As filed with the Securities and Exchange Commission on
July 17, 2006
Registration
No.
333-134320
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
Form
S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Northwest Biotherapeutics, Inc.
(Exact name of registrant as specified in its charter)
|
|
|
|
|
Delaware
|
|
2834
|
|
94-3306718
|
(State or other jurisdiction of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
18701
120
th
Avenue
N.E., Suite 101
Bothell, WA 98011
(425) 608-3000
(Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
Alton L. Boynton, Ph.D.
President, Chief Operating and Scientific Officer
18701
120
th
Avenue
N.E., Suite 101
Bothell, WA 98011
(425) 608-3000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
Jim D. Johnston, Esq.
Johnston Law Firm
11808 Northup Way
Suite
W-190
Bellevue, WA 98005
(425) 890-2367
Approximate date of commencement of proposed sale to the
public:
As soon as practicable after this Registration
Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or interest
reinvestment plans, check the following
box.
þ
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell nor does it
seek an offer to buy these securities in any jurisdiction where
the offer or sale is not
permitted.
|
SUBJECT TO
COMPLETION, DATED JULY 17, 2006
PRELIMINARY
PROSPECTUS
58,969,641 Shares
Northwest Biotherapeutics,
Inc.
Common Stock
This prospectus relates to the resale, from time to time, of up
to 58,969,641 shares of our common stock which are held by
certain of our stockholders named within. These shares include
39,949,982 shares of common stock held by certain selling
stockholders and 19,019,659 shares of common stock issuable
upon exercise of warrants held by certain selling stockholders.
All of these shares of common stock are being sold by the
selling stockholders named in this prospectus, or their
transferees, pledgees, donees or
successors-in
-interest.
The selling stockholders will receive all proceeds from the sale
of the shares of our common stock being offered in this
prospectus. We will receive, however, the exercise price of the
warrants upon exercise for cash by selling stockholders of their
warrants.
The selling stockholders may sell the shares of common stock
being offered by them from time to time on the
Over-the
-Counter
Bulletin Board, in market transactions, in negotiated
transactions or otherwise, and at prices and at terms that will
be determined by the then prevailing market price for the shares
of common stock or at negotiated prices directly or through
brokers or dealers, who may act as agent or as principal or by a
combination of such methods of sale. For additional information
on the methods of sale, you should refer to the section entitled
Plan of Distribution on page 68.
Our common stock trades on the Over-The-Counter
Bulletin Board under the symbol NWBT.OB. On
July 6, 2006, the closing price of our common stock on the
Over-The-Counter Bulletin Board was $0.26.
Investing in our common stock involves risks. See Risk
Factors beginning on page 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus
is ,
2006.
TABLE OF CONTENTS
You should rely only on the information contained in this
document or to which we have referred you. We have not
authorized anyone to provide you with information that is
different. This document may only be used where it is legal to
sell these securities. The information in this document may only
be accurate on the date of this document.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in
this prospectus. It does not contain all of the information that
you should consider before investing in our common stock. You
should read the entire prospectus carefully, including our
financial statements and notes thereto. You should read
Risk Factors beginning on page 5 for more
information about important risks that you should consider
before investing in our common stock.
As used in this prospectus, unless the context otherwise
requires, the terms Northwest Biotherapeutics, the
Company, we, us, and
our refer to Northwest Biotherapeutics, Inc.
NORTHWEST BIOTHERAPEUTICS, INC.
General
Northwest Biotherapeutics, Inc. was 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 and can cause
undesirable side effects. Our approach in developing cancer
therapies utilizes our expertise in the biology of dendritic
cells, which are a type of white blood cells that activate the
immune system. Our primary activities since incorporation have
been focused on advancing a proprietary dendritic cell
immunotherapy for prostate and brain cancer together with
strategic and financial planning, and raising capital to fund
our operations. We completed an initial public offering of our
common stock in December 2001.
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.
Recent Developments
In April 2006, we completed a financing transaction under which
certain accredited investors made an investment of approximately
$5.5 million in Northwest Biotherapeutics, which we refer
to in this prospectus as the PIPE Financing. We issued an
aggregate of 39,467,891 shares of our common stock, at a
price of $0.14 per share, and warrants to purchase an
aggregate of 19,733,945 shares of our common stock at an
exercise price of $0.14 per share.
Other information
Our principal executive offices are located at 18701
120th Avenue N.E., Suite 101, Bothell, WA 98011. Our
telephone number is (425) 608-3000. Our website address is
www.nwbio.com. The information available on or through our
website is not part of this prospectus.
1
THE OFFERING
|
|
|
Common stock offered by selling stockholders
|
|
58,969,641 shares
|
Common stock to be outstanding after this offering
|
|
65,241,287 shares
|
Use of proceeds
|
|
We intend to use the net proceeds that we receive from this
offering, if any, for working capital and other general
corporate purposes. We will not receive any of the proceeds from
the sale of shares by the selling stockholders unless warrants
are exercised for cash. See Use of Proceeds.
|
Over-The-Counter Bulletin Board symbol
|
|
NWBT.OB
|
The common stock outstanding after this offering is based on
65,241,287 shares of common stock outstanding as of
July 6, 2006 and excludes:
|
|
|
|
|
|
an aggregate of 543,923 shares of common stock issuable
upon exercise of options outstanding at July 6, 2006,
granted under our 1998 Stock Option Plan, the 1999 Executive
Stock Option Plan, the 2001 Stock Option Plan, the Employee
Stock Purchase Plan and the 2001 Nonemployee Director Stock
Incentive Plan, at a weighted average exercise price of
$0.64 per share;
|
|
|
|
|
an aggregate of 4,149,859 additional shares of common stock
reserved for future grants under our 1998 Stock Option Plan, the
1999 Executive Stock Option Plan, the 2001 Stock Option Plan,
the Employee Stock Purchase Plan and the 2001 Nonemployee
Director Stock Incentive Plan;
|
|
|
|
|
an aggregate of 166,374,881 shares of common stock issuable
upon exercise of warrants outstanding at July 6, 2006,
including the 19,019,659 shares of common stock issuable
upon exercise of warrants held by certain selling stockholders
named in this prospectus;
|
|
|
|
|
|
an aggregate of 225,174,520 shares of common stock issuable
upon conversion of Series A and Series A-1 Preferred
Stock outstanding at July 6, 2006; and
|
|
|
|
|
|
an aggregate of 24,962,269 shares of common stock issuable
upon conversion of convertible promissory notes outstanding at
July 6, 2006.
|
|
2
Summary Financials
The summary financial data set forth below for the years ended
December 31, 2003, 2004 and 2005 are derived from our
audited consolidated financial statements included elsewhere in
this prospectus. The summary financial data for the three months
ended March 31, 2005 and March 31, 2006 and the period
from March 18, 1996 (inception) to March 31, 2006 are
derived from our condensed financial statements included
elsewhere in this prospectus. The summary financial data should
be read in conjunction with our audited financial statements and
the related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
March 18, 1996
|
|
|
|
Year Ended
|
|
|
Three Months Ended
|
|
|
(Inception) to
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
529
|
|
|
$
|
390
|
|
|
$
|
124
|
|
|
$
|
87
|
|
|
$
|
|
|
|
$
|
2,639
|
|
Operating Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of research material sales
|
|
|
79
|
|
|
|
40
|
|
|
|
12
|
|
|
|
2
|
|
|
|
|
|
|
|
382
|
|
|
Research and development
|
|
|
1,624
|
|
|
|
3,621
|
|
|
|
4,469
|
|
|
|
1,315
|
|
|
|
427
|
|
|
|
32,494
|
|
|
General and administrative
|
|
|
4,059
|
|
|
|
2,845
|
|
|
|
2,005
|
|
|
|
464
|
|
|
|
427
|
|
|
|
31,121
|
|
|
Depreciation and amortization
|
|
|
207
|
|
|
|
132
|
|
|
|
63
|
|
|
|
24
|
|
|
|
10
|
|
|
|
2,276
|
|
|
Loss on facility sublease
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
895
|
|
|
Asset impairment loss
|
|
|
904
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
7,047
|
|
|
|
6,768
|
|
|
|
6,549
|
|
|
|
1,805
|
|
|
|
864
|
|
|
|
69,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(6,518
|
)
|
|
|
(6,378
|
)
|
|
|
(6,425
|
)
|
|
|
(1,718
|
)
|
|
|
(864
|
)
|
|
|
(66,595
|
)
|
Other Income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant valuation
|
|
|
|
|
|
|
(368
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,113
|
)
|
|
|
(2,481
|
)
|
|
Gain on sale of intellectual property to Medarex
|
|
|
816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,656
|
|
|
Interest expense
|
|
|
(73
|
)
|
|
|
(1,765
|
)
|
|
|
(3,517
|
)
|
|
|
(809
|
)
|
|
|
(982
|
)
|
|
|
(14,119
|
)
|
|
Interest income
|
|
|
23
|
|
|
|
3
|
|
|
|
5
|
|
|
|
1
|
|
|
|
1
|
|
|
|
737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(5,752
|
)
|
|
|
(8,508
|
)
|
|
|
(9,937
|
)
|
|
|
(2,526
|
)
|
|
|
(3,958
|
)
|
|
|
(78,802
|
)
|
|
|
Accretion of redemption value of mandatorily redeemable
membership units and preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,872
|
)
|
|
|
Series A preferred stock redemption fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
|
|
Beneficial conversion feature of series D convertible
preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(5,752
|
)
|
|
$
|
(8,508
|
)
|
|
$
|
(9,937
|
)
|
|
$
|
(2,526
|
)
|
|
$
|
(3,958
|
)
|
|
$
|
(86,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share applicable to common stockholders
basic and diluted
|
|
$
|
(0.30
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.52
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computering basic and diluted
net loss per share
|
|
|
18,908
|
|
|
|
19,028
|
|
|
|
19,068
|
|
|
|
19,035
|
|
|
|
19,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
255
|
|
|
$
|
248
|
|
|
$
|
352
|
|
|
$
|
2,941
|
|
|
Working capital (deficit)
|
|
$
|
(392
|
)
|
|
$
|
(5,353
|
)
|
|
$
|
(11,502
|
)
|
|
$
|
(18,968
|
)
|
|
Total assets
|
|
$
|
871
|
|
|
$
|
558
|
|
|
$
|
631
|
|
|
$
|
3,162
|
|
|
Long-term obligations, net of current portion and discounts
|
|
$
|
49
|
|
|
$
|
12
|
|
|
$
|
3
|
|
|
$
|
1
|
|
|
Mandatorily redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
$
|
16
|
|
|
$
|
(5,217
|
)
|
|
$
|
(11,418
|
)
|
|
$
|
(18,893
|
)
|
4
RISK FACTORS
Our business, operations and financial condition are subject
to various risks. You should consider carefully the following
risk factors, in addition to the other information set forth in
this prospectus, before deciding to participate in the offering.
If any of these risks and uncertainties actually occur, our
business, financial condition or results of operations could be
materially and adversely affected, the value of our common stock
could decline, and you may lose all or part of your
investment.
|
|
|
We will need to raise additional capital, which may not be
available.
|
As of July 10, 2006 we had cash in the amount of
approximately $2.4 million which we believe, based on
recurring operating and associated financing costs, will be
sufficient to fund our operations for the next twelve months.
Approximately $11.7 million of our current liabilities at
March 31, 2006 were payable to related parties, net of the
related debt discount and $9.4 million relates to a common
stock warrant liability which has subsequently been reversed
because we obtained stockholder approval to increase our
authorized capital at the Annual Meeting of Stockholders held on
May 25, 2006. Further, approximately $7.1 million of
these current liabilities, net of the related debt discount,
were converted into Series A-1 Preferred Stock and $268,000
of these current liabilities were converted into common stock on
April 17, 2006. During April and May 2006, we paid
$1.7 million of the remaining current related party
liabilities as of March 31, 2006. For purposes of our
assessment of our ability to fund our operations through the
next twelve months we have assumed that we would be able to
refinance or otherwise defer the payment of the remaining
$2.6 million of related party liabilities, net of the
related debt discount. These remaining liabilities consist
primarily of $254,000 related to notes payable to Toucan
Partners, net of the related debt discount, $1.9 million
due to Cognate Therapeutics, Inc for contract manufacturing as
of March 31, 2006 and $500,000 related to expenses paid by
Toucan Capital on behalf of the Company. These parties have not
yet agreed to any refinancing or deferral and may not do so. If
these related party liabilities are required to be repaid when
currently due, we expect that our current cash is only
sufficient to fund our operations until August 2006, after which
time we may not be able to continue meeting our obligations on
an ongoing basis, if at all. For ongoing operating capital we
intend to seek additional funds from Toucan Capital
Fund II, L.P. (Toucan Capital), Toucan
Partners, LLC (Toucan Partners), an affiliate of
Toucan Capital, or other third parties. Neither Toucan Capital,
Toucan Partners, or any other third parties is obligated to
provide us any additional funds. Any additional financing with
Toucan Capital, Toucan Partners or any other third party is
likely to be dilutive to stockholders, and any debt financing,
if available, may include additional restrictive covenants. We
do not believe that our assets would be sufficient to satisfy
the claims of all of our creditors in full and to satisfy
aggregate liquidation preferences of our preferred stock.
Therefore, if we were to pursue a liquidation it is highly
unlikely that any proceeds would be received by our common
stockholders.
|
|
|
Our auditors have issued a going concern audit
opinion.
|
Our independent auditors have indicated in their report on our
December 31, 2005 financial statements included in this
prospectus that there is substantial doubt about our ability to
continue as a going concern. A going concern opinion
indicates that the financial statements have been prepared
assuming we will continue as a going concern and do not include
any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome
of this uncertainty. Therefore, you should not rely on our
balance sheet as an indication of the amount of proceeds that
would be available to satisfy claims of creditors, and
potentially be available for distribution to stockholders, in
the event of liquidation.
|
|
|
We have reduced business umbrella, auto, crime and
fiduciary, and directors and officers liability insurance
coverage.
|
Due to rising insurance premiums for most business insurance
coverage, our minimal level of operating activity, and reduced
liability exposure through the cessation of all clinical trials,
we have relatively low levels of all of our insurance coverage.
When our finances permit and when our level of
5
operating activities rise, our insurance needs will be
reassessed. The amount of our insurance coverage may make it
difficult for us to acquire new directors and officers, and will
also result in increased exposure to potential liabilities
arising from any future litigation, either of which may
materially harm our business and results of operations.
|
|
|
We expect to continue to incur substantial losses, and we
may never achieve profitability.
|
We have incurred net losses every year since our incorporation
in July 1998 and, as of March 31, 2006, we had a deficit
accumulated during the development stage of approximately
$86.6 million. We have had net losses applicable to common
stockholders as follows:
|
|
|
|
|
$5.8 million in 2003;
|
|
|
|
$8.5 million in 2004;
|
|
|
|
$9.9 million in 2005; and
|
|
|
|
$4.0 million for the three months ended March 31, 2006.
|
We expect that these losses will continue and anticipate
negative cash flows from operations for the foreseeable future.
Because of our current cash position, we will need to secure
additional funding to continue operations. In addition, we will
need to generate revenue sufficient to cover operating expenses
and research and development costs to achieve profitability. We
may never achieve or sustain profitability.
|
|
|
As a company in the early stage of development with an
unproven business strategy, our limited history of operations
makes an evaluation of our business and prospects
difficult.
|
We have had a limited operating history and are at an early
stage of development. We may not be able to achieve revenue
growth in the future. We have generated the following limited
revenues:
|
|
|
|
|
$529,000 in 2003;
|
|
|
|
$390,000 in 2004;
|
|
|
|
$124,000 in 2005; and
|
|
|
|
$0 for the three months ended March 31, 2006.
|
We have derived most of these limited revenues from:
|
|
|
|
|
the sale of research products to a single customer;
|
|
|
|
contract research and development from related parties; and
|
|
|
|
research grants.
|
In the future, we anticipate that revenues, if any, will be
derived through grants, partnering agreements, and, ultimately,
the commercialization of our product candidates.
|
|
|
We may not be able to retain existing personnel.
|
Since September 2002, we reduced our research and administrative
staff approximately 94%, from 67 employees to a remaining
staff of three full-time employees, as of July 10, 2006.
The uncertainty of our cash position, workforce reductions, and
the volatility in our stock price may create anxiety and
uncertainty, which may adversely affect employee morale and
cause us to lose employees whom we would prefer to retain. To
the extent that we are unable to retain our existing personnel,
our business and financial results may suffer.
6
|
|
|
We have no manufacturing capabilities, which could
adversely impact our ability to commercialize our product
candidates.
|
We have no manufacturing facilities or expertise to produce our
product candidates. We have never manufactured, on a commercial
scale, any of our research products. Even if one or more of our
product candidates is approved for marketing, we may not be able
to enter into agreements with contract manufactures for the
manufacture of any of our product candidates at a reasonable
cost or in sufficient quantities to be profitable.
|
|
|
Because we lack sales and marketing experience, we may
experience significant difficulties commercializing our research
product candidates.
|
The commercial success of any of our product candidates will
depend upon the strength of our sales and marketing efforts. We
do not have a sales force and have no experience in the sales,
marketing or distribution of products. To fully commercialize
our product candidates, we will need to create a substantial
marketing staff and sales force with technical expertise and the
ability to distribute these products. As an alternative, we
could seek assistance from a third party with a large
distribution system and a large direct sales force. We may be
unable to put either of these plans in place. In addition, if we
arrange for others to market and sell our products, our revenues
will depend upon the efforts of those parties. Such arrangements
may not succeed. Even if one or more of our product candidates
is approved for marketing, if we fail to establish adequate
sales, marketing and distribution capabilities, independently or
with others, our business will be seriously harmed.
|
|
|
Our success partially depends on existing and future
collaborators.
|
The success of our business strategy may partially depend upon
our ability to develop and maintain multiple collaborations and
to manage them effectively. The success of our restructured
operations will depend on our ability to attract collaborators
to our research initiatives and to a lesser extent our ability
to attract customers to our research products. Due to concerns
regarding our ability to continue operations, these third
parties may decide not to conduct business with us, or may
conduct business with us on terms that are less favorable than
those customarily extended by them. If either of these events
occurs, our business could suffer significantly.
Our success also depends partially upon the performance of our
collaborators. We cannot directly control the amount and timing
of resources that our existing or future collaborators devote to
the research, development or marketing of our product
candidates. As a result, those collaborators:
|
|
|
|
|
may not commit sufficient resources to our programs or product
candidates;
|
|
|
|
may not conduct their agreed activities on time, or at all,
resulting in delay or termination of the development of our
product candidates and technology;
|
|
|
|
may not perform their obligations as expected;
|
|
|
|
may pursue product candidates or alternative technologies in
preference to ours; or
|
|
|
|
may dispute the ownership of products or technology developed
under our collaborations.
|
We may have disputes with our collaborators, which could be
costly and time consuming. Our failure to successfully defend
our rights could seriously harm our business, financial
condition and operating results. We intend to continue to enter
into collaborations in the future. However, we may be unable to
successfully negotiate any additional collaborations and any of
these relationships, if established, may not be scientifically
or commercially successful.
We also work with scientists and medical professionals at
academic and other institutions, including the University of
California, Los Angeles, M.D. Anderson Cancer Center and
the H. Lee Moffitt Cancer Center some of whom have conducted
research for us or assist us in developing our research and
development strategy. These scientists and medical professionals
are not our employees. They may have
7
commitments to, or contracts with, other businesses or
institutions that limit the amount of time they have available
to work with us. We have little control over these individuals.
We can only expect them to devote to our projects the amount of
time required by our license, consulting and sponsored research
agreements. In addition, these individuals may have arrangements
with other companies to assist in developing technologies that
may compete with ours. If these individuals do not devote
sufficient time and resources to our programs, our business
could be seriously harmed.
|
|
|
Competition in our industry is intense and most of our
competitors have substantially greater resources than we
have.
|
The biotechnology and biopharmaceutical industries are
characterized by rapidly advancing technologies, intense
competition and a strong emphasis on proprietary products.
Several companies, such as Cell Genesys, Inc., Dendreon
Corporation, Immuno-Designed Molecules, Inc., Micromet, Inc. and
Antigenics, are actively involved in the research and
development of cell-based cancer therapeutics. Of these
companies, we believe that only Dendreon and Cell Genesys are
carrying-out Phase III clinical trials with a cell-based
therapy. No dendritic cell-based therapeutic product is
currently approved for commercial sale. Additionally, several
companies, such as Medarex, Inc., Amgen, Inc., Agensys, Inc.,
and Genentech, Inc., are actively involved in the research and
development of monoclonal antibody-based cancer therapies.
Currently, at least seven antibody-based products are approved
for commercial sale for cancer therapy. Genentech is also
engaged in several Phase III clinical trials for additional
antibody-based therapeutics for a variety of cancers, and
several other companies are in early stage clinical trials for
such products. Many other third parties compete with us in
developing alternative therapies to treat cancer, including:
|
|
|
|
|
biopharmaceutical companies;
|
|
|
|
biotechnology companies;
|
|
|
|
pharmaceutical companies;
|
|
|
|
academic institutions; and
|
|
|
|
other research organizations.
|
Many of our competitors have significantly greater financial
resources and expertise in research and development,
manufacturing, pre-clinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing than we do. In
addition, many of these competitors have become active in
seeking patent protection and licensing arrangements in
anticipation of collecting royalties for use of technology they
have developed. Smaller or early-stage companies may also prove
to be significant competitors, particularly through
collaborative arrangements with large and established companies.
These third parties compete with us in recruiting and retaining
qualified scientific and management personnel, as well as in
acquiring technologies complementary to our programs.
We expect that our ability to compete effectively will be
dependent upon our ability to:
|
|
|
|
|
obtain additional funding;
|
|
|
|
successfully complete clinical trials and obtain all requisite
regulatory approvals;
|
|
|
|
maintain a proprietary position in our technologies and products;
|
|
|
|
attract and retain key personnel; and
|
|
|
|
maintain existing or enter into new collaborations.
|
Our competitors may develop more effective or affordable
products, or achieve earlier patent protection or product
marketing and sales than we may. As a result, any products we
develop may be rendered obsolete and noncompetitive.
8
|
|
|
Our intellectual property rights may not provide
meaningful commercial protection for our research products or
product candidates, which could enable third parties to use our
technology, or very similar technology, and could reduce our
ability to compete in the market.
|
We rely on patent, copyright, trade secret and trademark laws to
limit the ability of others to compete with us using the same or
similar technology in the United States and other countries.
However, as described below, these laws afford only limited
protection and may not adequately protect our rights to the
extent necessary to sustain any competitive advantage we may
have. The laws of some foreign countries do not protect
proprietary rights to the same extent as the laws of the United
States, and we may encounter significant problems in protecting
our proprietary rights in these countries.
We have fourteen issued and licensed patents (seven in the
United States and seven in foreign jurisdictions) and 118 patent
applications pending (16 in the United States and 102 in foreign
jurisdictions) which cover the use of dendritic cells in
DCVax
®
as well as targets for either our dendritic cell or fully human
monoclonal antibody therapy candidates. The issued patents
expire at various dates from 2015 to 2018.
We will only be able to protect our technologies from
unauthorized use by third parties to the extent that they are
covered by valid and enforceable patents or are effectively
maintained as trade secrets. The patent positions of companies
developing novel cancer treatments, including our patent
position, generally are uncertain and involve complex legal and
factual questions, particularly concerning the scope and
enforceability of claims of such patents against alleged
infringement. Recent judicial decisions are prompting a
reinterpretation of the limited case law that exists in this
area, and historical legal standards surrounding questions of
infringement and validity may not apply in future cases. A
reinterpretation of existing law in this area may limit or
potentially eliminate our patent position and, therefore, our
ability to prevent others from using our technologies. The
biotechnology patent situation outside the United States is even
more uncertain. Changes in either the patent laws or in
interpretations of patent laws in the United States and other
countries may therefore diminish the value of our intellectual
property.
We own, or have rights under licenses to a variety of issued
patents and pending patent applications. However, the patents on
which we rely may be challenged and invalidated, and our patent
applications may not result in issued patents. Moreover, our
patents and patent applications may not be sufficiently broad to
prevent others from practicing our technologies or from
developing competing products. We also face the risk that others
may independently develop similar or alternative technologies or
design around our patented technologies.
We have taken security measures to protect our proprietary
information, especially proprietary information that is not
covered by patents or patent applications. These measures,
however, may not provide adequate protection of our trade
secrets or other proprietary information. We seek to protect our
proprietary information by entering into confidentiality
agreements with employees, partners and consultants.
Nevertheless, employees, collaborators or consultants may still
disclose our proprietary information, and we may not be able to
protect our trade secrets in a meaningful way. If we lose any
employees, we may not be able to prevent the unauthorized
disclosure or use of our technical knowledge or other trade
secrets by those former employees despite the existence of
nondisclosure and confidentiality agreements and other
contractual restrictions to protect our proprietary technology.
In addition, others may independently develop substantially
equivalent proprietary information or techniques or otherwise
gain access to our trade secrets.
|
|
|
Our success will depend partly on our ability to operate
without infringing or misappropriating the proprietary rights of
others.
|
Our success will depend to a substantial degree upon our ability
to develop, manufacture, market and sell our research products
and product candidates without infringing the proprietary rights
of third parties and without breaching any licenses we have
entered into regarding our product candidates.
9
There is a substantial amount of litigation involving patent and
other intellectual property rights in the biotechnology and
biopharmaceutical industries generally. Infringement and other
intellectual property claims, with or without merit, can be
expensive and time-consuming to litigate and can divert
managements attention from our core business. We may be
exposed to future litigation by third parties based on claims
that our products infringe their intellectual property rights.
