutual agreement. The contracts implementing these agreements are the Cognate Agreements that were executed in January 2014.

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. Toucan (other than Cognate) held approximately 8% of common stock outstanding as of March 31, 2014.

Operating Activities

We used $10.6 million in cash for operating activities during the three months ended March 31, 2014, and used $7.1 million in cash for operating activities during the three months ended March 31, 2013. The increase in cash used in operating activities was primarily attributable to the DCVax-Direct manufacturing and product development work, the preparations for launch of the Phase I/II clinical trial with DCVax-Direct for solid tumor cancers, the increased manufacturing of DCVax®-L for the ongoing Phase III brain cancer trial at a growing number of sites across the US and the preparation costs for the launch of the 60-patient Phase I/II trial with DCVax-Direct in the U.S., and the Phase III trial with DC-Vax-L for brain cancer in the UK.

As of March 31, 2014, we had over 51 clinical trial sites in operation in the US and UK in our Phase III trial with DCVax-L, compared to approximately 40 clinical trial sites at March 31, 2013, in the US only. At March 31, 2014, we also had substantially expanded other clinical trial related operations compared with March 31, 2013 including, for example, the launch of the Phase III DCVax-L clinical trial in the UK and approval for the trial in Germany, and launch of the Phase I/II DCVax-Direct trial in the U.S in addition to costs related to fully operational and approved manufacturing in Germany, an established wholly owned German subsidiary, clinical activity in the U.K. and preparations for up to 30 clinical trial sites in the U.K. and Germany.

Financing Activities

During the three months ended March 31, 2014, our financing activities primarily consisted of proceeds from an investor of $1.4 million, such shares have not been issued yet as of May 14, 2014, $2.7 million from the exercise of warrants and $0.2 million for the issuance of common stock with 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 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 will provide funding on a matching basis for up to 50% of the costs incurred by us for the DCVax-L clinical trial and manufacturing in Germany. We anticipate beginning to draw upon the grant in the next several months.

Other factors affecting our ongoing funding requirements include the number of staff we employ, the number of sites and pace of patient enrollment in our Phase III brain cancer trial and our Phase I/II clinical trial with DCVax-Direct, the costs of further development work relating to DCVax-Direct, the costs of expansion of manufacturing of both DCVax-L and DCVax-Direct, the cost of establishing clinical studies and compassionate use/named patient programs in other countries, and unanticipated developments. The extent of resources available to us will determine the pace at which we can move forward with both our DCVax-L program and our DCVax-Direct program.

As we are dependent on our ability to obtain short term financing and ultimately to generate sufficient cash flow to meet our obligations on a timely basis, as well as successfully obtain financing on favorable terms to fund our long term plans, 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.

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