This risk is exacerbated by the fact that there are numerous
issued and pending patents in the biotechnology industry and the
fact that the validity and breadth of biotechnology patents
involve complex legal and factual questions for which important
legal principles remain unresolved.
Our competitors may assert that our products and the methods we
employ are covered by U.S. or foreign patents held by them.
In addition, because patents can take many years to issue, there
may be currently pending applications, unknown to us, which may
later result in issued patents that our products may infringe.
There could also be existing patents of which we are not aware
that one or more of our products may inadvertently infringe.
If we lose a patent infringement lawsuit, we could be prevented
from selling our research products or product candidates unless
we can obtain a license to use technology or ideas covered by
such patent or are able to redesign our products to avoid
infringement. A license may not be available at all or on terms
acceptable to us, or we may not be able to redesign our products
to avoid any infringement. If we are not successful in obtaining
a license or redesigning our products, we may be unable to sell
our products and our business could suffer.
|
|
|
Toucan Capital and Toucan Partners beneficially own the
vast majority of our stock and, as a result, the trading price
for our shares may be depressed and these stockholders can take
actions that may be adverse to your interests.
|
As of July 6, 2006, Toucan Capital and Toucan Partners
collectively beneficially owned an aggregate of approximately
395.1 million shares of our common stock issuable pursuant
to conversion of Series A Preferred Stock, Series A-1
Preferred Stock, convertible notes, and warrants, representing
beneficial ownership of approximately 86% of our outstanding
common stock, on an as-converted to common stock basis. The
notes held by Toucan Partners are currently convertible into
common stock or Series A Preferred Stock at its election,
at the price of $0.04, or Series A-1 Preferred Stock at the
price of $1.60 per share. The Series A Preferred Stock
and Series A-1 Preferred Stock is similarly convertible
into common stock (at the rate of
1-for-1
in the case of
Series A Preferred Stock and at the rate of 1-for-40 in the
case of Series A-1 Preferred Stock). Finally, the warrants
held by Toucan Capital and Toucan Partners are exercisable at
exercise prices ranging from $0.01 to $0.04 per share. This
significant concentration of ownership may adversely affect the
trading price for our common stock because investors often
perceive disadvantages in owning stock in companies with
controlling stockholders. Toucan Capital and Toucan Partners
have the ability to exert substantial influence over all matters
requiring approval by our stockholders, including the election
and removal of directors and any proposed merger, consolidation
or sale of all or substantially all of our assets. In addition,
they can dictate the management of our business and affairs.
This concentration of ownership could have the effect of
delaying, deferring or preventing a change in control, or
impeding a merger or consolidation, takeover or other business
combination that could be favorable to you.
In addition, Toucan Capital and Toucan Partners each has a right
of first refusal to participate in our future issuances of debt
or equity securities. Also, under the terms of our
recapitalization agreement, we are required to consult with
Toucan Capital on how we conduct many aspects of our business.
As a result, Toucan Capital has significant influence in regard
to how we conduct our business, and with its stock ownership,
could influence any matters requiring stockholder approval. This
influence may cause us to conduct our business differently from
the way we have in the past. The concentration of ownership may
also delay, deter or prevent acts that would result in a change
in control, which, in turn, could reduce the market price of our
common stock.
10
|
|
|
There may not be an active, liquid trading market for our
common stock.
|
On December 14, 2001, our common stock was listed on the
NASDAQ National Market. Prior to that time there was no public
market for our common stock. On December 23, 2002, our
common stock was delisted from the NASDAQ National Market and
our common stock is currently listed on the Over-The-Counter
Bulletin Board, or OTCBB, which is generally recognized as
being a less active market than the NASDAQ National Market. You
may not be able to sell your shares at the time or at the price
desired. There may be significant consequences associated with
our stock trading on the OTCBB rather than a national exchange.
The effects of not being able to list our securities on a
national exchange include:
|
|
|
|
|
limited release of the market price of our securities;
|
|
|
|
limited news coverage;
|
|
|
|
limited interest by investors in our securities;
|
|
|
|
volatility of our stock price due to low trading volume;
|
|
|
|
increased difficulty in selling our securities in certain states
due to blue sky restrictions; and
|
|
|
|
limited ability to issue additional securities or to secure
additional financing.
|
|
|
|
Our common stock may experience extreme price and volume
fluctuations, which could lead to costly litigation for us and
make an investment in us less appealing.
|
The market price of our common stock may fluctuate substantially
due to a variety of factors, including:
|
|
|
|
|
announcements of technological innovations or new products by us
or our competitors;
|
|
|
|
development and introduction of new cancer therapies;
|
|
|
|
media reports and publications about cancer therapies;
|
|
|
|
announcements concerning our competitors or the biotechnology
industry in general;
|
|
|
|
new regulatory pronouncements and changes in regulatory
guidelines;
|
|
|
|
general and industry-specific economic conditions;
|
|
|
|
changes in financial estimates or recommendations by securities
analysts; and
|
|
|
|
changes in accounting principles.
|
The market prices of the securities of biotechnology companies,
particularly companies like ours without earnings and consistent
product revenues, have been highly volatile and are likely to
remain highly volatile in the future. This volatility has often
been unrelated to the operating performance of particular
companies. In the past, securities class action litigation has
often been brought against companies that experience volatility
in the market price of their securities. Moreover, market prices
for stocks of biotechnology-related and technology companies
occasionally trade at levels that bear no relationship to the
operating performance of such companies. These market prices
generally are not sustainable and are subject to wide
variations. Whether or not meritorious, litigation brought
against us following fluctuations in the trading prices of our
securities could result in substantial costs, divert
managements attention and resources and harm our financial
condition and results of operations.
|
|
|
Our incorporation documents, and bylaws and stockholder
rights plan may delay or prevent a change in our
management.
|
Our Seventh Amended and Restated Certificate of Incorporation,
as amended (the Certificate of Incorporation), our
Second Amended and Restated Bylaws, as amended (the
Bylaws) and stockholder
11
rights plan contain provisions that could delay or prevent a
change in our management team. Some of these provisions:
|
|
|
|
|
authorize the issuance of preferred stock that can be created
and issued by the board of directors without prior stockholder
approval, commonly referred to as blank check
preferred stock, with rights senior to those of common stock;
|
|
|
|
authorize our board of directors to issue dilutive shares of
common stock upon certain events; and
|
|
|
|
provide for a classified board of directors.
|
These provisions could allow our board of directors to affect
your rights as a stockholder since our board of directors can
make it more difficult for common stockholders to replace
members of the board. Because our board of directors is
responsible for appointing the members of our management team,
these provisions could in turn affect any attempt to replace our
current management team. In addition, we are party to an
investor rights agreement which includes protective provisions
affording certain assurances to investors which could have the
potential to discourage a change in control.
|
|
|
The resale, or the availability for resale, of the shares
issued in the PIPE Financing could have a material adverse
impact on the market price of our common stock.
|
In March 2006, we entered into the PIPE Financing, consisting of
a private placement of an aggregate of approximately
39.5 million shares and accompanying warrants to purchase
an aggregate of approximately 19.7 million shares. In
connection with the PIPE Financing, we agreed to register the
resale of the shares of common stock sold in the PIPE Financing
and the shares underlying the warrants issued in the PIPE
Financing and this prospectus constitutes a part of that
registration statement. Under the terms of the purchase
agreement relating to the PIPE Financing, we are obligated to
have the registration statement declared effective by
August 2, 2006. The resale of a substantial number of the
shares covered by this prospectus, or even the availability of
these shares for resale, could have a material adverse impact on
our stock price.
|
|
|
Because our common stock is subject to penny
stock rules, the market for the common stock may be
limited.
|
Because our common stock is subject to the SECs penny
stock rules, broker-dealers may experience difficulty in
completing customer transactions and trading activity in our
securities may be adversely affected. Under the penny
stock rules promulgated under the Securities Exchange Act
of 1934, as amended (the Exchange Act),
broker-dealers who recommend such securities to persons other
than institutional accredited investors:
|
|
|
|
|
must make a special written suitability determination for the
purchaser;
|
|
|
|
receive the purchasers written agreement to a transaction
prior to sale;
|
|
|
|
provide the purchaser with risk disclosure documents which
identify certain risks associated with investing in penny
stocks and which describe the market for these penny
stocks as well as a purchasers legal
remedies; and
|
|
|
|
obtain a signed and dated acknowledgment from the purchaser
demonstrating that the purchaser has actually received the
required risk disclosure document before a transaction in a
penny stock can be completed.
|
As a result of these rules, broker-dealers may find it difficult
to effectuate customer transactions and trading activity in our
securities may be adversely affected. As a result, the market
price of our securities may be depressed, and stockholders may
find it more difficult to sell our securities.
12
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This prospectus, particularly the sections entitled
Prospectus Summary, Risk Factors,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and
Business, 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 Exchange Act. These statements relate to
future events or our future financial performance and involve
known and unknown risks, uncertainties and other factors that
might cause our actual results, levels of activity, performance
or achievements to differ materially from any future results,
levels of activity, performance or achievements expressed or
implied by these forward-looking statements. These risks and
other factors include those listed under Risk
Factors and elsewhere in this prospectus. In some cases,
you can identify forward-looking statements by terminology such
as may, might, will,
should, expects, plans,
anticipates, could, intends,
target, projects,
contemplates, believes,
estimates, predicts,
potential, continue, the negative of
these terms or other comparable terminology.
You are encouraged to carefully review the various disclosures
made by us in this prospectus and in our previous SEC filings,
and those factors described under Risk Factors,
beginning on page 5.
13
USE OF PROCEEDS
The proceeds from the sale of the common stock offered in this
prospectus are solely for the account of the selling
stockholders. Accordingly, we will not receive any proceeds from
the sale of the shares by the selling stockholders. However, we
will receive the exercise price of any common stock we sell to
the selling stockholders upon exercise for cash by them of their
warrants. The warrants have a provision allowing the selling
stockholders to exercise them on a net (or cashless) basis. If
warrants to purchase all of the underlying
19,019,659 shares of common stock are exercised for cash,
we would receive approximately $2,662,752 in total proceeds,
before expenses, subject to any adjustment due to the
anti-dilution provisions of the warrants. The selling
stockholders are not obligated to exercise the warrants for cash
or at all, and if none are exercised for cash we will not
receive any proceeds. In the event that any or all of the
warrants are exercised for cash, the proceeds will be used for
general corporate purposes.
MARKET FOR COMMON STOCK
Our common stock is quoted on the OTCBB under the symbol
NWBT.OB Public trading of our common stock commenced
on December 14, 2001 on the NASDAQ National Market. Prior
to that time, there was no public market for our stock. On
December 23, 2002, our common stock was delisted from
NASDAQ and subsequently commenced trading on the OTCBB. The
following table summarizes our common stocks high and low
sales prices for the periods indicated as reported by the OTCBB.
Quotations on the OTCBB reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
Year Ending December 31, 2004
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.28
|
|
|
$
|
0.12
|
|
|
Second Quarter
|
|
$
|
0.15
|
|
|
$
|
0.02
|
|
|
Third Quarter
|
|
$
|
0.09
|
|
|
$
|
0.02
|
|
|
Fourth Quarter
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
Year Ending December 31, 2005
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.70
|
|
|
$
|
0.03
|
|
|
Second Quarter
|
|
$
|
0.26
|
|
|
$
|
0.16
|
|
|
Third Quarter
|
|
$
|
0.22
|
|
|
$
|
0.13
|
|
|
Fourth Quarter
|
|
$
|
0.17
|
|
|
$
|
0.09
|
|
Year Ending December 31, 2006
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
0.69
|
|
|
$
|
0.09
|
|
|
Second Quarter
|
|
$
|
0.55
|
|
|
$
|
0.22
|
|
|
Third Quarter (through July 10, 2006)
|
|
$
|
0.21
|
|
|
$
|
0.27
|
|
The closing price of the common stock on July 10, 2006, as
quoted on the OTCBB, was $0.27 per share.
As of July 10, 2006, there were approximately 267 holders
of record of our common stock. Such holders include any broker
or clearing agencies as holders of record but exclude the
individual stockholders whose shares are held by brokers or
clearing agencies.
Dividend Policy
We have never declared or paid cash dividends on our capital
stock. We currently intend to retain future earnings, if any, to
fund the development and growth of our business and do not
currently anticipate paying any cash dividends in the
foreseeable future. The payment of future dividends, if any,
will be determined by our board of directors.
14
SELECTED FINANCIAL DATA
The following table shows selected financial data for each of
the years ending December 31, 2001 to December 31,
2005, for the three months ended March 31, 2005 and
March 31, 2006, and for the period from our inception
through March 31, 2006 and should be read in conjunction
with Managements Discussion and Analysis of
Financial Condition and Results of Operations, our
financial statements and notes thereto and other financial
information included elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Period from
|
|
|
|
Years Ended December 31,
|
|
|
Ended March 31,
|
|
|
March 18, 1996
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
129
|
|
|
$
|
9
|
|
|
$
|
529
|
|
|
$
|
390
|
|
|
$
|
124
|
|
|
$
|
87
|
|
|
$
|
|
|
|
$
|
2,639
|
|
Operating Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of research material sales
|
|
|
67
|
|
|
|
7
|
|
|
|
79
|
|
|
|
40
|
|
|
|
12
|
|
|
|
2
|
|
|
|
|
|
|
|
382
|
|
|
Research and development
|
|
|
4,907
|
|
|
|
5,956
|
|
|
|
1,624
|
|
|
|
3,621
|
|
|
|
4,469
|
|
|
|
1,315
|
|
|
|
427
|
|
|
|
32,494
|
|
|
General and administrative
|
|
|
4,759
|
|
|
|
7,463
|
|
|
|
4,059
|
|
|
|
2,845
|
|
|
|
2,005
|
|
|
|
464
|
|
|
|
427
|
|
|
|
31,121
|
|
|
Depreciation and amortization
|
|
|
467
|
|
|
|
593
|
|
|
|
207
|
|
|
|
132
|
|
|
|
63
|
|
|
|
24
|
|
|
|
10
|
|
|
|
2,276
|
|
|
Loss on facility sublease
|
|
|
|
|
|
|
721
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
895
|
|
|
Asset impairment loss
|
|
|
|
|
|
|
1,032
|
|
|
|
904
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
10,200
|
|
|
|
15,772
|
|
|
|
7,047
|
|
|
|
6,768
|
|
|
|
6,549
|
|
|
|
1,805
|
|
|
|
864
|
|
|
|
69,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(10,071
|
)
|
|
|
(15,763
|
)
|
|
|
(6,518
|
)
|
|
|
(6,378
|
)
|
|
|
(6,425
|
)
|
|
|
(1,718
|
)
|
|
|
(864
|
)
|
|
|
(66,595
|
)
|
Other Income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant valuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(368
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,113
|
)
|
|
|
(2,481
|
)
|
|
Gain on sale of intellectual property to Medarex
|
|
|
|
|
|
|
2,840
|
|
|
|
816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,656
|
|
|
Interest expense
|
|
|
(1,062
|
)
|
|
|
(38
|
)
|
|
|
(73
|
)
|
|
|
(1,765
|
)
|
|
|
(3,517
|
)
|
|
|
(809
|
)
|
|
|
(982
|
)
|
|
|
(14,119
|
)
|
|
Interest income
|
|
|
193
|
|
|
|
157
|
|
|
|
23
|
|
|
|
3
|
|
|
|
5
|
|
|
|
1
|
|
|
|
1
|
|
|
|
737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(10,940
|
)
|
|
|
(12,804
|
)
|
|
|
(5,752
|
)
|
|
|
(8,508
|
)
|
|
|
(9,937
|
)
|
|
|
(2,526
|
)
|
|
|
(3,958
|
)
|
|
|
(78,802
|
)
|
|
|
Accretion of redemption value of mandatorily redeemable
membership units and preferred stock
|
|
|
(379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,872
|
)
|
|
|
Series A preferred stock redemption fee
|
|
|
(1,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
|
|
Beneficial conversion feature of series D convertible
preferred stock
|
|
|
(4,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(17,293
|
)
|
|
$
|
(12,804
|
)
|
|
$
|
(5,752
|
)
|
|
$
|
(8,508
|
)
|
|
$
|
(9,937
|
)
|
|
$
|
(2,526
|
)
|
|
$
|
(3,958
|
)
|
|
$
|
(86,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share applicable to common Stockholders
basic and diluted
|
|
$
|
(6.57
|
)
|
|
$
|
(0.76
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.52
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computering basic and diluted
net loss per share
|
|
|
2,631
|
|
|
|
16,911
|
|
|
|
18,908
|
|
|
|
19,028
|
|
|
|
19,068
|
|
|
|
19,035
|
|
|
|
19,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
14,966
|
|
|
$
|
2,539
|
|
|
$
|
255
|
|
|
$
|
248
|
|
|
$
|
352
|
|
|
$
|
2,941
|
|
|
Working capital (deficit)
|
|
|
13,501
|
|
|
|
3,466
|
|
|
|
(392
|
)
|
|
|
(5,353
|
)
|
|
|
(11,502
|
)
|
|
|
(18,968
|
)
|
|
Total assets
|
|
|
19,476
|
|
|
|
7,572
|
|
|
|
871
|
|
|
|
558
|
|
|
|
631
|
|
|
|
3,162
|
|
|
Long-term obligations, net of current portion and discounts
|
|
|
123
|
|
|
|
378
|
|
|
|
49
|
|
|
|
12
|
|
|
|
3
|
|
|
|
1
|
|
|
Mandatorily redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
16,935
|
|
|
|
4,876
|
|
|
|
16
|
|
|
|
(5,217
|
)
|
|
|
(11,418
|
)
|
|
|
(18,893
|
)
|
16
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with,
and is qualified in its entirety by reference to, our
consolidated financial statements and the related notes included
elsewhere in this prospectus. The discussions in this section
contain forward-looking statements that involve risks and
uncertainties, and actual results could differ materially from
those discussed below. See Risk Factors and
Special Note Regarding Forward-Looking
Statements for a discussion of these risks and
uncertainties.
Overview
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. Our primary activities
since incorporation have been focused on advancing a proprietary
dendritic cell immunotherapy for prostate and brain cancer
together with strategic and financial planning, and raising
capital to fund our operations. We completed an initial public
offering of our common stock in December 2001.
Since 2002, we have only been able to obtain enough capital
resources to pursue our strategic plans at a very minimal level.
We presently have approval from the U.S. Food and Drug
Administration, or FDA, to conduct a Phase III trial for
DCVax-Prostate, our product candidate for a possible prostate
cancer treatment and a Phase II clinical trial for trial to
evaluate our DCVax-Brain product candidate as a possible
treatment for Glioblastoma Multiforme. However, we do not
presently have adequate resources to conduct either of those
trials.
As of July 10, 2006 we had cash in the amount of
approximately $2.4 million which we believe, based on
recurring operating and associated financing costs, will be
sufficient to fund our operations for the next twelve months.
Approximately $11.7 million of our current liabilities at
March 31, 2006 were payable to related parties, net of the
related debt discount and $9.4 million relates to a common
stock warrant liability which has subsequently been reversed
because we obtained stockholder approval to increase our
authorized capital at the Annual Meeting of Stockholders held on
May 25, 2006. Further, approximately $7.1 million of
these current liabilities, net of the related debt discount,
were converted into
Series
A-1
preferred stock and $268,000 of these current liabilities were
converted into common stock on April 17, 2006. During April
and May 2006, we paid $1.7 million of our remaining current
related party liabilities as of March 31, 2006. For
purposes of our assessment of our ability to fund our operations
through the next twelve months we have assumed that we would be
able to refinance or otherwise defer the payment of the
remaining $2.6 million of related party liabilities, net of
the related debt discount. These liabilities consist primarily
of $254,000 related to notes payable to Toucan Partners, net of
the related debt discount, $1.9 million due to Cognate
Therapeutics, Inc for contract manufacturing as of
March 31, 2006 and $500,000 related to expenses paid by
Toucan Capital on behalf of the Company. These parties have not
yet agreed to any refinancing or deferral and may not do so. If
these related party liabilities are required to be repaid when
currently due, we expect that our current cash is only
sufficient to fund our operations until August 2006, after which
time we may not be able to continue meeting our obligations on
an ongoing basis, if at all. We will have to seek additional
funds from Toucan Capital, Toucan Partners or, another third
party, who are not obligated to provide us with any financing.
Any additional equity financing with Toucan Capital, Toucan
Partners or any other third party is likely to be dilutive to
stockholders and debt financing, if available, may include
additional restrictive covenants.
Going Concern
Our financial statements for the year ended December 31,
2005 and three months ended March 31, 2006 were prepared on
a going concern basis, which contemplates the realization of
assets and the settlement of liabilities in the normal course of
business. Nevertheless, we have experienced recurring losses
from operations since inception, have a working capital deficit
of $18.9 million, and have a deficit
17
accumulated during the development stage of $86.6 million,
as of March 31, 2006, that raises substantial doubt about
our ability to continue as a going concern and our auditors have
issued an opinion on the December 31, 2005 financial
statements which states that there is substantial doubt about
our ability to continue as a going concern.
Recapitalization
Since the beginning of 2002, we recognized that we did not have
sufficient working capital to fund our operations beyond
12 months and needed to raise additional capital from third
parties in order to continue our clinical and research programs.
In April 2002, we retained an investment bank to assist us in
raising capital. Due to the economic climate in 2002 and
declining stock prices of biotechnology companies in general, as
well as our own stock price, we were unable to raise additional
capital. In July 2002, we retained an additional investment
banking firm to assist us in exploring various strategic options
including raising additional capital, licensing our technology
to a third party, or merging with another company. We contacted
over 50 biotechnology companies and over 20 large pharmaceutical
companies in an attempt to explore these options without success.
From September 2002 through approximately September 2004, we
reduced our staff from 67 to 8 employees, withdrew our
investigational new drug application, or IND, for our
Phase III clinical trial for hormone refractory prostate
cancer and our IND for our Phase I trial for non-small cell
lung cancer from the U.S. Food and Drug Administration, or
FDA, and inactivated our Phase II clinical trial for brain
cancer, which remained open with the FDA. In addition, we moved
our corporate headquarters several times, each time to smaller
facilities in order to reduce our monthly rent expense. During
this time, we attempted to obtain capital from various sources,
but were not successful. On November 13, 2003, we borrowed
$335,000 from members of our management pursuant to a series of
convertible promissory notes (and associated warrants to
purchase an aggregate of approximately 3.7 million shares
of our common stock).
Beginning in 2004, we undertook a significant recapitalization
whereby we have raised an aggregate of approximately
$14.5 million in gross proceeds from issuances of debt and
equity through a series of private placements. These financings
included:
|
|
|
|
|
the issuance of a series of convertible promissory notes to
Toucan Capital in aggregate principal amount of approximately
$6.75 million (and associated warrants to purchase an
aggregate of 122.5 million shares of capital stock at
exercise prices ranging from 0.01 to $0.04 per share) from
February 2004 through September 2005. These notes accrued
interest at 10% per annum from the respective issuance
dates of the notes;
|
|
|
|
the issuance of a convertible promissory note to Toucan
Partners, in principal amount of $400,000 (and an associated
warrant to purchase an aggregate of 4 million shares of
capital stock at an exercise price of $0.04 per share) in
November 2005. This note accrues interest at 10% per annum
from the issuance date of the note;
|
|
|
|
the issuance of a series of non-convertible promissory notes to
Toucan Partners, in the aggregate principal amount of $550,000.
These notes accrue interest at 10% per annum from the
respective issuance dates of the notes;
|
|
|
|
the sale of Series A Preferred Stock to Toucan Capital for
aggregate gross proceeds of approximately $1.3 million (and
an associated warrant to purchase an aggregate of
13 million shares of Series A Preferred Stock at an
exercise price of $0.04 per share) in January 2005; and
|
|
|
|
the sale of approximately 39.5 million shares of common
stock (and accompanying warrants to purchase an aggregate of
approximately 19.7 shares of common stock at an exercise
price of $0.14 per share) to certain accredited investors
in the PIPE Financing for aggregate gross proceeds of
approximately $5.5 million in April 2006.
|
18
Subsequently, the Toucan Partners non-convertible notes
were amended and restated in order to make them convertible on
the same terms and conditions as the convertible notes
previously issued to Toucan Capital and Toucan Partners, and
warrants were issued to Toucan Partners in respect of the
amended notes on the same terms and conditions as warrants were
issued to Toucan Capital and Toucan Partners. In April 2006,
Toucan Capital elected to convert all of its promissory notes,
including all accrued interest thereon, into a newly designated
series of preferred stock, Series A-1 Preferred Stock, in
accordance with the terms of the notes at a conversion price of
$1.60 per share. The Series A-1 Preferred Stock is
substantially identical to Series A Preferred Stock with
the exception of the issuance price per share and liquidation
preference per share (which are $1.60 per share, rather
than $0.04 per share in the case of Series A) and the
ratio at which the shares are convertible into common stock
(which is 1-for-40, or one share of A-1 Preferred Stock for
forty shares of common stock, rather than
1-for-1
in the case of
Series A).
Simultaneously with Toucan Capitals loan conversion, Alton
Boynton, our President and Marnix Bosch, our Vice President of
Vaccine Research, and Development, each elected to convert the
principal and accrued interest on their respective loans into
2,195,771 and 491,948 shares of our common stock, and in
conjunction with the PIPE Financing, exercised their warrants
for the issuance of 1,895,479 and 424,669 shares of our
common stock, respectively.
As a result of the financings described above, Toucan Capital
holds:
|
|
|
|
|
|
an aggregate of 32.5 million shares of Series A
Preferred Stock (convertible into an aggregate of
32.5 million shares of common stock as of July 6,
2006);
|
|
|
|
|
|
an aggregate of approximately 4.82 million shares of
Series A-1 Preferred Stock (convertible into an aggregate
of approximately 192.7 million shares of common stock as of
July 6, 2006);
|
|
|
|
|
warrants to purchase an aggregate of 66 million shares of
capital stock at an exercise price of $0.01 per share;
|
|
|
|
warrants to purchase an aggregate of 56.5 million shares of
capital stock at an exercise price of $0.04 per
share; and
|
|
|
|
warrants to purchase an aggregate of 13 million shares of
Series A Preferred Stock at an exercise price of
$0.04 per share.
|
As a result of the financings described above, Toucan Partners
holds:
|
|
|
|
|
|
convertible promissory notes in aggregate principal amount of
$950,000, with accrued interest thereon of approximately $48,000
as of July 6, 2006 (with such notes convertible as of
July 6, 2006 into an aggregate of approximately
25.0 million shares of capital stock at a conversion price
of $0.04 per share); and
|
|
|
|
|
warrants to purchase an aggregate of 9.5 million shares of
capital stock at an exercise price of $0.04 per share.
|
The warrants held by Toucan Capital and Toucan Partners
described above are fully vested and exercisable and generally
have an exercise period of seven years from their respective
dates of issuance.
As a result of the PIPE Financing, after giving effect to the
subsequent exercise by one of the investors in the PIPE
Financing of its warrant, the investors in the PIPE Financing
hold:
|
|
|
|
|
an aggregate of approximately 39.9 million shares of common
stock; and
|
|
|
|
warrants to purchase an aggregate of approximately
19.0 million shares of common stock at an exercise price of
$0.14 per share.
|
The investments made by Toucan Capital and Toucan Partners were
made pursuant to the terms and conditions of the
recapitalization agreement, which contemplated our possible
recapitalization. As amended, the recapitalization agreement
contemplates a bridge financing period and an equity financing
19
period, with such equity financing period extending through
December 31, 2006, or such later date as is mutually agreed
by Toucan Capital and us. The recapitalization agreement
includes a term sheet that outlines the terms of a potential
equity financing, at Toucan Capitals election, of up to
$40 million through the issuance of new securities to
Toucan Capital, Toucan Partners and a syndicate of other
investors to be determined. However, neither Toucan Capital,
Toucan Partners, nor any entity affiliated with either of them
are obligated to invest any additional funds in us.
Series A Cumulative Convertible Preferred Stock and
Series A-1 Cumulative Convertible Preferred Stock
As described above, 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
an aggregate purchase price of $1.3 million. The
Series A Preferred Stock:
|
|
|
(i) is entitled to cumulative dividends at the rate of
10% per year;
|
|
|
(ii) is entitled to a liquidation preference in the amount
of its initial purchase price plus all accrued and unpaid
dividends (to the extent of legally available funds);
|
|
|
(iii) has a preference over the common stock, and is on a
pari passu basis with the Series A-1 Preferred Stock, with
respect to dividends and distributions;
|
|
|
(iv) is entitled to participate on an as-converted basis
with the common stock on any distributions after the payment of
any preferential amounts to the Series A Preferred Stock
and the Series A-1 Preferred Stock;
|
|
|
(v) votes on an as converted basis with the common stock
and the Series A-1 Preferred Stock on matters submitted to
the common stockholders for approval and as a separate class on
certain other material matters; and
|
|
|
(vi) is convertible into common stock on a one-for-one
basis (subject to adjustment in the event of stock dividends,
stock splits, reverse stock splits, recapitalizations, etc.).
|
The number of shares of common stock issuable upon conversion of
each share of Series A Preferred Stock is also subject to
increase in the event of certain dilutive issuances in which we
sell or are deemed to have sold shares below the then applicable
conversion price (currently $0.04 per share). The consent
of the holders of a majority of the Series A Preferred
Stock is required in the event that we elect to undertake
certain significant business actions.
As described above, in April 2006, Toucan Capital converted the
aggregate principal amount, and all accrued interest thereon
into an aggregate of 4.82 million shares of our newly
designated Series A-1 Preferred Stock. The Series A-1
Preferred Stock is substantially identical to the Series A
Stock described above, although its original issuance price and
liquidation preference are $1.60 per share, and its
conversion rate is initially 40 shares of common stock per
share of Series A-1 Preferred Stock.
Toucan Capital Series A Warrant
On January 26, 2005, we issued Toucan Capital a warrant,
with a contractual life of 7 years, to purchase up to
13.0 million shares of Series A preferred stock with
an exercise price of $0.04 per share. The number of shares
issuable pursuant to the exercise of the warrant and the
exercise price thereof is subject to adjustment in the event of
stock splits, reverse stock splits, stock dividends and the like.
20
Toucan Partners Notes
We have borrowed an aggregate of $950,000 from Toucan Partners
from November 14, 2005 to March 9, 2006, comprised of
the following loan transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
|
|
Loan Principal
|
|
|
Due Date
|
|
|
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
11/14/05
|
|
$
|
400
|
|
|
|
11/14/06
|
|
|
|
10%
|
|
12/30/05
|
|
|
250
|
|
|
|
12/30/06
|
|
|
|
10%
|
|
03/09/06
|
|
|
300
|
|
|
|
03/09/07
|
|
|
|
10%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrues on these notes at the rate of 10% per
annum, based on a
365-day
basis
compounded annually from the respective original issuance dates
of the notes. These notes are secured by a first priority
security interest in all of our assets. The principal amount of,
and accrued interest on, these notes, as amended, is convertible
at Toucan Partners election into common stock or
Series A Preferred Stock at a rate of $0.04 per share,
or Series A-1 Preferred Stock at a rate of $1.60 per
share.
Bridge Warrants
In connection with the loans made by Toucan Capital, Toucan
Capital holds a series of warrants to purchase capital stock as
follows:
|
|
|
|
|
Issuance Date
|
|
Warrant Shares(1)
|
|
|
|
|
|
|
|
(In thousands)
|
|
04/26/04
|
|
|
36,000
|
(2)
|
06/11/04
|
|
|
30,000
|
(2)
|
07/30/04
|
|
|
20,000
|
(3)
|
10/22/04
|
|
|
5,000
|
(3)
|
11/10/04
|
|
|
5,000
|
(3)
|
12/27/04
|
|
|
2,500
|
(3)
|
04/12/05
|
|
|
4,500
|
(3)
|
05/13/05
|
|
|
4,500
|
(3)
|
06/16/05
|
|
|
5,000
|
(3)
|
07/26/05
|
|
|
5,000
|
(3)
|
09/07/05
|
|
|
5,000
|
(3)
|
|
|
|
|
Total
|
|
|
122,500
|
|
|
|
|
|
|
|
(1)
|
These warrants have a seven year exercise period from their
respective issuance dates. The foregoing warrants are
exercisable for shares of convertible preferred stock if other
investors have purchased in cash a minimum of $15 million
of such convertible preferred stock, on the terms and conditions
set forth in the recapitalization agreement. However, if, other
investors have not purchased in cash a minimum of
$15 million of such convertible preferred stock, on the
terms and conditions set forth in the Recapitalization
Agreement, these warrants shall be exercisable for any equity
security and/or debt security and/or any combination thereof. As
a result, these warrants are currently exercisable at the
holders election, for shares of common stock or
Series A Preferred Stock, or Series A-1 Preferred
Stock.
|
|
(2)
|
Per share exercise price is $0.01 for common stock or
Series A Preferred Stock or $0.40 per share for
Series A-1 Preferred Stock.
|
21
|
|
(3)
|
Per share exercise price is $0.04 for common stock or
Series A Preferred Stock or $1.60 per share for
Series A-1 Preferred Stock.
|
Toucan Partners holds a series of warrants to purchase capital
stock as follows:
|
|
|
|
|
Issuance Date
|
|
Shares
|
|
|
|
|
|
|
|
(In thousands)(1)
|
|
11/14/05
|
|
|
4,000
|
|
04/17/06
|
|
|
5,500
|
|
|
|
|
|
Total
|
|
|
9,500
|
|
|
|
|
|
|
|
(1)
|
These warrants have a seven year exercise period from their
respective issuance dates. The foregoing warrants are
exercisable for shares of convertible preferred stock if other
investors have purchased in cash a minimum of $15 million
of such convertible preferred stock, on the terms and conditions
set forth in our recapitalization agreement. However, if, other
investors have not purchased in cash a minimum of
$15 million of such convertible preferred stock, on the
terms and conditions set forth in the recapitalization
agreement, these warrants shall be exercisable for any equity
security and/or debt security and/or any combination thereof. As
a result, these warrants are currently exercisable at the
holders election, for shares of common stock or
Series A Preferred Stock, or Series A-1 Preferred
Stock. Per share exercise price is $0.04 for common stock or
Series A Preferred Stock or $1.60 per share for
Series A-1 Preferred Stock.
|
Results of Operations
Operating costs and expenses consist primarily of research and
development expenses, including clinical trial expenses when we
are actively participating in clinical trials, and general and
administrative expenses.
Research and development expenses include salary and benefit
expenses and costs of laboratory supplies used in our internal
research and development projects.
From our inception through March 31, 2006, we incurred
costs of approximately $32.5 million associated with our
research and development activities. Because our technologies
are unproven, we are unable to estimate with any certainty the
costs we will incur in the continued development of our product
candidates for commercialization.
General and administrative expenses include salary and benefit
expenses related to administrative personnel, cost of
facilities, insurance, legal support, as well as amortization
costs of stock options granted to employees and warrants issued
to consultants for their professional services.
To date, our revenues have primarily been derived from the
manufacture and sale of research materials, contract research
and development services and research grants from the federal
government. For the year ended December 31, 2005, we earned
approximately $38,000 in revenues from the manufacture and sale
of research materials. Effective December 31, 2005, we have
withdrawn from selling research materials. We recognized zero
revenues during the three month period ended March 31, 2006.
Critical Accounting Policies and Estimates
Accounting principles generally accepted in the United States of
America require our management to make estimates and assumptions
that affect the amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of our
financial statements, as well as the amounts of revenues and
expenses during periods covered by our financial statements. The
actual amounts of these items could differ materially from those
estimates. Our accounting policies are described in more detail
in Note 3 to our financial statements for the year ended
December 31, 2005, included elsewhere herein. We have
22
identified the following as the most critical accounting
policies and estimates used in this preparation of our
consolidated financial statements.
|
|
|
Restructuring liabilities.
|
When circumstances warrant, we may elect to discontinue certain
business activities or change the manner in which we conduct
ongoing operations. When such a change is made, management will
estimate the costs to exit a business or restructure ongoing
operations. The components of the estimates may include
estimates and assumptions regarding the timing and costs of
future events and activities that represent managements
best expectations based on known facts and circumstances at the
time of estimation. Management periodically reviews its
restructuring estimates and assumptions relative to new
information, if any, of which it becomes aware. Should
circumstances warrant, management will adjust its previous
estimates to reflect what it then believes to be a more accurate
representation of expected future costs. Because
managements estimates and assumptions regarding
restructuring costs include probabilities of future events, such
estimates are inherently vulnerable to changes due to unforeseen
circumstances, changes in market conditions, regulatory changes,
changes in existing business practices and other circumstances
that could materially and adversely affect the results of
operations.
We recognized, for the year ended December 31, 2002, a
liability of approximately $929,000 and a loss on facility
sublease of $721,000, net of deferred rent write off in
estimating the loss of economic benefit from vacating
approximately 22,000 square feet of laboratory and
administrative space at our prior facility in accordance with
EITF
94-3,
Accounting for Costs Associated with Exit or Disposal Activities.
On June 30, 2003, we entered into a settlement agreement
with Nexus Canyon Park, our prior landlord. Under this
Settlement Agreement, Nexus Canyon Park agreed to permit
premature termination of our prior lease and excuse us from
future performance of lease obligations in exchange for
90,000 shares of our unregistered common stock with a fair
value of $35,000 and Nexus retention of our
$1.0 million security deposit. The settlement agreement
resulted in an additional loss on facility sublease and lease
termination of $174,000, net of deferred rent of $202,000.
SFAS 146
Accounting for Costs Associated with Exit or
Disposal Activities
has replaced
EITF
94-3
but
similar charges may occur if we have to cancel our current lease
or enter into other restructuring transactions.
|
|
|
Impairment of Long-Lived Assets
|
As of March 31, 2006, we had approximately $43,000 of
property and equipment, net of accumulated depreciation. In
accounting for these long-lived assets, we make estimates about
the expected useful lives of the assets, the expected residual
values of the assets, and the potential for impairment based on
events or circumstances. The events or circumstances could
include a significant decrease in market value, a significant
change in asset condition or a significant adverse change in
regulatory climate. Application of the test for impairment
requires judgment.
During 2003, we recognized non-cash asset impairment losses
totaling $987,000, on certain facilities and property and
equipment resulting from our decisions to cancel our leases or
vacate certain space. The losses on the equipment were
determined based on actual sales or disposal of assets. We
identified an indicator of impairment with respect to our
leasehold improvements as a result of our decision to vacate our
prior administrative space. Accordingly, we reduced the carrying
value of the assets to their estimated fair value of zero.
On January 1, 2006, we adopted SFAS 123(R) which
requires the measurement and recognition of compensation for all
stock-based awards made to employees and directors including
stock options and employee stock purchases under a stock
purchase plan based on estimated fair values. Under
SFAS 123(R), we use the Black-Scholes option pricing model
as our method of valuation for stock-based awards. Our
determination of the fair value of stock-based awards on the
date of grant using an option pricing model is affected by our
stock price as well as assumptions regarding a number of highly
complex
23
and subjective variables. These variables include, but are not
limited to the expected life of the award, our expected stock
price volatility over the term of the award and actual and
projected exercise behaviors. Although the fair value of
stock-based awards is determined in accordance with
SFAS 123(R), the Black-Scholes option pricing model
requires the input of highly subjective assumptions, and other
reasonable assumptions could provide differing results.
Prior to January 1, 2006, we determined our employee stock
option compensation costs as the difference between the
estimated fair value of our common stock and the exercise price
of options on their date of grant. Prior to our initial public
offering, our common stock was not actively traded. The fair
value of our common stock for purposes of determining
compensation expense for this period was determined based on our
review of the primary business factors underlying the value of
our common stock on the date such option grants were made,
viewed in light of the expected initial public offering price
per share prior to the initial public offering of our common
stock. The actual initial public offering price was
significantly lower than the expected price used in determining
compensation expense. Also, on an ongoing basis the estimate of
expense for stock options and warrants is dependant on factors
such as expected life and volatility of our stock. To the extent
actual expense is different than that estimated, the actual
expense that would have been recorded may be substantially
different.
Prior to our initial public offering, we determined the fair
value of our common stock for purposes of these calculations
based on our review of the primary business factors underlying
the value of our common stock on the date these option grants
were made or revalued, viewed in light of our initial public
offering and the initial public offering price per share. The
actual initial public offering price was significantly lower
than the expected price used in determining compensation
expense. Subsequent to our initial public offering, the fair
value has been determined based on the price of the common stock
as reported on the OTCBB.
On an ongoing basis the estimate of expense for stock options
and warrants is dependant on factors such as expected life and
volatility of our stock. To the extent actual expense is
different than that estimated, the actual expense that would
have been recorded may be substantially different.
We earn revenues through research grants and previously earned
revenues through sale of research materials, providing research
services to third parties. Revenues from sale of research
materials are to multiple customers with whom there is no other
contractual relationship and are recognized when shipped to the
customer and title has passed.
Research contracts and grants require us to perform research
activities as specified in each respective contract or grant on
a best efforts basis, and we are paid based on the fees
stipulated in the respective contracts and grants which
approximate the costs we incur in performing such activities. We
recognize revenue under the research contracts and grants based
on completion of performance under the respective contracts and
grants where no ongoing obligation on our part exists. Direct
costs related to these contracts and grants are reported as
research and development expenses.
Results of Operations
Operating costs and expenses consist primarily of research and
development expenses, including clinical trial expenses which
rise 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
24
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. Our business judgment continues to be
that there is little value associated with evaluating
expenditures at the project level since all projects have either
been discontinued and/or their respective activity reduced to a
subsistence level.
For the year ended December 31, 2005 and the three months
ended March 31, 2006, of our net loss of approximately
$9.9 million and $4.0 million, approximately 45% and
49%, respectively, of our expended resources were apportioned to
the re-activation of our two
DCVax
®
protocols. From our inception through March 31, 2006, we
incurred costs of approximately $32.5 million associated
with our research and development activities. Because our
technologies are unproven, we are unable to estimate with any
certainty the costs we will incur in the continued development
of our product candidates for commercialization.
|
|
|
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 depreciation, amortization of stock options and
warrants, and amortization of debt discounts and beneficial
conversion costs associated with our debt financing.
Three Months Ended March 31, 2005 and 2006
Total Revenues.
We did not recognize any revenues during
the three months ended March 31, 2006 as compared to
$87,000 in revenue for the three months ended March 31,
2005. To date, our revenues have primarily been derived from the
manufacture and sale of research materials, contract research
and development services and research grants from the federal
government. Effective December 31, 2005, we have withdrawn
from selling research materials. The $76,000 decrease in grant
revenue was attributable to the cessation of the remaining two
research grant awards during the first quarter of 2005.
Cost of Research Material Sales.
We did not have any cost
of research material sales during the three months ended
March 31, 2006 as compared to $2,000 for the three months
ended March 31, 2005. This decrease is related to the fact
that we have withdrawn from selling research materials effective
December 31, 2005.
Research and Development Expense.
Research and
development expense decreased from $1.3 million for the
three months ended March 31, 2005 to $427,000 for the three
months ended March 31, 2006. This decrease was primarily
due to decreased expenditures for consultants in preparation of
and filing an IND with the FDA and decreasing expenditure
related to our service agreement for drug manufacturing,
regulatory advice, and research and development related to
preclinical activities.
General and Administrative Expense.
General and
administrative expense decreased slightly from $464,000 for the
three months ended March 31, 2005 to $427,000 for the three
months ended March 31, 2006. This decrease was primarily
due to the October 9, 2002 directive from our Board of
Directors to initiate immediate actions to conserve cash and the
resulting staff reductions.
Depreciation and Amortization.
Depreciation and
amortization decreased from $24,000 the three months ended
March 31, 2005 to $10,000 for the three months ended
March 31, 2006. This decrease was primarily due to the
disposal or impairment of property and equipment in 2004 and
2005, as well as the fact that certain assets are now fully
depreciated.
25
Total Other Income (Expense), Net.
Interest expense
increased from $809,000 for the three months ended
March 31, 2005 to $982,000 for the three months ended
March 31, 2006. This increase was due primarily to
recognizing interest expense relative to the debt discount and
interest accretion associated with the secured convertible
promissory notes and warrants debt financing.
Warrant valuation.
As of December 31, 2005 our total
committed outstanding obligations for shares of common stock
exceeded our authorized shares. We have recognized a liability
totaling $604,000 representing the fair value of our obligations
for shares of common stock in excess of our authorized shares.
As we exceeded our authorized shares on December 31, 2005,
no corresponding charges to the statement of operations were
recorded for the year ended December 31, 2005. This
liability must be revalued at each reporting date with any
change in valuation included in other income/(expense) until
such time as enough shares are authorized to cover all
potentially convertible instruments. Our stock price had
increased from $0.10 per share at December 30, 2005 to
$0.57 at March 30, 2006, resulting in a warrant valuation
loss and related further warrant liability of approximately
$2.1 million recognized for the quarter ending
March 31, 2006. Additional warrant liability of
approximately $6.7 million was also recognized for the
respective fair market valuations of the additional loan,
convertible into shares, received from Toucan Capital, with
warrants, in March 2006.
Year Ended December 31, 2004 Compared to the Year Ended
December 31, 2005
Total Revenues.
Revenues decreased 68.2% from $390,000
for the year ended December 31, 2004 to $124,000 for the
year ended December 31, 2005. The research material sales
component of revenue decreased 27.0% from $52,000 for the year
ended December 31, 2004 to $38,000 for the year ended
December 31, 2005 as we ceased research materials sales
effective December 31, 2005. Research grant and other
income decreased 74.5% from $338,000 for the year ended
December 31, 2004 to $86,000 for the year ended
December 31, 2005. This decrease in grant revenue was
attributable to the cessation of two research grant awards in
the first quarter of 2005.
Cost of Research Material Sales.
Cost of research
material sales decreased 70.0% from $40,000 for the year ended
December 31, 2004 to $12,000 for the year ended
December 31, 2005. This decrease was due to lower direct
sales and related direct labor costs. We ceased research
materials sales effective December 31, 2005.
Research and Development Expense.
Research and
development expense increased 23.4% from $3.6 million for
the year ended December 31, 2004 to $4.5 million for
the year ended December 31, 2005. This increase was
primarily due to increased expenditures for consultants in
preparation of regulatory filings with the FDA and entering into
a service agreement for drug manufacturing, regulatory advice,
research and development related to preclinical activities.
General and Administrative Expense.
General and
administrative expense decreased 29.5% from $2.8 million
for the year ended December 31, 2004 to $2.0 million
for the year ended December 31, 2005. This decrease was
primarily due to the elimination of two positions in 2005 and
continuing to focus on the October 9, 2002 directive from
our Board of Directors to initiate immediate actions to conserve
cash.
Depreciation and Amortization.
Depreciation and
amortization decreased 52.2% from $132,000 for the year ended
December 31, 2004 to $63,000 for the year ended
December 31, 2005. This decrease was primarily due to our
continued disposal of all equipment and facilities that was
previously necessary for
proof-of
-principle
research and development as we moved forward in focusing on our
primary business strategy of recapitalizing the company in
anticipation of re-initiating our two clinical trial vaccine
prospects.
Asset Impairment Loss.
Asset disposal costs of $130,000
for the year ended December 31, 2004 primarily relates to
the write-off of unused property and equipment associated with
our vacating a 14,000 square foot laboratory and
administrative space and entering a sublease for approximately
5,047 square feet of space in 2005 where such assets were
not to be utilized.
26
Total Other Income (Expense), Net.
Interest expense
increased 99.2% from $1.8 million for the year ended
December 31, 2004 to $3.5 million for the year ended
December 31, 2005. This increase was due primarily to
recognizing interest expense relative to the debt discount and
interest accretion associated with the November 13, 2003
secured convertible promissory note and warrant financing and
the loans from Toucan Capital and Toucan Partners. Interest
income increased from $3,000 for the year ended
December 31, 2004 to $5,000 for the year ended
December 31, 2005. This increase was primarily due to
having comparable higher average cash balances during the year
ended 2005.
Warrant valuation.
Our total committed outstanding
obligations for shares of common stock exceeded our authorized
shares on July 30, 2004, when an additional
$2.0 million loan, convertible into shares of common stock,
was received from Toucan Capital and a warrant was issued. The
fair value of the warrant in excess of the authorized shares was
approximately $2.8 million and was recognized as a
liability on July 30, 2004. This liability must be revalued
at each reporting date with any change in valuation included in
other income/(expense) until such time as enough shares are
authorized to cover all potentially convertible instruments. Our
stock price had declined from $0.04 at July 30, 2004 to
$0.03 at September 30, 2004, resulting in a warrant
valuation gain of approximately $717,000 recognized for the
quarter ending September 30, 2004. Additional warrant
liability of approximately $1.5 million was recognized for
the respective fair market valuations of the additional loans,
convertible into shares, received from Toucan Capital, with
warrants, on October 22, November 10, and
December 27, 2004, for the year ended December 31,
2004. The aggregate shares by which we exceeded our authorized
shares were required to be re-valuated when our stockholders
approved an increase in our authorized shares, from
125 million to 400 million shares, which was recorded
on December 29, 2004 with the Delaware Secretary of State.
The approximate $1.0 million change in fair market
valuation during the fourth quarter was recognized in other
income as additional expense. The aggregate warrant liability of
approximately $4.7 million was reclassified to equity upon
approval of the additional authorized shares on
December 29, 2004. As of December 31, 2005 our total
committed outstanding obligations for shares of common stock
exceeded our authorized shares. We have recognized a liability
totaling $604,000 representing the fair value of our obligations
for shares of common stock in excess of our authorized shares.
As we exceeded our authorized shares on December 31, 2005,
no corresponding charges to the statement of operations were
recorded for the year ended December 31, 2005.
Year Ended December 31, 2003 Compared to the Year Ended
December 31, 2004
Total Revenues.
Revenues decreased 26.3% from $529,000
for the year ended December 31, 2003 to $390,000 for the
year ended December 31, 2004. The research material sales
component of revenue increased from $24,000 for the year ended
December 31, 2003 to $52,000 for the year ended
December 31, 2004. Research grant and other income
decreased 33.1% from $505,000 for the year ended
December 31, 2003 to $338,000 for the year ended
December 31, 2004. This decrease in grant revenue was
attributable to the cessation of one research grant awards in
the first quarter of 2004.
Cost of Research Material Sales.
Cost of research
material sales decreased 49.4% from $79,000 for the year ended
December 31, 2003 to $40,000 for the year ended
December 31, 2004. This decrease was due to lower direct
labor costs associated with lower sales in 2004 and a decrease
in direct advertising in 2004.
Research and Development Expense.
Research and
development expense increased from $1.6 million for the
year ended December 31, 2003 to $3.6 million for the
year ended December 31, 2004. This increase was primarily
due to increased expenditures for consultants in preparation of
regulatory filings with the FDA and entering into a service
agreement for drug manufacturing, regulatory advice, research
and development related to preclinical activities.
General and Administrative Expense.
General and
administrative expense decreased 29.9% from $4.1 million
for the year ended December 31, 2003 to $2.8 million
for the year ended December 31, 2004. This decrease was
primarily due to the October 9, 2002 directive from our
Board of Directors to initiate immediate actions to conserve
cash and the resulting staff reductions.
27
Depreciation and Amortization.
Depreciation and
amortization decreased 36.2% from $207,000 for the year ended
December 31, 2003 to $132,000 for the year ended
December 31, 2004. This decrease was primarily due to the
disposal of approximately $337,000 of equipment and leasehold
improvements for the year ended December 31, 2004.
Loss on Facility Sublease and Lease Cancellation.
Lease
cancellation costs of $174,000 for the year ended
December 31, 2003 are associated with the June 30,
2003 termination of our primary lease at our former facility and
release from future lease obligations thereunder.
Asset Impairment Loss.
Asset disposal costs decreased
85.6% from $904,000 for the year ended December 31, 2003 to
$130,000 for the year ended December 31, 2004. The 2003
impairment of $904,000 was primarily related to the write-off of
leasehold improvements and equipment associated with the
June 30, 2003 termination of our primary lease at our
previous 38,000 square foot facility and our resulting move
to another facility of approximately 14,000 square feet
whereby such assets were not utilized. The 2004 impairment of
$130,000 reflects continued recognition of the cost associated
with non or underutilized equipment at the smaller
14,000 square foot facility.
Total Other Income (Expense), Net.
Interest expense
increased from $73,000 for the year ended December 31, 2003
to $1.8 million for the year ended December 31, 2004.
This increase was due primarily to recognizing interest expense
relative to the debt discount associated with the secured
convertible promissory note and warrants debt financing.
Interest income decreased 87.0% from $23,000 for the year ended
December 31, 2003 compared to $3,000 for the year ended
December 31, 2004. This decrease was primarily due to the
decline in market interest rates and having lower average cash
balances during the year ended December 31, 2004.
Warrant valuation.
Our total committed outstanding
obligations for shares of common stock exceeded our authorized
shares on July 30, 2004 when an additional
$2.0 million loan, convertible into shares of common stock,
was received from Toucan Capital and a warrant was issued. The
fair value of the warrant in excess of the authorized shares was
approximately $2.8 million and was recognized as a
liability on July 30, 2004. This liability must be revalued
at each reporting date with any change in valuation included in
other income/(expense) until such time as enough shares are
authorized to cover all potentially convertible instruments. Our
stock price had declined from $0.04 at July 30, 2004 to
$0.03 at September 30, 2004 resulting in a warrant
valuation gain of approximately $717,000 recognized for the
quarter ending September 30, 2004. Additional warrant
liability of approximately $1.5 million was recognized for
the respective fair market valuations of the additional loans,
convertible into shares, received from Toucan Capital, with
warrants, on October 22, November 10, and
December 27, 2004, for the year ended December 31,
2004. The aggregate shares by which we exceeded our authorized
shares were required to be re-evaluated when our stockholders
approved an increase in our authorized shares, from
125 million to 400 million shares, which was recorded
on December 29, 2004 with the Delaware Secretary of State.
The approximate $1.0 million change in fair market
valuation during the fourth quarter was recognized in other
income as additional expense resulting in a net increase in
other income/(expense) of approximately $368,000 for the year
ended December 31, 2004. The aggregate warrant liability of
approximately $4.7 million was reclassified to equity upon
approval of the additional authorized shares on
December 29, 2004.
Gain on Sale of Intellectual Property.
The $816,000 gain
was realized on the sale of royalty rights for the year ended
December 31, 2003 and was negotiated based on the expected
discounted net present value of the future 2% royalty obligation
under that certain Assignment and License Agreement dated
December 9, 2002 with Medarex and was received in cash on
July 1, 2003.
Liquidity and Capital Resources
Since 2004, we have undergone a significant recapitalization,
pursuant to which Toucan Capital and Toucan Partners loaned us
an aggregate of approximately $7.7 million and purchased
$1.3 million in
28
equity. These funds enabled us to continue to operate, and
advance our programs, while attempting to raise additional
capital. These funds were comprised of $6.75 million from
Toucan Capital, which we borrowed from February 1, 2004
through September 2005. Toucan Capital elected to convert these
loans and the related accrued interest on the loans into
approximately 4.8 million shares of our newly designated
Series A-1 Preferred Stock (which are convertible into an
aggregate of 192.7 million shares of common stock) as of
April 17, 2006. In January 2005, Toucan Capital purchased
32.5 million of Series A Preferred Stock for gross
proceeds of $1.3 million. Toucan Capital also has the right
to acquire up to approximately 135.5 million shares of
capital stock upon exercise of warrants issued in connection
with its convertible debt and equity financings.
We have issued three promissory notes to Toucan Partners,
pursuant to which it has loaned us an aggregate of $950,000.
Toucan Partners has the right, as of July 6, 2006, to
convert principal and interest on the above loans to acquire up
to approximately 25.0 million shares of our capital stock
and has the right to acquire up to an aggregate of
9.5 million shares upon exercise of warrants having a
contractual life of 7 years. Including the
32.5 million shares of Series A Preferred Stock and
the 4.82 million shares of Series A-1 Preferred Stock
held by Toucan Capital, Toucan Capital and Toucan Partners
collectively have beneficial ownership of approximately
395.1 million shares of our common stock, which represents
beneficial ownership of approximately 86% as of July 6,
2006. Toucan Capital and Toucan Partners each has a right of
first refusal to participate in our future issuances of debt or
equity securities.
On April 4, 2006, we closed the PIPE Financing with
unrelated investors pursuant to which we raised aggregate gross
proceeds of approximately $5.5 million.
As of July 10, 2006 we had cash in the amount of
approximately $2.4 million which we believe, based on
recurring operating and associated financing costs, will be
sufficient to fund our operations for the next twelve months.
Approximately $11.7 million of our current liabilities at
March 31, 2006 were payable to related parties, net of the
related debt discount and $9.4 million relates to a common
stock warrant liability which has subsequently been reversed
because we obtained stockholder approval to increase our
authorized capital at the Annual Meeting of Stockholders held on
May 25, 2006. Further, approximately $7.1 million of
these current liabilities, net of the related debt discount,
were converted into Series A-1 Preferred Stock and $268,000
of these current liabilities were converted into common stock on
April 17, 2006. During April and May 2006, we paid
$1.7 million of our remaining current related party
liabilities as of March 31, 2006. For purposes of our
assessment of our ability to fund our operations through the
next twelve months we have assumed that we would be able to
refinance or otherwise defer the payment of the remaining
$2.6 million of related party liabilities, net of the
related debt discount. These liabilities consist of $254,000
related to notes payable to Toucan Partners, net of the related
debt discount, $1.9 million due to Cognate Therapeutics,
Inc for contract manufacturing as of March 31, 2006 and
$500,000 related to expenses paid by Toucan Capital on behalf of
the Company. These parties have not yet agreed to any
refinancing or deferral and may not do so. If these related
party liabilities are required to be repaid when currently due,
we expect that our current cash is only sufficient to fund our
operations until August 2006, after which time we may not be
able to continue meeting our obligations on an ongoing basis, if
at all. For ongoing operating capital we intend to seek
additional funds from Toucan Capital and its affiliates or other
third parties. Toucan Capital, its affiliates or other third
parties are not obligated to provide this funding to us.
Any additional equity financing with Toucan Capital and its
affiliates, or any other third party, is likely to be dilutive
to stockholders and any debt financing, if available, may
include additional restrictive covenants. If we are unable to
obtain significant additional capital in the near-term, we may
cease operations at anytime. We do not believe that our assets
would be sufficient to satisfy the claims of all of our
creditors and the liquidation preference of our preferred
stockholders in full. Therefore, if we were to pursue a
liquidation it is highly unlikely that any proceeds would be
received by our common stockholders. Gains on the sale of
previously impaired equipment to third parties aggregated
$97,000 for the year ended December 31, 2005. Our remaining
assets are comprised of office furniture and fixtures. We do not
expect to make further assets available for sale.
29
We received a tax assessment of $492,000 on October 21,
2003 related to the abandonment of tenant improvements at a
prior facility on which use tax payments to the State of
Washington had been deferred, including the disposal and
impairment of previously qualified tax deferred equipment. We
appealed this assessment and were granted a partial reduction in
the assessment on July 8, 2005. We filed an addendum to our
appeal petition on December 2, 2005. The net assessment,
through December 31, 2005, of approximately $336,000,
inclusive of accrued interest, is being carried as an estimated
liability on our balance sheet and is included in general and
administrative expense. Final review of the addendum to the
petition is expected to take several additional months. We may
not be successful in further reducing this assessment and the
assessment is subject to payment on demand.
In February 2004, we filed a refund request of approximately
$175,000 related to certain other state taxes previously paid to
the State of Washingtons Department of Revenue. The
finalization of this refund request is not expected until mid
2006. We may not be successful in our efforts to receive a tax
refund.
Our financial statements as of and for the years ended
December 31, 2004 and December 31, 2005 and as of and
for the three months ended March 31, 2005 and
March 31, 2006 were prepared on a going concern basis,
which contemplates the realization of assets and the settlement
of liabilities in the normal course of business. Nevertheless,
we have experienced recurring losses from operations since
inception, have a working capital deficit of $19.0 million,
and have a deficit accumulated during the development stage of
$86.6 million, as of March 31, 2006, that raises
substantial doubt about our ability to continue as a going
concern.
Our independent auditors have indicated in their report on our
financial statements included elsewhere herein, that there is
substantial doubt about our ability to continue as a going
concern. We need to raise significant additional funding to
continue our operations, conduct research and development
activities, pre-clinical studies and clinical trials necessary
to bring our product candidates to market. However, additional
funding may not be available on terms acceptable to us or at
all. The alternative of issuing additional equity or convertible
debt securities also may not be available and, in any event,
would result in additional dilution to our stockholders.
Sources of Cash
On April 8, 2003, we were awarded an NIH cancer research
grant. The total first year grant award was approximately
$318,000, was earned under the grant, and was recognized in
revenue through the year ended December 31, 2003. The total
award for fiscal 2004-2005 was approximately $328,000, comprised
of approximately $198,000 authorized for direct grant research
expenditures and approximately $130,000 authorized for use to
cover our facilities and administrative overhead costs. This
grants remaining $35,000 award was recognized in January
2005. This grant ended January 31, 2005.
Effective September 10, 2004, we were awarded a small
business innovation research grant. The grant award for $100,000
had an award period that commenced September 10, 2004.
Approximately $59,000 was earned under the grant and recognized
in revenue through the year ended December 31, 2004. The
remaining $41,000 of the grants aggregate award was
recognized through the three months ended March 31, 2005.
This grant ended on September 9, 2005.
On April 21, 2003, we announced our entry into the research
reagents market. We earned approximately $38,000 in revenue for
the year ended December 31, 2005 from the manufacture and
sale of research materials. We ceased selling research materials
on December 31, 2005.
Our effort to license certain rights, title, and interest to
technology relating to the worldwide use of specific antibodies
for the diagnostic immunohistochemical market resulted in the
July 1, 2003 license
30
agreement with DakoCytomation California, Inc. with the payment
of a one-time $25,000 license fee and future non-refundable
minimum annual royalty payments of $10,000 credited against any
royalty payments made to us. The $10,000 July 2005 annual
royalty payment was recognized as revenue on August 1, 2005
while a $585 royalty payment on certain product sales was
recognized as revenue on July 25, 2005.
On November 13, 2003, we borrowed an aggregate of $335,000
from certain members of our management which enabled us to
continue operating into the first quarter of 2004. In connection
with the April 26, 2004 recapitalization agreement with
Toucan Capital, these notes were amended to set the conversion
price at $0.10 per share and to extend the maturity date.
Net of repayments and conversions into common stock, the
aggregate loan principal and accrued interest payable to
management at March 31, 2006 was $224,000 and $51,800,
respectively. The outstanding principal balance on the remaining
notes, along with the related accrued interest were converted
into 2,687,719 shares of common stock on April 17,
2006.
As part of the November 13, 2003 loan from management, the
lenders received warrants initially exercisable to acquire an
aggregate of 3.7 million shares of our common stock,
expiring November 2008 subject to certain antidilution
adjustments. In connection with the April 26, 2004
recapitalization agreement, these warrants were amended to
remove the anti-dilution provisions and set the warrant exercise
price at the lesser of (i) $0.10 per share or
(ii) a 35% discount to the average closing price during the
twenty trading days prior to the first closing of our sale of
convertible preferred stock as contemplated by the
recapitalization agreement, but not less than $0.04 per
share. During March 2006 through May 2006, all of these warrants
were exercised for common stock on a net exercise basis,
pursuant to the terms of the warrants, resulting in the issuance
for no additional cash consideration of an aggregate of
3.4 million shares of common stock to current and prior
members of management.
From February 2, 2004 through December 31, 2005, we
issued thirteen promissory notes to Toucan Capital, pursuant to
which Toucan Capital loaned us an aggregate of
$6.75 million. As discussed above, Toucan Capital converted
all of these promissory notes, including accrued interest, into
shares of our Series A-1 Preferred Stock in April 2006.
|
|
|
Toucan Capital Series A Cumulative Convertible
Preferred Stock
|
On January 26, 2005, Toucan Capital purchased
32.5 million shares of our newly designated series A
preferred stock at a purchase price of $0.04 per share, for
a purchase price of $1.276 million, net of issue related
costs of approximately $24,000.
From November 14, 2005 through March 9, 2006, we
issued three promissory notes to Toucan Partners, LLC, an
affiliate of Toucan Capital, pursuant to which Toucan Partners
has loaned us an aggregate of $950,000. Payment is due under the
notes upon written demand on or after the first anniversary of
the respective note. Interest accrues at 10% per annum,
compounded annually, on a
365-day
year basis. As
of July 6, 2006, these notes, principal plus accrued
interest, are convertible into approximately 25.0 million
shares of our common stock at the election of Toucan Partners.
In connection with the PIPE Financing, on March 30, 2006,
we entered into a securities purchase agreement, or the Purchase
Agreement, with a group of accredited investors pursuant to
which we sold an aggregate of 39,467,891 shares of our
common stock, at a price of $0.14 per share, and issued,
for no additional consideration, warrants to purchase up to an
aggregate of 19,733,945 shares of our common stock. The
transaction closed on April 4, 2006 and we received gross
proceeds of $5,525,505, before offering expenses.
31
The warrants expire five years after issuance, and are initially
exercisable at a price of $0.14 per share, subject to
adjustments under certain circumstances including certain
issuances or deemed issuances of shares below $0.14 per
share.
Under the Purchase Agreement, we have agreed to register for
resale under the Securities Act both the shares and the shares
underlying the warrants, or Warrant Shares. Under the terms of
the Purchase Agreement, we are required to file a registration
statement with the SEC within 45 days after closing, of
which this prospectus is a part. We also agreed to other
customary obligations regarding registration, including matters
relating to indemnification, maintenance of the registration
statement, payment of expenses, and compliance with state
blue sky laws. We may be liable for liquidated
damages to holders of the shares and the Warrant Shares if the
registration statement is not declared effective by the SEC on
or prior to August 2, 2006 or if the registration statement
(after being declared effective) ceases to be effective in a
manner, and for a period of time, that violates our obligations
under the Purchase Agreement. The amount of the liquidated
damages is, in aggregate, one percent (1%) per month of the
aggregate purchase price of the shares, subject to a cap of ten
percent (10%) of the aggregate purchase price of the shares.
We used $609,000 in cash for operating activities during the
three months ended March 31, 2006, compared to
$1.5 million for the three months ended March 31,
2005. The decrease in cash used in operating activities from
2005 to 2006 was primarily the result of decreased expenditures
for consultants in preparation of and filing an IND with the FDA
and for entering into a service agreement for drug
manufacturing, regulatory advice, and research and development
related to preclinical activities.
We used $4.4 million in cash for operating activities
during the year ended December 31, 2004, compared to
$4.2 million for the year ended December 31, 2005. The
decrease of approximately 5.4% reflects a leveling off of
expenditures and business activity associated with identifying
future clinical trial sites, research and development
expenditures related to preclinical activities, and gradual
re-implementation of the manufacturing process for our two
DCVax
®
clinical trial vaccines.
We generated $16,000 in cash from investing activities during
the three months ended March 31, 2006 compared to $81,000
provided by investing activities during the three months ended
March 31, 2005. The cash provided during the three months
ended March 31, 2006 and 2005 consisted of net proceeds
from the sale of property and equipment.
We generated $161,000 in cash from investing activities for the
year ended December 31, 2004 compared to $50,000 during the
year ended December 31, 2005. The cash provided during 2005
is net of the aggregate $97,000 of proceeds from the sale of
equipment and supplies and $43,000 in expenditures for computer
equipment.
We generated $3.2 million in cash from financing activities
for the three months ended March 31, 2005 primarily related
to the advance funding on certain investors commitments to
acquire common stock in the PIPE Financing. We generated
$1.2 million in cash from financing activities during the
three months ended March 31, 2005 consisting primarily of
the January 26, 2005 purchase by Toucan Capital of
32.5 million shares of our newly designated Series A
Preferred Stock at a purchase price of $0.04 per share, for
a net purchase price of $1.267 million, net of issue
related costs of approximately $24,000.
We generated $4.3 million in cash from financing activities
for the year ended December 31, 2004 primarily from the
loans from Toucan Capital. We generated $4.2 million in
cash from financing activities during the year ended
December 31, 2005 consisting of (i) the
January 26, 2005 sale of our newly designated series A
preferred stock to Toucan Capital at a purchase price of
$0.04 per share, for a net purchase price of
$1.276 million, net of issue related costs of approximately
$24,000, (ii) loans in the aggregate amount of
$2.4 million from Toucan Capital, and (iii) loans in
the aggregate amount of $650,000 from Toucan Partners.
32
Overview of Contractual Obligations
We remain primarily liable for the performance of the provisions
and obligations under our original June 18, 2003 lease,
with Benaroya Capital Company, L.L.C. for 14,022 square
feet of space at a building located in Bothell, Washington. This
lease was for a term of 39 months commencing July 1,
2003 and terminating September 30, 2006. Effective
December 15, 2004, with concurrence from Benaroya, we
assigned this lease to MediQuest Therapeutics, Inc.
Simultaneously, we entered into a sublease with MediQuest for
approximately 5,047 square feet of administrative floor
space. Our sublease was for a term of 12 months commencing
December 15, 2004 and terminating December 31, 2005.
On November 4, 2005, we entered into a lease agreement with
The International Union of Operating Engineers Local 302 for
2,325 square feet of administrative space in a building
located in Bothell, Washington. This lease is for a term of
12 months commencing January 1, 2006 and terminating
December 31, 2006.
The amounts scheduled below are as of March 31, 2006 and
reflect our current lease obligation as well as the potential
lease liability remaining with Benaroya in the event we must
cure any breach of the lease contract.
Tabular Disclosure of Contractual Obligations
As of March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
More Than
|
Contractual Obligation
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Loans(1)
|
|
$
|
7,700
|
|
|
$
|
7,700
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Contract Manufacturing Agreement(2)
|
|
|
2,873
|
|
|
|
2,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Lease Obligations
|
|
|
8
|
|
|
|
7
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Operating Lease Obligations
|
|
|
219
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,800
|
|
|
$
|
10,799
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
An aggregate of $6.75 million of these loans represents
amounts payable to Toucan Capital pursuant to a series of
convertible promissory notes which, subsequent to March 31,
2006, have been converted into shares of Series A-1
Preferred Stock. The remaining $950,000 of these loans
represents amounts payable to Toucan Partners pursuant to a
series of convertible promissory notes.
|
|
(2)
|
On July 30, 2004, we entered an agreement with Cognate
Therapeutics, Inc. The agreement includes a penalty of
$2 million if cancelled after one year as well as payment
for all services performed in winding down any ongoing
activities.
|
We have also entered into other collaborative arrangements under
which we may be obligated to pay royalties or milestone payments
if product development is successful. We do not anticipate that
the aggregate amount of any royalty or milestone obligations
under these arrangements will be material.
Recent Accounting Pronouncements
In December 2004, the FASB issued Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment
(Revised 2004). This statement addresses the accounting
for stock-based payment transactions in which a company receives
employee services in exchange for the companys equity
instruments or liabilities that are based on the fair value of
the companys equity securities or may be settled by the
issuance of these securities. SFAS 123(R) eliminates the
ability to account for stock-based compensation using
APB 25 and generally requires that such transactions be
accounted for using a fair value method. The provisions of this
statement are effective for financial statements issued for
fiscal years beginning after June 15, 2005. We adopted
SFAS 123(R) on January 1, 2006. The impact of our
adoption of SFAS 123(R) is further described in
Notes 2 and 3.
33
In November 2005, the FASB issued final FASB Staff Position
SFAS No. 123(R)-3, Transition Election Related
to Accounting for the Tax Effects of Share-Based Payment
Awards. The FSP provides an alternative method of
calculating excess tax benefits (the APIC pool) from the method
defined in SFAS 123(R) for stock-based payments. A one-time
election to adopt the transition method in this FSP is available
to those entities adopting SFAS 123(R) using either the
modified retrospective or modified prospective method. This FSP
did not have a material impact on our financial statements or
results of operations.
In February 2006, the FASB issued final FASB Staff Position
SFAS No. 123(R)-4 Classification of Options and
Similar Instruments Issued as Employee Compensation That Allow
for Cash Settlement upon the Occurrence of a Contingent
Event. The FSP amends SFAS 123(R) for awards with
contingent events that are not probable and outside the control
of the employee that are settled in cash to classify such awards
as an equity award. If the contingent event later becomes
probable and the award had been reported as an equity award, the
change in classification would be accounted for as a
modification. This FSP did not have an impact on our financial
statements or results of operations since we do not have such
awards.
In May 2005, the FASB issued Statement of Financial Accounting
Standards No. 154, Accounting Changes and Error
Corrections. This statement replaces APB 20
cumulative effect accounting with retroactive restatement of
comparative financial statements. It applies to all voluntary
changes in accounting principle and defines retrospective
application to differentiate it from restatements due to
incorrect accounting. The provisions of this statement are
effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005 and
became effective for us on January 1, 2006. The adoption of
this accounting principle is not expected to have a significant
impact on our financial position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is presently limited to the interest
rate sensitivity of our cash which is affected by changes in the
general level of U.S. interest rates. We are exposed to
interest rate changes primarily as a result of our investment
activities. The primary objective of our investment activities
is to preserve principal while at the same time maximizing the
income we receive without significantly increasing risk. To
minimize risk, we maintain our cash in interest-bearing
instruments, primarily money market funds. Due to the short-term
nature of our cash, we believe that our exposure to market
interest rate fluctuations is minimal. A hypothetical 10% change
in short-term interest rates from those in effect at
December 31, 2005 and March 31, 2006 would not have a
significant impact on our financial position or our expected
results of operations. Our interest rate risk management
objective with respect to our borrowings is to limit the impact
of interest rate changes on earnings and cash flows. Except for
our loans from management, our debt is carried at a fixed 10%
rate of interest. We do not have any foreign currency or other
derivative financial instruments.
34
BUSINESS
Overview
Northwest Biotherapeutics, Inc. was 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 and can cause
undesirable side effects. Our approach in developing cancer
therapies utilizes our expertise in the biology of dendritic
cells, which are a type of white blood cells that activate the
immune system. Our primary activities since incorporation have
been focused on advancing a proprietary dendritic cell
immunotherapy for prostate and brain cancer together with
strategic and financial planning, and raising capital to fund
our operations. We completed an initial public offering of our
common stock in December 2001.
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.
Industry Background
|
|
|
Incidence of Cancer in the United States
|
The American Cancer Society estimates that in the United States,
men have a 1 in 2 lifetime risk of developing cancer, while
women have a risk of 1 in 3. Doctors were expected to diagnose
approximately 1.37 million new cases of cancer in the
United States during 2005. Cancer is the second leading cause of
death in the United States after heart disease and was estimated
to result in approximately 570,280 deaths, or 1,562 per
day, in 2005. The direct medical costs related to treating
cancer in the United States were estimated to be
$56 billion in 2002. Our initial therapeutic targets,
prostate, brain and lung cancers, cause approximately 36% of the
cancer deaths in the United States each year. The American
Cancer Society estimated that the incidence of new diagnosis and
deaths resulting from several common cancers during 2005 would
be as follows:
|
|
|
|
|
|
|
|
|
Type of Cancer
|
|
New Cases
|
|
|
Deaths
|
|
|
|
|
|
|
|
|
Breast
|
|
|
211,240
|
|
|
|
40,410
|
|
Prostate
|
|
|
232,090
|
|
|
|
30,350
|
|
Colorectal
|
|
|
145,290
|
|
|
|
56,290
|
|
Lung
|
|
|
172,570
|
|
|
|
163,510
|
|
Kidney
|
|
|
36,160
|
|
|
|
12,660
|
|
Melanoma
|
|
|
59,580
|
|
|
|
7,770
|
|
Brain
|
|
|
17,000
|
|
|
|
12,760
|
|
Cancer
Cancer is characterized by aberrant cells that multiply
uncontrollably. As cancer progresses, the cancer cells may
invade other tissues throughout the body producing additional
cancers, called metastases. Cancer growth can cause tissue
damage, organ failure and, ultimately, death. Many immunologists
believe that cancer cells occur frequently in the human body,
yet are effectively controlled by the immune system because
these cells are recognized as aberrant. Cancer growth occurs if
this natural process fails.
Cancer cells produce abnormal kinds and amounts of substances
called antigens, which may be distinguishable from those
produced by healthy cells. The use of these cancer-associated
antigens is essential to the successful development of products
capable of stimulating the immune system to seek and destroy
cancer cells marked by these antigens.
35
The Human Immune System
The immune system is the bodys defense mechanism
responsible for recognizing and eliminating cancer cells,
viruses, bacteria and other disease-causing organisms. This
system consists of populations of white blood cells whose
components are responsible for initiating the cellular immune
response, and the humoral, or antibody-based, immune response.
Dendritic cells, a component of white blood cells, initiate the
cellular immune response by processing and displaying
disease-associated antigen fragments on their outer cell
surface, where they are recognized by white blood cells, known
as naive T cells, that have not yet been exposed to antigens.
Upon exposure to these antigen fragments, naive T cells become
disease-specific Helper T cells or Killer T cells. Helper T
cells then induce Killer T cells to seek and destroy the cells
marked by the disease-associated antigen.
B cells direct the humoral immune response by binding to
disease-associated antigens on the surface of various cell
types, producing disease-specific antibodies. Helper T cells
also enhance B cell production of disease-specific antibodies.
These antibodies bind to and initiate the destruction of cells
marked by the associated disease-specific antigens.
A small population of activated Helper T cells, Killer T cells,
and antibody-producing B cells survive for long periods of time,
retaining the memory of what the disease fragment looks like.
These cells can respond very rapidly to subsequent exposure to
disease-specific antigens and fragments. The most effective
natural immune response is one in which both Killer T cells and
antibody-producing B cells are activated.
The immune system response to cancer is generally characterized
by the following sequence:
|
|
|
|
|
Step 1.
Dendritic cells ingest cancer antigens, break
them into small fragments and display them on their outer cell
surfaces.
|
|
|
|
Step 2.
Dendritic cells bearing these cancer antigen
fragments bind to and activate naive T cells, which become
disease-specific Helper T and Killer T cells.
|
|
|
|
Step 3.
The activated Helper T cells produce factors that
greatly enhance the cell division of Killer T cells and mature
their cancer-killing properties.
|
|
|
|
Step 4.
Cancer cells and their cancer-associated antigens
are also recognized by antibody-producing B cells.
|
|
|
|
Step 5.
The activated Helper T cells produce factors that
greatly enhance antibody production by B cells that in turn are
specific for the cancer-associated antigens.
|
|
|
|
Step 6.
The Killer T cells and antibodies, acting alone
or in combination, destroy cancer cells.
|
Limitations of Current Cancer Therapies
|
|
|
Traditional Cancer Therapy Approaches
|
Cancer is characterized by aberrant cells that multiply
uncontrollably. As cancer progresses, the cancer cells may
invade other tissues throughout the body producing additional
cancers, called metastases. Effective therapies must attack the
cancer both at its site of origin and at sites of metastases.
Traditional treatments for cancer include:
|
|
|
|
|
Surgery.
Surgery may be used to remove cancer cells, but
not all cancer cells can be removed surgically. Surgery may also
result in significant adverse side effects such as collateral
damage to healthy tissue, bleeding and infection.
|
|
|
|
Radiation Therapy.
Radiation therapy may be used to treat
cancers but it can cause significant damage to healthy tissue
surrounding the targeted cancer cells. Recurrent cancers may not
be treatable with further radiation therapy. Radiation therapy
may also cause additional significant adverse side effects such
as burns to treated skin, organ damage and hair loss.
|
36
|
|
|
|
|
Chemotherapy.
Chemotherapy may be used to treat cancer,
but involves the use of toxic chemical agents. These toxic
chemical agents affect both healthy and diseased cells and may
cause additional significant adverse side effects such as hair
loss, immune suppression, nausea and diarrhea.
|
|
|
|
Hormone Therapy.
Hormone therapy may be used to treat
cancer, but involves the use of substances that chemically
inhibit the production of growth and reproductive hormones and
is also limited in effectiveness. Hormone therapy may cause
significant adverse side effects such as bone loss, hot flashes,
impotence and blood clots.
|
Current Cancer Immunotherapy Approaches
Immunotherapy can stimulate and enhance the bodys natural
mechanism for destroying pathogens, such as cancer cells, and
may overcome many of the limitations of traditional cancer
therapies. Immunotherapy may be particularly useful to augment
traditional cancer therapies. In recent years, two cancer
immunotherapy approaches have emerged, with FDA approved
products to address the limitations of traditional therapies:
|
|
|
|
|
Antibody-Based Therapies.
Currently approved
antibody-based cancer therapies have improved survival rates
with reduced side effects when compared with traditional
therapies. However, these antibody-based therapies can elicit an
immune response against themselves because they contain mouse
proteins or fragments of such proteins. This can limit their
effectiveness and potentially cause toxic side effects.
|
|
|
|
Immune-Modulating Agents.
Currently approved
immune-modulating agents, such as IL-2,
GM-CSF
and
alpha-interferon, are known to have some ability to enhance the
immune system and control cancer growth. However, these
therapies involve delivery of the immune modulating agent
through the blood system and therefore cannot be directed
exclusively to cancer cells. This lack of selectivity may result
in significant toxicity to healthy tissue.
|
Our Approaches
We have developed two proprietary approaches,
DCVax
®
and therapeutic antibodies, for stimulating and enhancing a
patients natural cellular, humoral (i.e. antibody) immune
response to cancer. Given appropriate funding for future
development, we believe that
DCVax
®
and therapeutic antibody products may overcome certain
limitations of current cancer therapies and offer cancer
patients safe and effective treatment alternatives, alone or in
combination with other therapies.
DCVax
®
Our
DCVax
®
platform combines our expertise in dendritic cell biology,
immunology and antigen discovery with our proprietary process of
producing and activating dendritic cells outside a
patients body to develop therapeutic products that
stimulate beneficial immune responses to treat cancer. We
believe that
DCVax
®
has the following significant characteristics, the combination
of which we believe makes it a potentially attractive
alternative to current therapies.
|
|
|
|
|
Activates The Natural Immune System.
Our
DCVax
®
product candidates are designed to elicit a natural immune
response. We believe that our pre-clinical and clinical trials
have demonstrated that our
DCVax
®
product candidates can train a patients own Killer T cells
to seek and destroy specifically targeted cancer cells. Our
clinical trials have also shown that
DCVax
®
-Prostate
stimulates the body to produce antibodies and T cells that bind
to cancer-associated antigens and potentially destroy cancer
cells marked by these antigens.
|
|
|
|
Multiple Cancer Targets.
If we secure the necessary
funding, we intend to apply our
DCVax
®
platform to treat a wide variety of cancers. The
DCVax
®
platform affords the flexibility to target many different forms
of cancer through the pairing of dendritic cells with
cancer-associated antigens, fragments of cancer-associated
antigens or deactivated whole cancer cells as well as possible
direct intra-tumoral injection of partially mature dendritic
cells.
|
37
|
|
|
|
|
No Significant Adverse Side Effects Or Toxicity.
Our
initial
DCVax
®
-Prostate
Phase I/ II clinical trial has shown mild injection
site reactions, which were typical and fully anticipated, but no
significant adverse side effects in over 110 clinically
administered injections. We believe that we minimize the
potential for toxicity by using the patients own cells to
create our
DCVax
®
product candidates. Additionally, because our
DCVax
®
products are designed to target the cancer-associated antigens
in the patient, we believe they minimize collateral damage to
healthy cells.
|
|
|
|
Rapid Pre-Clinical Development.
We believe that our
DCVax
®
technology, which was observed to be well tolerated in a
Phase I/ II clinical trial for prostate cancer, and
two Phase I clinical trials for brain cancer, will enable
us to rapidly move new potential products into clinical trials
within six to nine months of concept, subject to FDA approval
and the availability of adequate resources. New
DCVax
®
product candidates simply require the identification of
cancer-associated antigens, fragments of cancer-associated
antigens or whole cancer cells added to partially mature
dendritic cells prior to injection into patients or potentially
the direct injection of partially mature dendritic cells into
solid tumors.
|
|
|
|
Ease Of Administration.
We initially collect a sample of
a patients white blood cells in a single standard
outpatient procedure called leukapheresis. After
patient-specific manufacturing and quality control testing, each
small dose of a
DCVax
®
product candidate is administered by a simple intradermal
injection in an outpatient setting, or by a direct injection of
partially mature dendritic cell into a solid tumor.
|
|
|
|
Complementary With Other Treatments.
Our
DCVax
®
product candidates are designed to stimulate the patients
own immune system to safely target cancer cells. Consequently,
we believe these products may be used as an adjuvant to
traditional therapies such as chemotherapy, radiation therapy,
hormone therapy and surgery.
|
Therapeutic Antibody
Our therapeutic antibody program is based on combining our
expertise in monoclonal antibodies, immunology and antigen
discovery. We co-developed an initial therapeutic antibody
product candidate with Medarex, Inc. This collaboration enabled
us to create a proprietary fully human monoclonal antibody-based
prostate cancer product candidate. Our interest in that product
candidate now has been acquired by Medarex and is in a FDA
Phase II clinical trial; we have no continuing rights in
such product candidate.
Products derived from our therapeutic antibody efforts are
intended to have the following characteristics, the combination
of which will make them potentially attractive alternatives to
current therapies:
|
|
|
|
|
Fully Human Antibodies.
Current monoclonal antibody-based
therapies contain mouse proteins or fragments of such proteins.
Consequently, these therapies have the potential to elicit
unwanted immune responses against the mouse proteins or protein
fragments. Our first therapeutic antibody product candidate,
which was co-developed with and acquired by Medarex, is based on
monoclonal antibodies that are fully human, and thus do not
contain any mouse proteins. As a result, we expect these
products to exhibit a favorable safety profile and minimal, if
any, unwanted immune response against the antibody-based therapy
itself.
|
|
|
|
Rapid Pre-Clinical Development.
We believe that, subject
to FDA approval and the availability of adequate resources, we
could progress from antigen discovery to clinical trials for
each new therapeutic antibody product candidate in less than two
years.
|
|
|
|
Cancer Specificity.
Our proprietary antigens are
significantly over-expressed in cancer cells. Our antibodies
bind to these targeted cancer-associated antigens and
potentially destroy cancer cells marked by these antigens. To
date, we have identified three clinically validated antigens
associated with twelve different cancers. Certain rights to
three of our antigen targets have been acquired by Medarex.
|
38
|
|
|
|
|
Multiple Therapeutic Applications.
We believe that
therapeutic antibodies may be used as stand-alone products that
bind to cancer-associated antigens and potentially destroy
cancer cells marked by these antigens. Therapeutic antibodies
may also enable the targeted delivery of existing therapies such
as radiation and cytotoxic agents. The inherent toxic effects of
cytotoxic agents and radioactive materials on normal tissue
could be minimized by coupling these agents to antibodies that
have a high degree of specificity to cancer cells.
|
|
|
|
Commercialization.
Based on our experience with the
manufacturing of therapeutic antibodies, we believe the
manufacturing of these antibodies can be scaled to meet market
demand. Antibody-based products are typically characterized by
an inherent stability, resulting in a commercially acceptable
shelf-life.
|
|
|
|
Complementary With Other Treatments.
We believe that our
therapeutic antibody product candidates may be suitable for use
alone or in combination with currently approved therapies due to
their complementary cell-killing properties.
|
In addition, we believe that therapeutic antibodies may be
useful for the development of cancer diagnostic imaging products.
Our Clinical and Preclinical Development Programs
We submitted an IND with the FDA on December 8, 2004 for
restarting our Phase III clinical trial for prostate
cancer,
DCVax
®
-Prostate.
The IND cleared the FDA on January 8, 2005. This
Phase III clinical trial is based on promising clinical
data from a previously conducted Phase I/ II clinical
trial. That double blinded, placebo controlled Phase III
clinical trial was planned for 600 patients at 30-50 sites
throughout the United States; however, we are considering other
trial designs that may enable us to reduce the number of
patients required. In any case, the trial will focus on
non-metastatic hormone-independent prostate cancer patients.
We have also cleared with the FDA a Phase II clinical trial
for
DCVax
®
-Brain
for patients with Glioblastoma multiforme, the most lethal form
of brain cancer. Subject to our ability to secure sufficient
future funding, preparations are underway to commence the trial.
We have completed substantial research and pre-clinical testing
phases for four additional product candidates. Significantly, we
have recently been issued broad patent coverage by the United
States Patent Office which gives us antibody therapeutic rights
to a cancer protein that plays a key role in the progression of
primary cancers and in the metastatic process. The protein is
known as CXCR4, and is over-expressed in more than 75% of
cancers and involved in all three critical functions of primary
tumors and metastatic tumors: proliferation of the primary
tumor, migration of cancer cells out of the primary tumor, and
establishment of distant metastatic sites.
39
The following table summarizes the targeted indications and
status of our product candidates:
|
|
|
|
|
Product Candidate
|
|
Target Indications
|
|
Status(1)
|
|
|
|
|
|
DCVax
®
Platform
|
|
|
|
|
DCVax
®
-Prostate
|
|
Prostate Cancer
|
|
Phase III Clinical Trial cleared FDA For non-metastatic
hormone independent prostate cancer
|
DCVax
®
-Brain
|
|
Glioblastoma multiforme
|
|
Phase II Clinical Trial cleared FDA For Glioblastoma
multiforme Orphan Drug designation granted 12/02
|
DCVax
®
-Lung
|
|
Non-small cell lung cancer
|
|
Phase I Clinical Trial cleared FDA for
non-small cell lung cancer
|
DCVax
®
-Direct
|
|
Ovarian and three other cancers
|
|
Phase I Clinical Trial cleared FDA for ovarian
cancer
|
DCVax
®
-L
|
|
Ovarian
|
|
Phase I Clinical Trial cleared FDA for ovarian
cancer
|
Therapeutic Antibody Platform
|
|
|
|
|
CXCR4 Antibody
|
|
Breast cancer
Glioblastoma
Colon cancer
Melanoma
|
|
Pre-clinical
Pre-clinical
Pre-clinical
Pre-clinical
|
|
|
(1)
|
Pre-clinical means that a product candidate is undergoing
efficacy and safety evaluation in disease models in preparation
for human clinical trials. Phase I-III clinical trials
denote safety and efficacy tests in humans as follows:
|
|
|
|
Phase I: Evaluation of safety and dosing.
|
|
Phase II: Evaluation of safety and efficacy.
|
|
Phase III: Larger scale evaluation of safety and efficacy.
|
Our
DCVax
®
Platform
The
DCVax
®
platform uses our proprietary process to efficiently produce and
activate dendritic cells outside of a patients body. Our
Phase I/ II clinical trial for
DCVax
®
-Prostate
demonstrated that these cells can generate an effective immune
system response when administered therapeutically. Manufacture
of a
DCVax
®
product takes approximately 30 days to complete for
DCVax
®
-Prostate
and approximately 10 days for
DCVax
®
-Brain,
and is characterized by the following sequence:
|
|
|
|
|
Collection.
A sample of a patients white blood
cells is collected in a single and simple outpatient procedure
called leukapheresis.
|
|
|
|
Isolation of Precursors.
These cells are sent to our
manufacturing facility, where dendritic cell precursors are
isolated from the patients white blood cells.
|
|
|
|
Transformation by Growth Factors.
Dendritic cell
precursors are transformed in a manner that mimics the natural
process in a healthy persons body, through the application
of specific growth factors, into highly pure populations of
immature dendritic cells during a six-day culture period.
|
|
|
|
Maturation.
Immature dendritic cells are exposed to a
proprietary maturation factor or maturation method in order to
maximize Helper T cell, Killer T cell, and B cell activation.
|
|
|
|
Harvest for
DCVax
®
-Direct.
These dendritic cells can be harvested for
DCVax
®
-Direct
and separated into single-use
DCVax
®
administration vials, frozen and stored for the quality control
sequence without the antigen display step.
|
40
|
|
|
|
|
Antigen Display.
Cancer-associated antigens, fragments of
cancer-associated antigens or deactivated whole cancer cells are
added to, ingested, and processed by the maturing dendritic
cells, causing the dendritic cells to display fragments of
cancer-associated antigens on their outer cell surfaces.
|
|
|
|
Harvest.
These dendritic cells are harvested and
separated into single-use
DCVax
®
administration vials, frozen and stored.
|
|
|
|
Quality Control.
Each
DCVax
®
product lot undergoes rigorous quality control testing,
including
14-day
sterility testing for bacterial and mycoplasma contamination,
and potency testing prior to shipment to the administration site
for injection.
|
We believe that our
DCVax
®
platform affords us the flexibility to target many different
forms of cancer through pairing of dendritic cells with
cancer-associated antigens, pieces of cancer-associated antigens
or deactivated whole cancer cells. We have either patented or
licensed critical intellectual property regarding this
technology.
DCVax
®
Product Candidates
DCVax
®
-Prostate,
our initial dendritic cell-based product candidate, resulted
from combining our
DCVax
®
platform with the cancer-associated antigen prostate specific
membrane antigen, or PSMA. Prostate specific membrane antigen is
located on the surface of prostate cells. It is expressed at
very low levels on benign or healthy prostate cells, and at much
higher levels on prostate cancer cells. Because PSMA is
over-expressed in virtually all prostate cancers, it represents
an effective target for prostate cancer therapeutics. The
results from our Phase I/ II clinical trial provided
us with important results supporting the potential value of our
DCVax
®
platform as the basis for new cancer immunotherapies.
In September 1999, we filed an application to conduct a
Phase I/ II clinical trial for
DCVax
®
-Prostate
to treat late-stage prostate cancer patients for whom hormone
therapy was no longer effective. This trial was carried out at
M.D. Anderson Cancer Center and at UCLA, involved the
administration of
DCVax
®
-Prostate
to thirty-two evaluable patients in order to establish the
safety and efficacy of three different dosage levels of
DCVax
®
-Prostate.
We observed stabilization of disease at 26 weeks in 52% (16
of 31) of the patients in our Phase I/II clinical
trial. Twelve of these stable patients did not have measurable
metastatic disease at the time of treatment and all twelve were
stable, as measured by radiographic criteria, at weeks 26 to 28
with a median time to progression of 59 weeks. These
results can be compared to results for another companys
experimental therapy given to similar patients without
metastatic disease that had a median time to progression of
29 weeks. Patients with measurable metastatic disease in
our Phase I/ II clinical trial had a median time to
progression of 20 weeks. These results can be compared to
results for another companys experimental therapy given to
patients with metastatic disease that had a median time to
progression of 16 weeks with control or placebo progression
occurring at 9 weeks. Eighty-three percent (83%) of
patients had an immune response following treatment with
DCVax
®
-Prostate,
as measured by the amount of immune-reactive substances found in
the blood of patients, which formed specifically in response to
PSMA.
Target Market.
The American Cancer Society estimated that
232,090 new cases of prostate cancer would be diagnosed in the
United States during 2005. Deaths from prostate cancer are
estimated at 30,350 per year. We estimate that there is an
initial
DCVax
®
-Prostate
target population consisting of approximately
100,000 patients with late stage, or hormone refractory,
prostate cancer.
Current Treatments.
Existing treatments for localized
prostate cancer include surgery and various forms of radiation
therapy. The current
standard-of
-care for
treating metastatic prostate cancer is hormone therapy. Although
this therapy achieves temporary tumor control, the National
Cancer Institutes 1989-1996 five-year survival rate for
metastatic prostate cancer is only 33%. Moreover, hormone
therapy may
41
cause significant adverse side effects, including bone loss, hot
flashes, impotence and blood clots. Disease progression in the
presence of hormone therapy occurs on average in two years, and
is then classified as hormone refractory prostate cancer.
Approximately 50% of patients with hormone refractory prostate
cancer will die within two years of its onset. Currently, the
only FDA approved treatment for hormone refractory prostate
cancer are chemotherapy and radioactive pharmaceuticals, which
can alleviate cancer-related symptoms but may cause significant
adverse side effects and do not prolong survival. A large
fraction of hormone refractory patients do not have objective
metatstatic disease as measured by bone and CT scans. We believe
that
DCVax
®
-Prostate
addresses this critical unmet medical need.
DCVax
®
-Brain
uses our
DCVax
®
platform in combination with glioblastoma tumor cell lysate
antigens. Our clinical collaborators at the University of
California at Los Angeles, or UCLA, conducted two Phase I
clinical trials to assess the safety and efficacy of dendritic
cell-based immunotherapy for glioblastoma. They have informed us
that in the first Phase I trial that
DCVax
®
-Brain
had been administered to 12 patients and they provided us
with preliminary data. Six of these patients were newly
diagnosed and had a mean time to progression of 21 months
compared to 8 months for historical controls. Median
survival was 32 months compared to 15 months of
survival for historical controls. One patient remains alive
after more than 5 years without recurrence. The six
patients with recurrent disease all progressed with a mean of
13 months compared to 5 months for historical
controls. Average survival was 17 months compared to
10 months for historical controls.
The second Phase I clinical trial at UCLA for patients with
glioblastoma multiforme (GBM) further supports the ability
of DC loaded with tumor lysate to induce immune responses, slow
disease progression, and prolong survival. These patients
continue to be treated with
DCVax
®
-Brain
in a booster program with our financial support. These patients
were treated with standard of care which included surgery
followed by 6 weeks of radiation therapy and concomitant
daily Temodar chemotherapy. Ten patients with newly diagnosed
GBM were enrolled. As of March 31, 2006, five patients had
progressed, two patients have died, and the remaining eight
patients are alive with survival times (from initial surgery)
ranging from 12.2 to 40 months and a median survival of
> 22 months and continuing. Five of the eight surviving
patients have no evidence of progression to date with a median
time to progression of > 15 months and continuing.
Historically at UCLA, patients similar to those enrolled in the
trial (R.P.A. classes III and IV) have median times to
disease progression of 8.9 months
(
±
7.3 months),
and median survival times of 15 months
(
±
13.9 months). In a recent multicenter trial,
287 patients treated post surgery with radiotherapy plus
concomitant Temodar achieved median progression free survival
(PFS) of 6.9 months (95% confidence interval, 5.8 to
8.2) and median survival of 14.6 months (95% confidence
interval, 13.3 to 16.8). (Stupp et. al., New England J. Med.
352: 987-96; 2005.). The Stupp results are currently considered
standard of care.
Target Market.
The American Cancer Society estimated that
about 18,500 new cases of brain cancer would be diagnosed in the
United States during 2005. Deaths from brain cancer are
estimated at about 12,760 per year. The most common and
lethal form of brain cancer is glioblastoma, the indication we
are targeting with
DCVax
®
-Brain.
We estimate that our
DCVax
®
-Brain
could address a population consisting of approximately 12,500
new patients per year.
Current Treatments.
Existing treatments for glioblastoma
include surgery, radiation and chemotherapy. These existing
treatments are often used in various combinations and/or
sequences and have significant adverse side effects. In its most
recent study, The National Institutes of Health reported that
the 1989-1996 five-year survival rate for all brain cancer
patients was only 31%. Following initial treatment, virtually
all cases of this cancer recur, with a life expectancy of
approximately one year following recurrence. Few effective
therapies exist for these patients. We believe that
DCVax
®
-Brain
may address this critical unmet medical need.
42
DCVax
®
-Lung
was designed to use our
DCVax
®
platform in combination with isolated and deactivated lung
cancer cells as antigens. Although we received clearance from
the FDA to conduct a Phase I clinical trial to assess the
safety of
DCVax
®
-Lung,
due to lack of financial resources, we suspended the initiation
of this trial.
Target Market.
The American Cancer Society estimated that
172,570 new cases of lung cancer would be diagnosed in the
United States during 2005. Approximately 80% of these cases are
expected to be attributable to non-small cell lung cancer, the
indication we were targeting with
DCVax
®
-Lung
and are now targeting with
DCVax
®
-Direct.
Deaths from all forms of lung cancer are estimated at
163,510 per year for 2005.
Current Treatments.
Existing treatments for non-small
cell lung cancer include surgery and radiation therapy, which
are used in various combinations. These treatments have
significant adverse side effects. In its most recent study, the
National Institutes of Health reported that the 1989-1996
five-year survival rate for non-small cell lung cancer patients
was only 6.2%. Following initial treatment, virtually all cases
of this cancer recur, with a life expectancy of approximately
one year following recurrence. No effective therapy exists for
these patients.
DCVax
®
-Direct
uses our
DCVax
®
platform to produce dendritic cells suitable for direct
injection into solid tumors. Several scientific studies have
shown that dendritic cells injected into solid tumors in animal
models can result in tumor regression.
DCVax
®
-L
(L for lysate) was designed to use our
DCVax
®
platform in combination with patient specific tumor lysate.
Thus, following surgery the tumor is prepared as a lysate for
loading into autologous dendritic cells. The patients
tumor lysate contains cancer specific biomarkers which will be
added to the patients own dendritic cells and subsequently
injected back into the patient to elicit a cancer specific
immune response.
Target Market.
The American Cancer Society estimated that
approximately 22,000 new cases of ovarian cancer were diagnosed
in 2005 and that there were approximately 16,210 deaths from the
disease. Once ovarian cancer has recurred, there are currently
no treatments effective in curing the disease. Thus, new
treatment modalities that prevent or delay cancer recurrence are
of importance in prolonging survival in women with ovarian
cancer.
Current Treatments.
Standard therapy includes surgical
debulking, followed by chemotherapy with a taxane/platinum
combination for 6-8 cycles. Of the patients who present with
advanced stage disease (III or IV), 70% will have a complete
clinical remission following surgery and chemotherapy, with no
evidence of disease by physical exam, radiographic imaging (such
as CT or MRI) and normalization of the CA125 tumor marker. For
most of these patients, the ovarian cancer will recur within two
years, with median time to progression of 20 months for
optimally surgically cytoreduced patients and 18 months for
patients with suboptimal reduction. Once ovarian cancer has
recurred, it is not considered curable and progression to death
is usually inevitable, despite aggressive chemotherapy
strategies. The overall five year survival for advanced ovarian
cancer remains at 20-30%.
Our Therapeutic Antibody Platform
Our therapeutic antibody platform is based on combining our
expertise in monoclonal antibodies, immunology and antigen
discovery with potential collaborators who have expertise in
humanized and fully human monoclonal antibody development. We
develop our therapeutic antibody products candidate in the
following sequence:
|
|
|
|
|
Identification.
We identify, validate and select a
potentially useful cancer-associated antigen for our therapeutic
antibody platform.
|
43
|
|
|
|
|
Immunization.
This cancer-associated antigen is used to
immunize non-transgenic or transgenic mice. These mice create B
cells, which produce non-human or fully human cancer-associated
antigen-specific antibodies.
|
|
|
|
Selection And Culturing.
From the B cells created during
immunization, we select single antibody-producing cells, which
we then culture to large quantities. These cells produce
identical antibodies with high specificity to the targeted
cancer-associated antigen.
|
|
|
|
Analysis And Evaluation.
These non-human or fully human
monoclonal antibodies are analyzed for specificity to the
cancer-associated antigen, ability to bind to live cancer cells
with high affinity and ability to kill those cells. In addition,
the antibody-producing cells are evaluated for their ability to
generate high quantities of the selected antibodies.
|
|
|
|
Humanization.
The non-human antibody with the most
favorable properties can then be humanized, or stripped of its
mouse characteristics.
|
|
|
|
Manufacturing.
Our therapeutic humanized or fully human
monoclonal antibodies are then manufactured for clinical trials
under FDA guidelines.
|
We believe that, given additional funding, our antigen discovery
program may enable us to identify and develop cancer-associated
antigens for the therapeutic antibody platform, potentially
expanding our portfolio of potential therapeutic products. We
expect that the antibodies generated by the therapeutic antibody
platform may be useful as potential products or as products
coupled with cytotoxins or radioactive agents.
Therapeutic Antibody Product Candidates
Lung, Breast, Brain, Colon,
Melanoma, and Prostate, and Other Cancers
We have selected a cancer-associated antigen, CXCR4, for
non-small cell lung cancer, breast cancer, glioblastoma, colon
cancer, melanoma, prostate, pancreas, kidney, ovarian, and
certain blood cancers. We were recently issued a United States
patent to the use of antibodies to CXCR4, a protein found to be
over expressed in greater than 75% of cancers and involved in
three critical functions of cancer cells that include cell
proliferation, cell migration and establishment of metastatic
sites in distant organs and tissues.
We currently rely, and expect to continue to rely, upon
specialized third-party manufacturers to produce our product
candidates for pre-clinical, clinical and commercial purposes.
Furthermore, the product candidates under development by us have
never been manufactured on a commercial scale and may not be
able to be manufactured at a cost or in sufficient quantities to
make commercially viable products.
In the event that we secure funding and develop an approved
product, we plan to market that product in partnership with one
or more established pharmaceutical companies. Our collaboration
with these companies may take the form of royalty agreements,
licensing agreements or other co-marketing arrangements. The
oncology market in the United States is characterized by highly
concentrated distribution channels. To be successful in
producing a commercially viable product, we may need to develop
a direct sales force to market that product in the United States.
We seek to protect our commercially relevant proprietary
technologies through patents both in the United States and
abroad. We have fourteen issued and licensed patents (seven in
the United States and seven in foreign jurisdictions) and 118
patent applications pending (16 in the United States and 102 in
foreign jurisdictions) which cover the use of dendritic cells in
DCVax
®
as well as targets for either our dendritic cell or fully human
monoclonal antibody therapy candidates. The issued patents
expire at dates
44
from 2015 to 2018. We intend to continue using our scientific
expertise to pursue and patent new various developments with
respect to uses, methods, and compositions to enhance our
position in the field of cancer treatment.
Any patents that we obtain may be circumvented, challenged or
invalidated by our competitors. Our patent applications may not
result in the issuance of any patents, and any patents that may
issue may not offer any protection against others who seek to
practice the claimed inventions. We have obtained licenses for
certain technologies that we use, but we may be unable to
maintain those licenses and may be unable to secure additional
licenses in the future. Thus, we may be forced to abandon
certain product areas or develop alternative methods for
operating in those areas.
In addition to patents, we rely on copyright protection, trade
secrets, proprietary know-how and trademarks to maintain our
competitive position. Our future success will depend in part on
our ability to preserve our copyrights and trade secrets.
Although our officers, employees, consultants, contractors,
manufacturers, outside scientific collaborators, sponsored
researchers and other advisors are required to sign agreements
obligating them not to disclose our confidential information,
these parties may nevertheless disclose such information and
compromise our confidential data. We may not have adequate
remedies for any such breach. It is also possible that our trade
secrets or proprietary know-how will otherwise become known or
be independently replicated or otherwise circumvented by
competitors.
Our technologies may infringe the patents or violate other
proprietary rights of third parties. In the event of
infringement or violation, we may be prevented from pursuing
further licensing, product development or commercialization.
Such a result would materially adversely affect our business,
financial condition and results of operations.
If we become involved in any litigation, interference or other
administrative proceedings, we will incur substantial expenses
and the efforts of our technical and management personnel will
be significantly diverted. An adverse determination may subject
us to significant liabilities or require us to seek licenses,
which may not be available. We may also be restricted or
prevented from manufacturing and selling our products, if any,
in the event of an adverse determination in a judicial or
administrative proceeding, or if we fail to obtain necessary
licenses. In addition, any potential litigation or dispute may,
as a result of our lack of funding, require us to further reduce
or even curtail our operations entirely.
The biotechnology and biopharmaceutical industries are
characterized by rapidly advancing technologies, intense
competition and a strong emphasis on proprietary products.
Several companies, such as Cell Genesys, Inc., Dendreon
Corporation, Micromet, Immuno-Designed Molecules, Inc. and Argos
Therapeutics, Inc., are actively involved in research and
development of cell-based cancer therapeutics. Of these
companies, we believe that only Dendreon, and Cell Genesys are
carrying-out Phase III clinical trials with a cell-based
therapy and they are doing so in a patient population that does
not compete with our Phase III
DCVax
®
Prostate product candidate. No cell-based therapeutic product is
currently available for commercial sale. Additionally, several
companies, such as Medarex, Inc., Amgen, Inc., Agensys, Inc.,
and Genentech, Inc. are actively involved in research and
development of monoclonal antibody-based cancer therapies.
Currently, at least seven antibody-based products are approved
for commercial sale for cancer therapy. Genentech is also
engaged in several Phase III clinical trials for additional
antibody-based therapeutic products for a variety of cancers,
and several other companies are in early stage clinical trials
for such products. Many other third parties compete with us in
developing alternative therapies to treat cancer, including:
|
|
|
|
|
biopharmaceutical companies;
|
|
|
|
biotechnology companies;
|
|
|
|
pharmaceutical companies;
|
|
|
|
academic institutions; and
|
|
|
|
other research organizations.
|
45
Most of our competitors have significantly greater resources and
expertise in research and development, manufacturing,
pre-clinical testing, conducting clinical trials, obtaining
regulatory approvals and marketing. In addition, many of these
competitors have become more active in seeking patent protection
and licensing arrangements in anticipation of collecting
royalties for use of technology they have developed. Smaller or
early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements
with large and established companies. These competitors may
prevent us from recruiting and retaining qualified scientific
and management personnel, or from acquiring technologies
complementary to our programs.
We expect that our ability to compete effectively will be
dependent upon our ability to:
|
|
|
|
|
secure the necessary funding to continue our development efforts
with respect to our product candidates;
|
|
|
|
successfully complete clinical trials and obtain all requisite
regulatory approvals;
|
|
|
|
maintain a proprietary position in our technologies and products;
|
|
|
|
attract and retain key personnel; and
|
|
|
|
maintain existing or enter into new partnerships.
|
Governmental authorities in the United States and other
countries extensively regulate the pre-clinical and clinical
testing, manufacturing, labeling, storage, record-keeping,
advertising, promotion, export, marketing and distribution,
among other things, of immunotherapeutics. In the United States,
the FDA subjects pharmaceutical and biologic products to
rigorous review. Even if we ultimately receive FDA approval for
one or more of our products, if we or our partners do not comply
with applicable requirements, we may be fined, our products may
be recalled or seized, our production may be totally or
partially suspended, the government may refuse to approve our
marketing applications or allow us to distribute our products,
and we may be criminally prosecuted. The FDA also has the
authority to revoke previously granted marketing authorizations.
In order to obtain approval of a new product from the FDA, we
must, among other requirements, submit proof of safety and
efficacy as well as detailed information on the manufacture and
composition of the product. In most cases, this proof requires
documentation of extensive laboratory tests, and pre-clinical
and clinical trials. This testing, and the preparation of
necessary applications and processing of those applications by
the FDA are expensive and typically take several years to
complete. The FDA may not act quickly or favorably in reviewing
these applications, and we may encounter significant
difficulties or costs in our efforts to obtain FDA approvals
that could delay or preclude us from marketing any products we
may develop. The FDA also may require post-marketing testing and
surveillance to monitor the effects of approved products or
place conditions on any approvals that could restrict the
commercial applications of these products. Regulatory
authorities may withdraw product approvals if we fail to comply
with regulatory standards or if we encounter problems following
initial marketing. With respect to patented products or
technologies, delays imposed by the governmental approval
process may materially reduce the period we might have the
exclusive right to exploit the products or technologies.
After an IND application becomes effective, a sponsor may
commence human clinical trials, in the United States. The
sponsor typically conducts human clinical trials in three
sequential phases, but these phases may overlap. In Phase I
clinical trials, the product is tested in a small number of
patients or healthy volunteers, primarily for safety at one or
more doses. In Phase II, in addition to safety, the sponsor
evaluates the efficacy of the product in a patient population
somewhat larger than Phase I clinical trials.
Phase III clinical trials typically involve additional
testing for safety and clinical efficacy in an expanded
population at geographically dispersed test sites. The sponsor
must submit to the FDA a clinical plan, or protocol, accompanied
by the approval of a clinical site responsible for ongoing
review of the investigation, prior to commencement of each
clinical trial. The FDA or a clinical site may order the
temporary or
46
permanent discontinuation of a clinical trial at any time, if
the trial is not being conducted in accordance with FDA or
clinical site requirements or presents a danger to its subjects.
The sponsor must submit to the FDA the results of the
pre-clinical and clinical trials, together with, among other
things, detailed information on the manufacture and composition
of the product, in the form of a new drug application or, in the
case of a biologic, a biologics license application. The FDA is
regulating our therapeutic vaccine product candidates as
biologics and, therefore, we must submit biologics license
applications (BLA) to the FDA to obtain approval of our
product candidates. The clinical trial process generally takes
several years, and the FDA reviews the BLA application and, when
and if it decides that adequate data is available to show that
the new compound is both safe and effective and that all other
applicable requirements have been met, the FDA approves the drug
or biologic for marketing. The amount of time taken for this
approval process is a function of a number of variables,
including the quality of the submission and studies presented,
the potential contribution that the compound will make in
improving the treatment of the disease in question, and the
workload at the FDA. It is possible that our product candidates
will not successfully proceed through this approval process or
that the FDA will not approve them in any specific period of
time.
The FDA may, during its review of a new drug application or
biologics license application, ask for additional test data. If
the FDA does ultimately approve a product, it may require
post-marketing testing, including potentially expensive
Phase IV studies, and surveillance to monitor the safety
and effectiveness of the drug. In addition, the FDA may in some
circumstances impose restrictions on the use of an approved
drug, which may be difficult and expensive to administer, and
may require prior approval of promotional materials.
Before approving a new drug application or biologics license
application, the FDA also will inspect the facilities at which
the product is manufactured and will not approve the product
unless the manufacturing facilities are in compliance with
guidelines for the manufacture, holding, and distribution of a
product. Following approval, the FDA periodically inspects drug
and biologic manufacturing facilities to ensure continued
compliance with manufacturing guidelines. Manufacturers must
continue to expend time, money and effort in the areas of
production, quality control, record keeping and reporting to
ensure full compliance with those requirements. The labeling,
advertising, promotion, marketing and distribution of a drug or
biologic product must also be in compliance with FDA regulatory
requirements. Failure to comply with applicable requirements can
lead to the FDA demanding that production and shipment cease,
and, in some cases, that the manufacturer recall products, or to
FDA enforcement actions that can include seizures, injunctions
and criminal prosecution. These failures can also lead to FDA
withdrawal of approval to market the product.
We, and our partners, are also subject to regulation by the
Occupational Safety and Health Administration, the Environmental
Protection Agency, the Nuclear Regulatory Commission and other
foreign, federal, state and local agencies under various
regulatory statutes, and may in the future be subject to other
environmental, health and safety regulations that may affect our
research, development and manufacturing programs. We are unable
to predict whether any agency will adopt any regulation, which
could limit or impede on our operations.
Sales of pharmaceutical products outside the United States are
subject to foreign regulatory requirements that vary widely from
country to country. Whether or not we have obtained FDA
approval, we must obtain approval of a product by comparable
regulatory authorities in foreign countries prior to the
commencement of marketing the product in those countries. The
time required to obtain this approval may be longer or shorter
than that required for FDA approval. The foreign regulatory
approval process includes all the risks associated with FDA
regulation set forth above, as well as country-specific
regulations.
Beginning in September 2002, we reduced our research and
administrative staff approximately 94%, from 67 employees to a
remaining staff of three full-time employees, as of
July 10, 2006. Each of our employees has signed a
confidentiality and invention assignment agreement, and none are
covered by a
47
collective bargaining agreement. We have never experienced
employment-related work stoppages and consider our employee
relations to be positive.
PROPERTIES
We vacated our former 14,000 square foot facility, which
housed administrative and laboratory space, on December 14,
2005. We continue to maintain our headquarters in Bothell,
Washington where we currently sublease approximately
2,325 square feet of general administration space. Our
current lease expires on December 31, 2006. We remain
primarily liable, through September 30, 2006, for
performance under the original July 1, 2003 lease with
Benaroya Capital, which we subsequently assigned to a third
party with Benaroyas concurrence.
LEGAL PROCEEDINGS
Soma Arbitration
We were parties to an engagement letter, dated October 15,
2003, with Soma Partners, LLC, or Soma, a New Jersey-based
investment bank, pursuant to which we engaged them to locate
potential investors. Pursuant to the terms of the engagement
letter, any disputes arising between the parties would be
submitted to arbitration in the New York metropolitan area. A
significant dispute arose between the parties. Soma filed an
arbitration claim against us with the American Arbitration
Association in New York, NY claiming unpaid commission fees of
$186,000 and seeking declaratory relief regarding potential fees
for future transactions that may be undertaken by us with Toucan
Capital. We vigorously disputed Somas claims on multiple
grounds. We contended that we only owed Soma approximately
$6,000.
Soma subsequently filed an amended arbitration claim, claiming
unpaid commission fees of $339,000 and warrants to
purchase 6% of the aggregate securities issued to date, and
seeking declaratory relief regarding potential fees for future
financing transactions which may be undertaken by us with Toucan
Capital and others, which could potentially be in excess of
$4 million. Soma also requested the arbitrator award its
attorneys fees and costs related to the proceedings. We
strongly disputed Somas claims and defended ourselves.
The arbitration proceedings occurred from March 8-10, 2005 and
on May 24, 2005, the arbitrator ruled in our favor and
denied all claims of Soma. In particular, the arbitrator decided
that we did not owe Soma the fees and warrants sought by Soma,
that we would not owe Soma fees in connection with future
financings, if any, and that we had no obligation to pay any of
Somas attorneys fees or expenses. The arbitrator
agreed with us that the only amount we owed Soma was $6,702.87,
which payment we made on May 27, 2005.
On August 29, 2005, Soma filed a notice of petition to
vacate the May 24, 2005 arbitration award issued by the
Supreme Court of the State of New York.
On December 30, 2005, the Supreme Court of the State of New
York dismissed Somas petition, denying Somas
August 29, 2005 motion to vacate the May 24, 2005
award.
On February 3, 2006, Soma filed another notice of appeal
with the Supreme Court of the State of New York. As of
July 10, 2006, the Supreme Court of the State of New York
has yet to act on this matter. We believe that Somas
latest appeal is without merit and we intend to vigorously
defend the appeal.
We have no other legal proceeding pending at this time.
48
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and director, and their ages and
positions as of May 15, 2006, are as follows.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Position
|
|
|
|
|
|
|
Alton L. Boynton, Ph.D.
|
|
|
61
|
|
|
President, Chief Scientific Officer, Chief Operating Officer,
Secretary and Director
|
Marnix L. Bosch, Ph.D.
|
|
|
47
|
|
|
Vice President of Vaccine Research and Development
|
Alton L. Boynton, Ph.D.
Dr. Boynton co-founded
Northwest Biotherapeutics, has served as our Secretary since
August 2001, has served as our Executive Vice President since
July 2000, has served as our Chief Scientific Officer and a
director since our inception in 1998, was appointed our Chief
Operating Officer in August 2001, and appointed President in May
2003. Dr. Boynton has also served as Director of the
Department of Molecular Medicine of Northwest Hospital from
1995-2003 where he coordinated the establishment of a program
centered on carcinogenesis. Prior to moving to Seattle,
Dr. Boynton was Associate Director of the Cancer Research
Center of Hawaii, The University of Hawaii, where he also held
the positions of Director of Molecular Oncology of the Cancer
Research Center and Professor of Genetics and Molecular Biology.
Dr. Boynton received his Ph.D. in Radiation Biology from
the University of Iowa in 1972.
Marnix L. Bosch, Ph.D.
Dr. Bosch joined
Northwest Biotherapeutics in 2000 and has served as our Vice
President for Vaccine R&D since July 2001. Prior to joining
us, Dr. Bosch was a member of the faculty of the Department
of Pathobiology at the University of Washington and he continues
to serve that Department as an Affiliate Associate Professor. He
worked at the National Institutes of Health (Bethesda, MD) and
the National Institutes of Health and Environmental
Protection (Bilthoven, the Netherlands) prior to joining
the University of Washington. He has authored more than 40
research publications in virology and immunology, and is an
inventor on several patent applications on dendritic cell
product manufacturing. Dr. Bosch obtained his Ph.D. in
Medicine at the University of Leiden, the Netherlands, in 1987
and earned an MBA from the University of Washington in 2003.
Board of Directors
Our Board of Directors consists of no non-employee directors and
one director who is currently employed by Northwest
Biotherapeutics. Due to diminished resources and uncertainty
about our ability to continue to operate as a going concern, we
have not created a nominating and corporate governance committee
of the Board of Directors. Our sole director is not an
independent director as defined by the National
Association of Securities Dealers, Inc. and does not meet the
definition of audit committee financial expert as
defined by the SEC. We intend to appoint one or more independent
directors, including an audit committee financial expert, to our
Board of Directors in the near future.
Information on Committees of the Board of Directors and
Meetings
The Board of Directors created an Audit Committee and a
Compensation Committee on June 21, 2001. These committees
do not have formal meeting schedules, but are required to meet
at least once each year. During the 2005 fiscal year, there were
ten meetings of the Board of Directors, including six meetings
of the Audit Committee and one meeting of the Compensation
Committee with the Board as a whole. The sole director attended
each of those meetings.
The Board of Directors has a standing Audit Committee, which
provides the opportunity for direct contact between our
independent registered public accounting firm and the Board. The
Board of Directors has adopted a written charter for the Audit
Committee, which is attached as Appendix B to this
Information Statement. The Audit Committee has responsibility
for recommending the appointment of our independent accountants,
supervising our finance function (which include, among other
matters, the Companys investment activities), reviewing
our internal accounting control policies and procedures, and
providing the Board such additional information and materials as
it may deem necessary to make the Board aware of
49
significant financial matters which require Board attention. The
Audit Committee held six meetings during fiscal 2005. The
current member of the Audit Committee is Alton Boynton.
Dr. Boynton is not an independent director, as defined by
the rules of the National Association of Securities Dealers, Inc.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning
compensation paid or accrued to our four most highly compensated
executive officers whose salary and bonus for the Companys
fiscal year ended December 31, 2005 were in excess of
$100,000 (the Named Executive Officers) during each
of the years in the three-year period ended December 31,
2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
Long-Term
|
|
|
|
|
|
Fiscal
|
|
|
|
|
|
Compensation
|
|
|
All Other
|
|
Name and Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Option Grants
|
|
|
Compensation(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alton L. Boynton, Ph.D.
|
|
|
2005
|
|
|
$
|
331,261
|
|
|
|
|
|
|
|
|
|
|
$
|
17,814
|
|
|
President, Chief Operating Officer,
|
|
|
2004
|
|
|
$
|
332,534
|
|
|
|
|
|
|
|
|
|
|
$
|
19,977
|
|
|
Chief Scientific Officer and Secretary
|
|
|
2003
|
|
|
$
|
288,967
|
|
|
|
|
|
|
|
100,000
|
|
|
$
|
294,909
|
(2)
|
Marnix L. Bosch, Ph.D.
|
|
|
2005
|
|
|
$
|
169,603
|
|
|
|
|
|
|
|
|
|
|
$
|
18,396
|
|
|
Vice President of Vaccine Research
|
|
|
2004
|
|
|
$
|
169,602
|
|
|
|
|
|
|
|
|
|
|
$
|
18,396
|
|
|
and Development
|
|
|
2003
|
|
|
$
|
159,710
|
|
|
|
|
|
|
|
130,000
|
|
|
$
|
32,872
|
(3)
|
Paul M. Zeltzer, M.D.
|
|
|
2005
|
|
|
$
|
77,543
|
|
|
|
|
|
|
|
|
|
|
$
|
15,973
|
(4)
|
|
Former Medical Director
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry L. Richards
|
|
|
2005
|
|
|
$
|
121,909
|
|
|
|
|
|
|
|
|
|
|
$
|
15,068
|
|
|
Former Controller(5)
|
|
|
2004
|
|
|
$
|
121,116
|
|
|
|
|
|
|
|
|
|
|
$
|
14,815
|
|
|
|
|
|
2003
|
|
|
$
|
119,572
|
|
|
|
|
|
|
|
110,000
|
|
|
$
|
26,331
|
(6)
|
|
|
(1)
|
All Other Compensation for each of the years in the three-year
period ended December 31, 2005 consists of Company paid
premiums on term life insurance coverage up to 1.5 times the
employees annual salary, earned but unpaid accrued
vacation payments, matching contribution on 401(k) up to a
maximum of $3,000, and employer paid medical benefits.
|
|
(2)
|
Includes $281,572 in exchange for terminating the severance
provision in Dr. Boyntons employment agreement. The
after tax portion of the severance of $183,000 was invested in
our November 13, 2003 Secured Convertible Note and Warrants
financing.
|
|
(3)
|
Includes $19,570 in exchange for terminating the severance
provision in Dr. Boschs employment arrangement. The
after tax portion of the severance of $16,000 was invested in
our November 13, 2003 Secured Convertible Note and Warrants
financing.
|
|
(4)
|
Dr. Zeltzer was hired on August 1, 2005 and his
employment was terminated effective April 28, 2006. His
annual salary was $200,000 on a full-time basis.
|
|
(5)
|
We accepted Mr. Richards resignation on March 9,
2006.
|
|
(6)
|
Includes $14,066 in exchange for terminating the severance
provision in Mr. Richards employment arrangement.
|
Option Grants in the 2005 Fiscal Year
There were no employee stock options granted during the year
ended December 31, 2005.
50
Aggregated Option Exercises in Fiscal Year Ended
December 31, 2005 and Fiscal Year End Option Values
The following table provides option exercise information for the
Named Executive Officers. The table shows the number of shares
acquired and the value realized upon exercise of stock options
during 2005 and the exercisable and unexercisable options held
at December 31, 2005. The Value Realized and
the Value of Unexercised
In-the
-Money
Options shown in the table represents an amount equal to
the difference between the market value of our common stock on
December 31, 2005 and the option exercise price, multiplied
by the number of shares acquired on exercise and the number of
unexercised
in-the
-money options.
These calculations do not take into account the effect of any
taxes that may be applicable to the option exercises.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised
|
|
|
Value of Unexercised In-
|
|
|
|
|
|
|
|
Options at
|
|
|
The-Money Options at
|
|
|
|
Shares
|
|
|
|
|
Fiscal Year End
|
|
|
Fiscal Year End(a)
|
|
|
|
Acquired on
|
|
|
Value
|
|
|
|
|
|
|
|
Name
|
|
Exercise
|
|
|
Realized
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alton L. Boynton, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
338,955
|
|
|
|
5,555
|
|
|
$
|
944
|
|
|
$
|
56
|
|
Marnix L. Bosch, Ph.D.
|
|
|
|
|
|
|
|
|
|
|
112,654
|
|
|
|
54,846
|
|
|
$
|
354
|
|
|
$
|
146
|
|
Paul M. Zeltzer, M.D.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry L. Richards
|
|
|
|
|
|
|
|
|
|
|
81,143
|
|
|
|
48,857
|
|
|
$
|
212
|
|
|
$
|
88
|
|
|
|
(a)
|
The market value of our common stock at December 31, 2005
was $0.10.
|
Equity Compensation Plans
The following table provides information as of December 31,
2005 about the new common stock that may be issued upon the
exercise of options and rights that have been or may be granted
to employees and members of our Board of Directors under all of
our existing equity compensation plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
Number of Securities
|
|
|
|
to be Issued
|
|
|
Weighted-Average
|
|
|
Remaining Available
|
|
|
|
Upon Exercise of
|
|
|
Exercise Price of
|
|
|
for Future Issuance
|
|
|
|
Outstanding Options
|
|
|
Outstanding Options
|
|
|
Under Equity
|
|
Plan Category
|
|
and Other Rights
|
|
|
and Other Rights
|
|
|
Compensation Plans
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by our stockholders(a)
|
|
|
743,111
|
|
|
$
|
0.60
|
|
|
|
3,959,579
|
|
Equity compensation plans not approved by our stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
743,111
|
|
|
$
|
0.60
|
|
|
|
3,959,579
|
|
|
|
(a)
|
These plans consist of our 1998 Stock Option Plan, the 1999
Executive Stock Option Plan, the 2001 Stock Option Plan, the
Employee Stock Purchase Plan and the 2001 Nonemployee Director
Stock Incentive Plan.
|
1998 Stock Option Plan
The 1998 Stock Option Plan was adopted by our Board of Directors
in July 1998 and approved by our stockholders in February 1999.
This plan provides for the grant to our employees, including
officers and employee directors, of incentive stock
options within the meaning of Section 422 of the
Internal Revenue Code and for the grant of non-statutory stock
options to our employees, officers, directors, including
non-employee directors, and consultants. To the extent an
optionee would have the right in any calendar year to exercise
for the first time one or more incentive stock options for
shares having an aggregate fair market value, under all of our
plans and determined as of the grant date, in excess of
$100,000, any such excess options will be treated as
non-statutory options. A total of 413,026 shares of our
common stock have been reserved for issuance under this plan
and, as of December 31, 2005, net of forfeitures, a total
of 337,146 of such shares remained available for additional
option grants.
51
The Compensation Committee of our Board of Directors serves as
the administrator of our 1998 Stock Option Plan. Subject to the
terms of this plan, the administrator determines the terms of
options granted, including the number of shares subject to the
option, exercise price, term and exercisability. The exercise
price of all incentive stock options granted under this plan
must be at least equal to the fair market value of our common
stock on the date of grant. The exercise price of any incentive
stock option granted to an optionee who owns stock representing
more than 10% of the total combined voting power of our
outstanding capital stock, or a 10% stockholder, must be at
least equal to 110% of the fair market value of our common stock
on the date of grant. The exercise price of all non-statutory
stock options cannot be less than 85% of the fair market value
of our common stock on the date of grant, and in the case of 10%
stockholders, the exercise price cannot be less than 110% of the
fair market value of our common stock. The term of options
granted under this plan may not exceed 10 years, and the
term of an incentive stock option granted to a 10% Stockholder
may not exceed five years. An option may not be transferred by
the optionee other than by will or the laws of descent or
distribution. Each option may be exercised during the lifetime
of the optionee only by such optionee. Generally, each option
granted under this plan becomes exercisable as to 25% of the
total number of shares subject to the option after the first
anniversary following the date of grant, with subsequent equal
monthly vesting over three years, subject to the optionees
continued relationship with us as an employee, director or
consultant, as the case may be.
Our Board of Directors has the authority to amend or terminate
this plan, but such action will not adversely affect any
outstanding option without the optionees consent. If not
terminated earlier, this plan will terminate in July 2008.
1999 Executive Stock Option Plan
The 1999 Executive Stock Option Plan was adopted by our Board of
Directors in November 1999. This plan provides for the grant of
non-statutory stock options to our employees, officers,
directors, including non-employee directors, and consultants. A
total of 586,166 shares of our common stock have been
reserved for issuance under this plan, and, as of
December 31, 2005, net of forfeitures, a total of
420,956 shares remain available for granting under this
plan.
The Compensation Committee of our Board of Directors serves as
the administrator of this plan. Subject to the terms of this
plan, the administrator determines the terms of options granted,
including the number of shares subject to the option, exercise
price, term and exercisability. The exercise price of options
under this plan cannot be less than 85% of the fair market value
of our common stock on the date of grant and, in the case of 10%
stockholders, the exercise price cannot be less than 110% of the
fair market value of our common stock on the date of grant. The
term of options granted under this plan may not exceed
10 years. An option may not be transferred by the optionee
other than by will or the laws of descent or distribution. Each
option may be exercised during the lifetime of the optionee only
by such optionee. Each option granted under this plan becomes
exercisable as to 25% of the total number of shares subject to
the option on the first anniversary following the date of grant,
with subsequent equal monthly vesting over three years, subject
to the optionees continued relationship with us as an
employee or consultant.
Our Board of Directors has the authority to amend or terminate
this plan, but such action will not adversely affect any
outstanding option without the optionees consent. If not
terminated earlier, this plan will terminate in November 2009.
2001 Stock Option Plan
The 2001 Stock Option Plan was both adopted by our Board of
Directors and approved by our stockholders in June 2001. A total
of 1,800,000 shares of our common stock have been initially
reserved for issuance under this plan. This plan is intended to
provide for the grant to our employees, including officers and
employee directors, of incentive stock options
within the meaning of Section 422 of the Internal Revenue
Code and for the grant of non-statutory stock options to our
employees and consultants. The number of shares available for
grant under this plan is subject to an automatic annual increase
in an
52
amount equal to the lesser of (i) 15% of the aggregate
number of shares available for granting for the immediately
preceding year; or (ii) 300,000 shares. As of
December 31, 2005, net of forfeitures, a total of
2,423,320 shares remain available under this plan.
The Compensation Committee of our Board of Directors serves as
the administrator of this plan. Subject to the terms of this
plan, the administrator determines the terms of options granted,
including the number of shares subject to the option, exercise
price, term and exercisability. The exercise price of all
incentive stock options granted under this plan must be at least
equal to the fair market value of our common stock on the date
of grant. The term of incentive stock options granted under this
plan generally may not exceed 10 years.
Our Board of Directors has the authority to amend or terminate
this plan, but such action may not adversely affect any
outstanding option previously granted under the plan. If this
plan is not terminated earlier, no incentive stock options can
be granted under the plan on or after the later of June 2011 or
the 10th anniversary of the date when our Board of
Directors adopted, subject to approval by our stockholders, the
most recent increase in the number of shares available for grant
under the plan.
2001 Nonemployee Director Stock Incentive Plan
The 2001 Nonemployee Director Stock Incentive Plan was adopted
by our Board of Directors in June 2001. This plan provides for
the automatic grant to each of our nonemployee directors of a
nonstatutory stock option to purchase 5,000 shares of
our common stock on the third business day following each annual
meeting of our stockholders. A total of 200,000 shares of
common stock have been reserved for issuance under this plan
and, as of December 31, 2005, net of forfeitures, a total
of 147,500 shares remain available under this plan.
This plan is administered by the Compensation Committee of our
Board of Directors. The exercise price of each option granted
pursuant to this plan is the fair market value of the underlying
shares of our common stock on the date of grant. Each option
granted pursuant to this plan generally becomes exercisable upon
six months after the date of grant, subject to certain
limitations. Our Board of Directors has the authority to amend
or terminate this plan, but such action may not adversely affect
any outstanding option without the optionees consent.
Employee Stock Purchase Plan
Our Employee Stock Purchase Plan was adopted by our Board of
Directors and approved by our stockholders in June 2001. A total
of 500,000 shares of common stock have been reserved for
issuance under this plan and, as of December 31, 2005,
14,374 have been issued under this plan.
This plan is administered by the Compensation Committee of our
Board of Directors and provides a mechanism for eligible
employees to purchase shares of our common stock. To facilitate
these purchases, eligible participants are assigned plan
accounts, to which they may contribute funds via payroll
deduction. The purchases are accomplished through the use of
six-month offering periods. Purchases pursuant to this plan are
made at a price equal to the lower of (i) 85% of the fair
market value of our common stock on the last trading day in the
offering period; or (ii) 85% of the fair market value of
our common stock on the last trading day before the commencement
of such offering period. No participant may purchase more than
1,000 shares of our common stock during any offering
period. Additionally, purchases under the plan are limited such
that no participant may purchase under the plan, in any offering
period that commenced in that calendar year, shares with a fair
market value in excess of $25,000 minus the fair market value of
any shares that the participant previously purchased in that
calendar year. In the case of shares purchased during an
offering period that commenced in the preceding calendar year,
the limitation is $50,000 minus the fair market value of any
shares that the participant purchased during the calendar year
of the purchase and the calendar year immediately preceding such
purchase.
Our Board of Directors has the authority to amend or terminate
this plan at any time. Amendments to the plan are subject to
approval by our stockholders to the extent required by
applicable law.
53
Compensation Committee Interlocks and Insider
Participation
During the 2005 fiscal year Dr. Boynton, the sole member of
our Compensation Committee, had no relationship or transactions
with us required to be disclosed pursuant to Item 402(j) of
Regulation
S-K
promulgated under the Securities Act or the Exchange Act.
Employment Agreements
On June 23, 2005, we entered into an employment agreement
with Dr. Paul Zeltzer to serve as our Medical Director. The
employment arrangement was on at at-will basis and provided that
we will pay Dr. Zeltzer a base salary at an annual rate of
$200,000 on a full time basis and did not include severance
compensation. Effective April 28, 2006,
Dr. Zeltzers employment has been terminated.
CERTAIN RELATIONSHIPS
Recapitalization
Since the beginning of 2002, we recognized that we did not have
sufficient working capital to fund our operations beyond
12 months and needed to raise additional capital from third
parties in order to continue our clinical and research programs.
In April 2002, we retained an investment bank to assist us in
raising capital. Due to the economic climate in 2002 and
declining stock prices of biotechnology companies in general, as
well as our own stock price, we were unable to raise additional
capital. In July 2002 we retained an additional investment
banking firm to assist us in exploring various strategic options
including raising additional capital, licensing our technology
to a third party, or merging with another company. We contacted
over 50 biotechnology companies and over 20 large pharmaceutical
companies in an attempt to explore these options without success.
From September 2002 through approximately September 2004, we
reduced our staff from 67 to 8 employees, withdrew our IND
for our Phase III clinical trial for hormone refractory
prostate cancer and our IND for our Phase I trial for
non-small cell lung cancer from the FDA and inactivated our
Phase II clinical trial for brain cancer, which remained
open with the FDA. In addition, we moved our corporate
headquarters several times, each time to smaller facilities in
order to reduce our monthly rent expense. During this time, we
attempted to obtain capital from various sources, but were not
successful. On November 13, 2003, we borrowed $335,000 from
members of our management, pursuant to a series of convertible
promissory notes which accrue interest at a rate of prime plus
2% (and associated warrants to purchase an aggregate of
approximately 3.7 million shares of our stock at
$0.04 per share) as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original
|
|
|
|
|
|
|
Shares
|
|
|
Original
|
|
|
|
Principal
|
|
|
Conversion
|
|
|
|
|
Original
|
|
|
Underlying
|
|
|
Exercise
|
|
Lender
|
|
Amount
|
|
|
Price/Share
|
|
|
Interest Rate
|
|
|
Maturity
|
|
|
Warrants
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alton Boynton
|
|
$
|
183,000
|
|
|
$
|
0.18
|
|
|
|
Prime + 2
|
%
|
|
|
11/12/2004
|
|
|
|
2,033,333
|
|
|
$
|
0.18
|
|
Eric Holmes
|
|
$
|
50,000
|
|
|
$
|
0.18
|
|
|
|
Prime + 2
|
%
|
|
|
11/12/2004
|
|
|
|
555,555
|
|
|
$
|
0.18
|
|
Dan Wilds
|
|
$
|
50,000
|
|
|
$
|
0.18
|
|
|
|
Prime + 2
|
%
|
|
|
11/12/2004
|
|
|
|
555,555
|
|
|
$
|
0.18
|
|
Marnix Bosch
|
|
$
|
41,000
|
|
|
$
|
0.18
|
|
|
|
Prime + 2
|
%
|
|
|
11/12/2004
|
|
|
|
455,555
|
|
|
$
|
0.18
|
|
Larry Richards
|
|
$
|
11,000
|
|
|
$
|
0.18
|
|
|
|
Prime + 2
|
%
|
|
|
11/12/2004
|
|
|
|
122,222
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
335,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,722,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the financing with Toucan Capital described
below, the loan from Dan Wilds was repaid, and the remaining
notes were amended to provide for automatic conversion under
certain circumstances and to reduce the conversion prices to
$0.10 per share. The notes that remained outstanding were
also made subordinate to the claims of Toucan Capital. In
connection with the Toucan Capital financing, the warrants were
amended to reduce the exercise price to match the conversion
price of the notes issued to Toucan Capital as described below
and to remove certain antidilution protections of the warrants.
The notes that remained outstanding were amended on a number of
occasions to extend their
54
respective maturity dates. All of these notes have now either
been paid in full or converted into our common stock at the
amended conversion price of $0.10 per share. All of the
warrants have been exercised on a net exercise basis as of
July 6, 2006.
Beginning in 2004, we undertook a significant recapitalization
whereby we have raised an aggregate of approximately
$14.5 million in gross proceeds from issuances of debt and
equity through a series of private placements. These financings
included:
|
|
|
|
|
the issuance of a series of convertible promissory notes to
Toucan Capital, a venture capital fund, in aggregate principal
amount of approximately $6.75 million (and associated
warrants) from February 2004 through September 2005. The first
$1.1 million of the $6.75 million carried 300% warrant
coverage and thereafter the notes carried 100% warrant coverage.
The notes accrued interest at 10% per annum from the
respective original issuance dates of the notes;
|
|
|
|
the issuance of a convertible promissory note to Toucan
Partners, an affiliate of Toucan Capital, in principal amount of
$400,000 (and an associated warrant) in November 2005. This note
accrues interest at 10% per annum from its original
issuance dates. This note carried warrant coverage of 100%;
|
|
|
|
the issuance of a series of non-convertible promissory notes to
Toucan Partners, in an aggregate principal amount of
approximately $550,000 from December 2005 through March 2006.
These notes accrue interest at 10% per annum from the
respective original issuance dates of the notes;
|
|
|
|
the sale of Series A Preferred Stock to Toucan Capital for
aggregate gross proceeds of approximately $1.3 million (and
an associated warrant to purchase an aggregate of
13 million shares of Series A Preferred Stock at an
exercise price of $0.04 per share) in January 2005; and
|
|
|
|
the sale of approximately 39.5 million shares of common
stock (and accompanying warrants to purchase an aggregate of
approximately 19.7 million shares of common stock at an
exercise price of $0.14 per share) to certain accredited
investors for aggregate proceeds of approximately
$5.5 million in April 2006 in our PIPE Financing.
|
Subsequently, the non-convertible notes held by Toucan Partners
were amended and restated in order to make them convertible on
the same terms and conditions as the convertible notes
previously issued to Toucan Capital and Toucan Partners, and
warrants were issued to Toucan Partners on the same terms and
conditions as warrants (100% coverage) were previously issued to
Toucan Capital and Toucan Partners. In April 2006, Toucan
Capital elected to convert all of its promissory notes,
including all accrued interest thereon, into a newly designated
series of preferred stock, Series A-1 Preferred Stock, in
accordance with the terms of the notes at a conversion price of
$1.60 per share. The Series A-1 Preferred Stock is
substantially identical to Series A Preferred Stock with
the exception of the issuance price per share and liquidation
preference per share (which are $1.60 per share, rather
than $0.04 per share in the case of Series A) and the
ratio at which the shares are convertible into common stock
(which is 1-for-40, or 1 share of Series A-1 Preferred
Stock for 40 shares of common stock, rather than
1-for-1
in the case of
Series A).
Simultaneously with Toucan Capitals loan conversion, Alton
Boynton, our President, and Marnix Bosch, our Vice President of
Vaccine Research and Development, each elected to convert the
principal and accrued interest on convertible loans that they
have previously made to us into 2,195,771 and
491,948 shares, respectively, of our common stock, and in
conjunction with the PIPE Financing, exercised their warrants
(200% warrant coverage) on a net exercise basis for 1,895,479
and 424,669 shares of our common stock, respectively.
As a result of the financings described above, Toucan Capital
currently holds:
|
|
|
|
|
an aggregate of 32.5 million shares of Series A
Preferred Stock (convertible into an aggregate of
32.5 million shares of common stock);
|
55
|
|
|
|
|
an aggregate of approximately 4.8 million shares of
Series A-1 Preferred Stock (convertible into an aggregate
of approximately 192.7 million shares of common stock);
|
|
|
|
warrants to purchase an aggregate of 66 million shares of
capital stock at an exercise price of $0.01 per share;
|
|
|
|
warrants to purchase an aggregate of 56.5 million shares of
capital stock at an exercise price of $0.04 per
share; and
|
|
|
|
warrants to purchase an aggregate of 13 million shares of
Series A Preferred Stock at an exercise price of
$0.04 per share.
|
As a result of the financings described above, Toucan Partners
currently holds:
|
|
|
|
|
|
convertible promissory notes in aggregate principal amount of
$950,000, with accrued interest thereon of approximately $48,000
as of July 6, 2006 (with such notes convertible as of
July 6, 2006 into an aggregate of approximately
25.0 million shares of capital stock at a conversion price
of $0.04 per share); and
|
|
|
|
|
warrants to purchase an aggregate of 9.5 million shares of
capital stock at an exercise price of $0.04 per share.
|
The warrants held by Toucan Capital and Toucan Partners
described above are fully vested and exercisable and generally
have an exercise period of seven years from their respective
dates of issuance.
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, (which
was subsequently amended and restated, and further amended) with
Toucan Capital (as amended to date, the Recapitalization
Agreement), which contemplated the possible
recapitalization of Northwest Biotherapeutics. As amended, the
Recapitalization Agreement contemplates a bridge financing
period and an equity financing period, with such equity
financing period extending through December 31, 2006, or
such later date as is mutually agreed by Toucan Capital and us.
The Recapitalization Agreement includes a binding term sheet
that outlines the terms of a potential equity financing, at
Toucan Capitals election, of up to $40 million
through the issuance of new securities to Toucan Capital, Toucan
Partners and a syndicate of other investors to be determined.
However, neither Toucan Capital, Toucan Partners, nor any entity
affiliated with either of them are obligated to invest any
additional funds in us.
As of July 6, 2006, Toucan Capital and Toucan Partners
collectively have beneficial ownership of approximately
395.1 million shares of our capital stock, representing a
beneficial ownership of approximately 86% of our outstanding
common stock on an
as
-converted-to
-common
stock basis. Toucan Capital and Toucan Partners each has a right
of first refusal to participate in our future issuances of debt
or equity securities.
Cognate Therapeutics
On July 30, 2004, we entered into a service agreement with
Cognate Therapeutics, Inc. Cognate is a contract manufacturing
and services organization, the majority of which is owned by
Toucan Capital. In addition, two of the principals of Toucan
Capital are members of Cognates board of directors. Under
the agreement we agreed to utilize Cognates services for a
two-year period, related primarily to manufacturing
DCVax
®
product candidates, regulatory advice, research and development
preclinical activities and managing clinical trials. We
recognized approximately $2.9 million and $3.5 million
of research and development costs relative to this agreement in
2004 and 2005, respectively. We recognized approximately
$219,000 of research and development costs during the three
months ended March 31, 2006 relative to this agreement. As
of March 31, 2006 we owed Cognate $3.6 million for
services rendered pursuant to this agreement. During second
quarter 2006, we paid $1.7 million to Cognate toward the
amount due.
56
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND SELLING
STOCKHOLDERS
Background
In April 2006, we consummated the PIPE Financing, which was a
private offering of our securities to a limited number of
accredited investors pursuant to Rule 506 of
Regulation D under the Securities Act. The PIPE Financing
closed on April 4, 2006. We issued these selling
stockholders an aggregate of 39,467,891 shares of our
common stock, at a price of $0.14 per share, and for no
additional consideration, warrants exercisable into
19,733,945 shares of common stock. We agreed to prepare and
file a registration statement for the resale of the shares of
common stock and the shares of common stock issuable upon
exercise of the warrants. On April 7, 2006, we issued
482,091 shares of our common stock to one of the investors
as a result of the net exercise of its warrant to
purchase 714,286 shares of common stock at
$0.14 per share acquired by such investor pursuant to the
PIPE Financing.
The following tables present information regarding the
beneficial ownership of our common stock as of May 15, 2006
by:
|
|
|
|
|
each person, or group of affiliated persons, who is known by us
to own beneficially 5% or more of our common stock;
|
|
|
|
our current director;
|
|
|
|
each of our named executive officers;
|
|
|
|
our current director and all of our executive officers as a
group; and
|
|
|
|
in the second table, each selling stockholder.
|
The applicable percentages of ownership are based on an
aggregate of 65,241,287 shares of common stock issued and
outstanding on July 6, 2006. In computing the number of
shares of common stock beneficially owned by a person and the
percentage ownership of that person, we deemed outstanding
shares of common stock subject to options, warrants, convertible
preferred stock or convertible notes held by that person that
are currently exercisable or exercisable within 60 days of
July 6, 2006. We did not deem these shares outstanding,
however, for the purpose of computing the percentage ownership
of any other person.
We have determined beneficial ownership in accordance with the
rules of the SEC. Except as indicated by the footnotes below, we
believe, based on the information furnished to us, that the
persons and the entities named in the table below have sole
voting and investment power with respect to all shares of common
stock that they beneficially own, subject to applicable
community property laws. In addition, the rules include shares
of common stock issuable pursuant to the exercise of stock
options that are either immediately exercisable or exercisable
within 60 days of July 6, 2006. These shares are
deemed to be outstanding and beneficially owned by the person
holding those options for the purpose of computing the
percentage ownership of that person, but they are not treated as
outstanding for the purpose of computing the percentage
ownership of any other person.
57
The second table also sets forth the number of shares of common
stock certain selling stockholders will receive upon exercise of
warrants for cash. None of the selling stockholders has had any
position, office or other material relationship with us within
the past three years other than as a result of the ownership of
our shares or other securities. The information included below
is based on information provided by the selling stockholders.
Because the selling stockholders may offer some or all of their
shares, no definitive estimate as to the number of shares that
will be held by the selling stockholders after such offering can
be provided and the following table has been prepared on the
assumption that all shares of common stock offered hereby will
be sold.
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock
|
|
|
|
Beneficially Owned(1)
|
|
|
|
|
|
Beneficial Owner
|
|
Number
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
Officers and Directors
|
|
|
|
|
|
|
|
|
|
Alton L. Boynton, Ph.D.(2)
|
|
|
4,646,800
|
|
|
|
6.7
|
%
|
|
Marnix L. Bosch, Ph.D.(3)
|
|
|
1,116,023
|
|
|
|
1.7
|
%
|
|
Paul Zeltzer, M.D.
|
|
|
|
|
|
|
*
|
|
|
Larry Richards(4)
|
|
|
175,832
|
|
|
|
*
|
|
|
All executive officers and directors as a group(3 persons)(5)
|
|
|
5,762,823
|
|
|
|
8.1
|
%
|
5% Security Holders
|
|
|
|
|
|
|
|
|
|
Entities associated with Toucan Capital Fund II, L.P.(6)
|
|
|
395,136,789
|
|
|
|
85.8
|
%
|
|
C.E. Unterberg Towbin Capital Partners I LP(7)
|
|
|
5,362,500
|
|
|
|
8.0
|
%
|
|
Iroquois Masterfund Ltd(8)
|
|
|
5,357,143
|
|
|
|
8.0
|
%
|
|
Southridge Partners LP(9)
|
|
|
4,553,571
|
|
|
|
6.8
|
%
|
|
Northwood Capital Partners, LP(10)
|
|
|
3,750,000
|
|
|
|
5.6
|
%
|
|
Medarex, Inc.(11)
|
|
|
3,600,000
|
|
|
|
5.2
|
%
|
|
|
|
|
(1)
|
Percentage represents beneficial ownership percentage of common
stock calculated in accordance with SEC rules and does not
equate to voting percentages. Because the Series A
Preferred Stock and Series A-1 Preferred Stock vote
together with the common stock on substantially all matters,
actual voting percentage represented by the shares of common
stock beneficially owned by certain stockholders is lower than
the percentages reflected in the table (as noted in
footnotes 2, 3, 4, 5, 7, 8, 9, 10 and 11 below).
|
|
|
|
(2)
|
Includes 4,302,290 shares of common stock held by
Dr. Boynton and 344,510 shares of common stock
issuable upon exercise of options that are exercisable within
60 days of July 6, 2006. Represents voting percentage
of approximately 1.5%.
|
|
|
|
|
(3)
|
Includes 981,442 shares of common stock held by
Dr. Bosch and 134,581 shares of common stock issuable
upon exercise of options that are exercisable within
60 days of July 6, 2006. Represents voting percentage
of less than 1%.
|
|
|
|
(4)
|
Includes 175,832 shares of common stock held. Represents
voting percentage of less than 1%.
|
|
|
|
(5)
|
Includes 5,283,732 shares of common stock held by the
officers and directors and 479,091 shares issuable upon
exercise of options that are exercisable within 60 days of
July 6, 2006. Represents voting percentage of approximately
1.8%.
|
|
|
|
|
(6)
|
Includes (i) 225,174,520 shares of common stock
issuable upon conversion of preferred stock held by Toucan
Capital; (ii) 135,500,000 shares of common stock
currently issuable upon exercise of warrants held by Toucan
Capital; (iii) 24,962,269 shares of common stock
issuable upon conversion of promissory notes held by Toucan
Partners; and (iv) 9,500,000 shares issuable upon
exercise of warrants held by Toucan Partners.
|
|
|
|
(7)
|
Includes 1,787,500 shares of common stock currently
issuable upon exercise of warrants. Represents voting percentage
of approximately 1.8%.
|
58
|
|
|
|
(8)
|
Includes 1,785,714 shares of common stock currently
issuable upon exercise of warrants. Represents voting percentage
of approximately 1.8%.
|
|
|
(9)
|
Includes 1,517,857 shares of common stock currently
issuable upon exercise of warrants. Represents voting percentage
of approximately 1.6%.
|
|
|
(10)
|
Includes 1,250,000 shares of common stock currently
issuable upon exercise of warrants. Represents voting percentage
of approximately 1.3%.
|
|
(11)
|
Includes 800,000 shares of common stock currently issuable
upon exercise of warrants. Based on a Form 3 and
Schedule 13G filed by Medarex with the SEC. Represents
voting percentage of approximately 1.2%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock
|
|
|
|
|
Shares of Common Stock
|
|
|
|
Beneficially Owned
|
|
|
|
|
Beneficially Owned
|
|
|
|
Before the Offering(1)
|
|
|
Shares
|
|
|
After the Offering(3)
|
|
|
|
|
|
|
Being
|
|
|
|
|
Beneficial Owner
|
|
Number
|
|
|
Percentage
|
|
|
Offered(2)
|
|
|
Number
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bluegrass Growth Fund, L.P.(4)
|
|
|
2,678,571
|
|
|
|
4.1
|
%
|
|
|
2,678,571
|
|
|
|
0
|
|
|
|
*
|
|
Andrew M. Blum(5)
|
|
|
53,625
|
|
|
|
*
|
|
|
|
53,625
|
|
|
|
0
|
|
|
|
*
|
|
Bristol Investment Fund, Ltd(6)
|
|
|
1,607,143
|
|
|
|
2.4
|
%
|
|
|
1,607,143
|
|
|
|
0
|
|
|
|
*
|
|
C.E. Unterberg Towbin Capital Partners I LP(7)
|
|
|
5,362,500
|
|
|
|
8.0
|
%
|
|
|
5,362,500
|
|
|
|
0
|
|
|
|
*
|
|
Jason L. DiPaola(8)
|
|
|
214,500
|
|
|
|
*
|
|
|
|
214,500
|
|
|
|
0
|
|
|
|
*
|
|
Cranshire Capital, LP(9)
|
|
|
2,678,571
|
|
|
|
4.1
|
%
|
|
|
2,678,571
|
|
|
|
0
|
|
|
|
*
|
|
Ellis International Limited(10)
|
|
|
2,678,571
|
|
|
|
4.1
|
%
|
|
|
2,678,571
|
|
|
|
0
|
|
|
|
*
|
|
Jeffrey M. Gallups(11)
|
|
|
300,000
|
|
|
|
*
|
|
|
|
300,000
|
|
|
|
0
|
|
|
|
*
|
|
John H. Gutfreund(12)
|
|
|
536,250
|
|
|
|
*
|
|
|
|
536,250
|
|
|
|
0
|
|
|
|
*
|
|
Smithfield Fiduciary LLC(13)
|
|
|
2,678,571
|
|
|
|
4.1
|
%
|
|
|
2,678,571
|
|
|
|
0
|
|
|
|
*
|
|
Iroquois Masterfund Ltd(14)
|
|
|
5,357,143
|
|
|
|
8.0
|
%
|
|
|
5,357,143
|
|
|
|
0
|
|
|
|
*
|
|
Comtech Global Investment Ltd(15)
|
|
|
1,500,000
|
|
|
|
2.3
|
%
|
|
|
1,500,000
|
|
|
|
0
|
|
|
|
*
|
|
Alpha Capital AG(16)
|
|
|
1,607,142
|
|
|
|
2.4
|
%
|
|
|
1,607,142
|
|
|
|
0
|
|
|
|
*
|
|
Little Gem Life Sciences Fund LLC(17)
|
|
|
1,071,429
|
|
|
|
1.6
|
%
|
|
|
1,071,429
|
|
|
|
0
|
|
|
|
*
|
|
Monarch Capital Fund Ltd
|
|
|
1,910,662
|
|
|
|
2.9
|
%
|
|
|
1,910,662
|
|
|
|
0
|
|
|
|
*
|
|
Hope Ni(18)
|
|
|
300,000
|
|
|
|
*
|
|
|
|
300,000
|
|
|
|
0
|
|
|
|
*
|
|
Nite Capital LP(19)
|
|
|
2,678,571
|
|
|
|
4.1
|
%
|
|
|
2,678,571
|
|
|
|
0
|
|
|
|
*
|
|
Northwood Capital Partners, LP(20)
|
|
|
3,750,000
|
|
|
|
5.6
|
%
|
|
|
3,750,000
|
|
|
|
0
|
|
|
|
*
|
|
Cabernet Partners, LP(21)
|
|
|
1,500,000
|
|
|
|
2.3
|
%
|
|
|
1,500,000
|
|
|
|
0
|
|
|
|
*
|
|
Chardonnay Partners, LP(22)
|
|
|
900,000
|
|
|
|
1.4
|
%
|
|
|
900,000
|
|
|
|
0
|
|
|
|
*
|
|
Robert A. Berlacher(23)
|
|
|
600,000
|
|
|
|
*
|
|
|
|
600,000
|
|
|
|
0
|
|
|
|
*
|
|
Insignia Partners, LP(24)
|
|
|
2,250,000
|
|
|
|
3.4
|
%
|
|
|
2,250,000
|
|
|
|
0
|
|
|
|
*
|
|
Joseph Reda(25)
|
|
|
375,000
|
|
|
|
*
|
|
|
|
375,000
|
|
|
|
0
|
|
|
|
*
|
|
Southridge Partners LP(26)
|
|
|
4,553,571
|
|
|
|
6.8
|
%
|
|
|
4,553,571
|
|
|
|
0
|
|
|
|
*
|
|
Southshore Capital Fund Ltd(27)
|
|
|
803,571
|
|
|
|
1.2
|
%
|
|
|
803,571
|
|
|
|
0
|
|
|
|
*
|
|
Stoc*Doc Partners, L.P.(28)
|
|
|
300,000
|
|
|
|
*
|
|
|
|
300,000
|
|
|
|
0
|
|
|
|
*
|
|
Ellen U Celli Emily U Satloff TTEE T.I. Unterberg(29)
|
|
|
536,250
|
|
|
|
*
|
|
|
|
536,250
|
|
|
|
0
|
|
|
|
*
|
|
Declaration of Trust by Thomas I. Unterberg(30)
|
|
|
1,072,500
|
|
|
|
1.6
|
%
|
|
|
1,072,500
|
|
|
|
0
|
|
|
|
*
|
|
Thomas I. Unterberg(31)
|
|
|
2,145,000
|
|
|
|
3.3
|
%
|
|
|
2,145,000
|
|
|
|
0
|
|
|
|
*
|
|
Thomas I. Unterberg TTEE Ellen U. Celli Family Trust /25/93(32)
|
|
|
1,072,500
|
|
|
|
1.6
|
%
|
|
|
1,072,500
|
|
|
|
0
|
|
|
|
*
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Common Stock
|
|
|
|
|
Shares of Common Stock
|
|
|
|
Beneficially Owned
|
|
|
|
|
Beneficially Owned
|
|
|
|
Before the Offering(1)
|
|
|
Shares
|
|
|
After the Offering(3)
|
|
|
|
|
|
|
Being
|
|
|
|
|
Beneficial Owner
|
|
Number
|
|
|
Percentage
|
|
|
Offered(2)
|
|
|
Number
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ellen U. Celli(33)
|
|
|
1,072,500
|
|
|
|
1.6
|
%
|
|
|
1,072,500
|
|
|
|
0
|
|
|
|
*
|
|
Emily Satloff(34)
|
|
|
536,250
|
|
|
|
*
|
|
|
|
536,250
|
|
|
|
0
|
|
|
|
*
|
|
Marjorie & Clarence Unterberg Foundation(35)
|
|
|
1,608,000
|
|
|
|
2.4
|
%
|
|
|
1,608,000
|
|
|
|
0
|
|
|
|
*
|
|
NFS/ FINTC IRA FBO Thomas I. Unterberg(36)
|
|
|
1,072,500
|
|
|
|
1.6
|
%
|
|
|
1,072,500
|
|
|
|
0
|
|
|
|
*
|
|
Thomas I. Unterberg TTEE. Emily U. Satloff Family Trust U/
A 03/25/93(37)
|
|
|
1,072,500
|
|
|
|
1.6
|
%
|
|
|
1,072,500
|
|
|
|
0
|
|
|
|
*
|
|
Ann Unterberg(38)
|
|
|
536,250
|
|
|
|
*
|
|
|
|
536,250
|
|
|
|
0
|
|
|
|
*
|
|
|
|
|
|
|
(1)
|
Calculated based on
Rule
13d-3(d)(i).
In calculating this amount for each selling stockholder, we
treated as outstanding the number of shares of common stock
issuable upon exercise for cash of that selling
stockholders warrants but we did not assume exercise of
any other selling stockholders warrants.
|
|
|
|
|
(2)
|
In calculating this amount for each selling stockholder, we
included the number of shares of common stock issuable upon
exercise for cash of that selling stockholders warrants.
|
|
|
|
(3)
|
Assumes sale of all shares offered by the selling stockholder.
|
|
|
|
(4)
|
Includes 892,857 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
|
(5)
|
Includes 17,875 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
|
(6)
|
Includes 535,714 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
|
(7)
|
Includes 1,787,500 shares of common stock currently
issuable upon exercise of warrant.
|
|
|
|
|
(8)
|
Includes 71,500 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
|
(9)
|
Includes 892,857 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
|
(10)
|
Includes 892,857 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(11)
|
Includes 100,000 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(12)
|
Includes 178,750 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(13)
|
Includes 892,857 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(14)
|
Includes 1,785,714 shares of common stock currently
issuable upon exercise of warrant.
|
|
|
|
(15)
|
Includes 500,000 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(16)
|
Includes 535,714 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(17)
|
Includes 357,143 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(18)
|
Includes 100,000 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(19)
|
Includes 892,857 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(20)
|
Includes 1,250,000 shares of common stock currently
issuable upon exercise of warrant.
|
|
|
|
(21)
|
Includes 500,000 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(22)
|
Includes 300,000 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(23)
|
Includes 200,000 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(24)
|
Includes 750,000 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(25)
|
Includes 125,000 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(26)
|
Includes 1,517,857 shares of common stock currently
issuable upon exercise of warrant.
|
|
60
|
|
|
(27)
|
Includes 267,857 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(28)
|
Includes 100,000 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(29)
|
Includes 178,750 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(30)
|
Includes 357,500 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(31)
|
Includes 715,000 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(32)
|
Includes 357,500 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(33)
|
Includes 357,500 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(34)
|
Includes 178,750 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(35)
|
Includes 536,000 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(36)
|
Includes 357,500 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(37)
|
Includes 357,500 shares of common stock currently issuable
upon exercise of warrant.
|
|
|
|
(38)
|
Includes 178,750 shares of common stock currently issuable
upon exercise of warrant.
|
|
61
DESCRIPTION OF CAPITAL STOCK
As of the date of this prospectus, we are authorized to issue
800,000,000 shares of common stock par value
$0.001 per share, and 300,000,000 shares of preferred
stock, par value $0.001 per share, 50,000,000 of which have
been designated as Series A Cumulative Convertible
Preferred Stock and 10,000,000 of which have been designated as
Series A-1 Cumulative Convertible Preferred Stock.
As of July 6, 2006, we had 65,241,287 shares of common
stock issued and outstanding, and had reserved an additional:
|
|
|
|
|
185,394,540 shares of common stock for issuance upon
exercise of outstanding warrants,
|
|
|
|
|
24,962,269 shares of common stock for issuance upon
conversion of our convertible promissory notes,
|
|
|
|
|
32,500,000 shares of common stock for issuance upon
conversion of our Series A Stock,
|
|
|
|
192,267,520 shares of common stock for issuance upon
conversion of our Series A-1 Stock,
|
|
|
|
383,246 shares of common stock for issuance under our 1998
Stock Option Plan,
|
|
|
|
586,166 shares of common stock for issuance under our 1999
Executive Stock Option Plan,
|
|
|
|
2,906,551 shares of common stock for issuance under our
2001 Stock Option Plan,
|
|
|
|
182,500 shares of common stock for issuance under our 2001
Nonemployee Director Stock Incentive Plan,
|
|
|
|
158,600 shares of common stock for issuance under our
Employment Agreement Plan, and
|
|
|
|
485,626 shares of common stock for issuance under our
Employee Stock Purchase Plan.
|
Common Stock
Voting Rights.
Each holder of shares of common stock
shall be entitled to one vote for each share of such common
stock held by such holder. Under our Bylaws, the holders of a
majority of the voting power of our issued and outstanding stock
entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of business
at all meetings of stockholders, except as otherwise provided by
statute or by our certificate of incorporation. When a quorum is
present at any meeting, the vote of the holders of a majority of
the voting power of our issued and outstanding stock entitled to
vote thereon, present in person or represented by proxy, shall
decide any questions brought before such meeting, unless the
question is one upon which by express provision of statute or of
the certificate of incorporation or of the Bylaws, a different
vote is required, in which case such express provision shall
govern and control the decision of such question.
Dividends.
Subject to the dividend rights of the
outstanding shares of issued and outstanding preferred stock,
holders of common stock are entitled to receive dividends, when,
as and if declared by the Board of Directors out of assets
lawfully available for such purposes. No dividends shall be paid
on any shares of common stock unless the same dividend is paid
on all shares of common stock outstanding at the time of such
payment.
Rights upon Liquidation, Dissolution or Winding Up.
In
the event of any distribution of assets upon liquidation,
dissolution or winding up of our affairs, holders of common
stock will be entitled to share ratably and equally all of our
assets and funds remaining after payment to the holders of our
preferred stock of the specific amounts which they are entitled
to receive upon such liquidation, dissolution or winding up as
herein provided.
62
Other Rights.
Holders of common stock have no
subscription, redemption or conversion rights, nor do they have
any preemptive or other rights to acquire or subscribe for
additional, unissued or treasury shares, except as expressly
provided for in our stockholder rights plan. Accordingly, if we
were to elect to sell additional shares of common stock, persons
acquiring common stock in this offering would have no right to
purchase additional shares and, as a result, their percentage
equity interest in Northwest Biotherapeutics, Inc. would be
reduced.
Series A Cumulative Convertible Preferred Stock and
Series A-1 Cumulative Convertible Preferred Stock
The Series A Stock:
|
|
|
(i) is entitled to cumulative dividends at the rate of
10% per year;
|
|
|
(ii) is entitled to a liquidation preference in the amount
of its initial purchase price plus all accrued and unpaid
dividends (to the extent of legally available funds);
|
|
|
(iii) has a preference over the common stock, and is on a
pari passu basis with the Series A-1 Stock, with respect to
dividends and distributions;
|
|
|
(iv) is entitled to participate on an as-converted basis
with the common stock on any distributions after the payment of
any preferential amounts to the Series A Stock and the
Series A-1 Stock;
|
|
|
(v) votes on an as converted basis with the common stock
and the Series A-1 Stock on matters submitted to the common
stockholders for approval and as a separate class on certain
other material matters; and
|
|
|
(vi) is convertible into common stock on a one-for-one
basis (subject to adjustment in the event of stock dividends,
stock splits, reverse stock splits, recapitalizations, etc.).
|
The number of shares of common stock issuable upon conversion of
each share of Series A Stock is also subject to increase in
the event of certain dilutive issuances in which we sell or are
deemed to have sold shares below the then applicable conversion
price (currently $0.04 per share). The consent of the
holders of a majority of the Series A Stock is required in
the event that we elect to undertake certain significant
business actions.
The Series A-1 Stock is substantially identical to the
Series A Stock described above, although its original
issuance price and liquidation preference are $1.60 per
share, and its conversion rate is initially 40 shares of
common stock per share of Series A-1 Stock.
Registration Rights
In addition to the rights of the selling stockholders identified
herein to require us to file a registration statement of which
this prospectus is a part for the purpose of registering the
resale of the shares offered hereby, holders of approximately
225.2 million shares of our common stock (issued or
issuable upon conversion of the Series A Stock and the
Series A-1 Stock on an as-converted basis), which shares we
refer to as registrable securities, have the
following registration rights with respect to those shares:
|
|
|
Demand Registration Rights.
The holders of 20% or more of
the registrable securities, or their transferees, may require us
on not more than two occasions in a twelve month period
(exclusive of registration on
Form
S-3),
to file
a registration statement under the Securities Act with respect
to their shares of common stock, provided that the anticipated
aggregate offering price to the public of at least
$2.0 million. These registration rights are subject to
specified conditions and limitations. Under the terms of the
registration pursuant to which these rights are granted, we will
be required to register for resale these shares if we receive a
written request from holders of at least a majority of all such
shares then outstanding.
|
|
|
Piggyback Registration Rights.
If we propose to register
any of our securities under the Securities Act either for our
own account or for the account of other stockholders, the
holders of the
|
63
|
|
|
registrable securities will be entitled to notice of the
registration and will be entitled to include their shares of
common stock in the registration statement. These registration
rights are subject to specified conditions and limitations,
including the right of the underwriters to limit the number of
shares included in any such registration under some
circumstances and the right of the holders to include their
shares in the registration statement before we can include
shares that we propose to sell. The holders of these shares have
waived their right to have their shares included in this
offering.
|
|
|
Registration on
Form
S-3.
The
holders of the registrable securities are entitled, upon written
request from holders of registrable securities, to have such
shares registered by us on a
Form
S-3
registration statement at our expense provided that such
requested registration has an anticipated aggregate offering
price to the public of at least $1.0 million. These
registration rights are subject to specified conditions and
limitations.
|
|
|
Expenses of Registration.
We will pay all expenses
relating to any demand, piggyback or
Form
S-3
registrations, other than underwriting discounts and commissions.
|
|
|
Expiration of Registration Rights.
The rights granted to
a holder under the investor rights agreement will terminate upon
(A) any consolidation or merger of Northwest
Biotherapeutics with or into any other corporation or other
entity or person, or any other corporate reorganization, other
than any such consolidation, merger or reorganization in which
our stockholders immediately prior to such consolidation, merger
or reorganization, continue to hold at least a majority of the
voting power of the surviving entity in substantially the same
proportions (or, if the surviving entity is a wholly owned
subsidiary, its parent) immediately after such consolidation,
merger or reorganization; or (B) any transaction or series
of related transactions to which we are a party in which in
excess of fifty percent (50%) of our voting power is transferred.
|
Certain Provisions of Delaware Law and Our Certificate of
Incorporation and Bylaws
A number of provisions of our Certificate of Incorporation and
Bylaws concern matters of corporate governance and the rights of
stockholders. Certain of these provisions, as well as the
ability of our Board of Directors to issue shares of preferred
stock and to set the voting rights, preferences and other terms
thereof, may be deemed to have an anti-takeover effect and may
discourage takeover attempts not first approved by the Board of
Directors (including takeovers which certain stockholders may
deemed to be in their best interests). To the extent takeover
attempts are discouraged, temporary fluctuations in the market
price of the common stock, which may result from actual or
rumored takeover attempts, may be inhibited. These provisions,
together with the ability of our Board to issue preferred stock
without further stockholder action, also could delay or
frustrate the removal of incumbent directors or the assumption
of control by stockholders, even if such removal or assumption
would be beneficial to stockholders. These provisions also could
discourage or make more difficult a merger, tender offer or
proxy contests, even if they could be favorable to the interests
of stockholders, and could potentially depress the market price
of the common stock. The Board of Directors believes these
provisions are appropriate to protect the interests of Northwest
Biotherapeutics, Inc. and all of its stockholders.
Special Meetings of Stockholders.
A special meeting of
stockholders may be called at any time by the Board of Directors
or the Chairman of the Board, if one shall have been elected, or
the Chief Executive Officer. Except as otherwise provided by
applicable law, or the Certificate of Incorporation or Bylaws,
stockholders shall not be entitled to call a special meeting.
Stockholder action by written consent.
Our bylaws provide
that any action required to be taken at any annual or special
meeting of the holders of common stock, may be taken by written
consent without a meeting, provided that such written consent is
signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to
vote thereon were present and voted the holders of all of the
outstanding shares of common stock.
64
Number of Directors; Filling Vacancies.
Our Certificate
of Incorporation and Bylaws provide that the number of directors
constituting the board of directors will be determined by the
affirmative vote of the entire Board of Directors (the current
number of directors constituting the full board is one). Any
vacancy occurring in the board of directors, including any
vacancy created by reason of an increase in the number of
directors, shall be filled for the unexpired term by the
concurring vote of a majority of the directors then in office,
whether or not a quorum, or by the sole remaining director. Each
director so elected shall hold office for the remainder of the
full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such
directors successor shall have been elected and qualified.
Classification of Directors.
Our Bylaws provide that the
directors shall be classified in respect to the time for which
they shall severally hold office, by dividing them into three
classes. The number of directors in each class shall be as
nearly equal as possible. At each annual election, any vacancy
in any class of directors may be filled and successors to the
class of directors whose terms shall expire that year shall be
elected to hold office for a term of three years, so that the
term of office of one class of directors shall expire in each
year. In the event the number of directors is increased,
election may be made to a class of directors with terms expiring
in three years or less in order to maintain proportionate
equality between the classes. Any decrease in the number of
directors shall be effective at the time of the next succeeding
annual meeting of stockholders unless there are vacancies in the
board of directors, in which case such decrease may become
effective at any time prior to the next succeeding annual
meeting to the extent of the number of such vacancies. Each
director shall hold office until the expiration of the term for
which he is elected and until his successor has been elected and
qualified, or until his prior resignation or removal.
Amendments to Bylaws.
Our Bylaws provide that they may be
amended or repealed or new bylaws may be adopted by action of
the affirmative vote of 66 2/3% of the stockholders entitled to
vote thereon at any annual or special meeting of stockholders or
by action of the Board of Directors at a regular or special
meeting thereof.
Section 203 of the DGCL.
We are subject to
Section 203 of the Delaware General Corporation Law. Under
this provision, we may not engage in any business combination
with any interested stockholder for a period of three years
following the date the stockholder became an interested
stockholder, unless:
|
|
|
|
|
prior to such time our board of directors approved either the
business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
|
|
|
|
upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of our voting stock outstanding
at the time the transaction commenced, excluding for purposes of
determining the voting stock outstanding (but not the
outstanding voting stock owned by the interested stockholder)
those shares owned (i) by persons who are directors and
also officers and (ii) employee stock plans in which
employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
|
|
|
|
at or subsequent to such time the business combination is
approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent,
by the affirmative vote of at least
66
2
/
3
% of the outstanding voting stock which is not owned by
the interested stockholder.
|
Section 203 defines business combination to
include the following:
|
|
|
|
|
any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested
stockholder;
|
|
|
|
subject to some exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
|
65
|
|
|
|
|
any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
|
|
|
|
the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
|
In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning
15% or more of the outstanding voting stock of the corporation
and any entity or person affiliated with or controlling or
controlled by the entity or person.
Transfer Agent
The transfer agent for our common stock is Mellon Investor
Services, LLC.
SHARES ELIGIBLE FOR FUTURE SALE
Future market sales of shares or the availability of shares for
sale may decrease the market price of our common stock
prevailing from time to time. As described below, only a portion
of our outstanding shares of common stock will be available for
sale shortly after this offering due to legal restrictions on
resale. Nevertheless, sales of substantial amounts of common
stock in the public market after these restrictions lapse, or
the perception that such sales could occur, could adversely
affect the market price of the common stock and could impair our
future ability to raise capital through the sale of our equity
securities.
Based on 65,241,287 shares of common stock outstanding as
of July 6, 2006, there would be a total of
482,062,588 shares of common stock outstanding upon the
full conversion and exercise of all currently outstanding
options, warrants, and convertible securities. Of these shares,
upon the effectiveness of the registration statement of which
this prospectus is a part, 84,260,946 will be freely tradable,
except that any shares held by our affiliates, as
that term is defined under Rule 144 promulgated under the
Securities Act, may only be sold in compliance with the
Rule 144 limitations described below. The remainder
(substantially all of which are beneficially owned by Toucan
Capital and Toucan Partners) would be eligible for resale in
accordance with the resale provisions of Rule 144 or upon
our registration of such shares for resale.
Rule 144
In general, under Rule 144 promulgated under the Securities
Act, a person, or group of persons whose shares are required to
be aggregated, who has beneficially owned shares of our common
stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the
greater of:
|
|
|
|
|
|
1% of the number of shares of our common stock then outstanding,
which equals approximately 652,000 shares based on the
number of shares of common stock outstanding as of July 6,
2006; or
|
|
|
|
|
the average weekly trading volume of our common stock on the
Over-The-Counter Bulletin Board during the four calendar
weeks preceding the filing of a notice on Form 144 with
respect to the sale.
|
Sales under Rule 144 are also subject to manner of sale
provisions and notice requirements and to the availability of
current public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been
one of our affiliates at any time during the 90 days
preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, including the
holding period of any prior owner other than an affiliate (as
defined under the
66
Securities Act), is entitled to sell the shares without
complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701
Rule 701, as currently in effect, permits resales of shares
in reliance upon Rule 144 but without compliance with
certain restrictions of Rule 144, including the holding
period requirement. Most of our employees, officers, directors
or consultants who purchased shares under a written compensatory
plan or contract may be entitled to rely on the resale
provisions of Rule 701.
Registration Rights
Toucan Capital and Toucan Partners, which as of July 6,
2006 collectively own approximately 225.2 million shares of
our common stock (issued or issuable upon conversion of the
Series A Stock and the Series A-1 Stock on an
as-converted basis) and may acquire an additional approximately
169.9 million shares upon exercise of warrants and
conversion of promissory notes, or their transferees, are
entitled to rights with respect to the registration of their
shares under the Securities Act. Registration of their shares
under the Securities Act would result in the shares becoming
freely tradable without restriction under the Securities Act,
except for shares purchased by affiliates. See Description
of Capital Stock Registration Rights.
Stock Options
We have filed with the SEC a registration statement under the
Securities Act covering the shares of common stock reserved for
issuance under our stock option plans and employee stock
purchase plan. The registration statement is effective.
Accordingly, the shares registered under the registration
statements are, subject to Rule 144 volume limitations
applicable to affiliates and the restrictions of the
lock-up
agreements
described above, available for sale in the open market.
67
PLAN OF DISTRIBUTION
The selling stockholders, which as used herein includes donees,
pledgees, transferees or other
successors-in
-interest
selling shares of common stock or interests in shares of common
stock received after the date of this prospectus from a selling
stockholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise
dispose of any or all of their shares of common stock or
interests in shares of common stock on any stock exchange,
market or trading facility on which the shares are traded or in
private transactions. These dispositions may be at fixed prices,
at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices
determined at the time of sale, or at negotiated prices.
The selling stockholders may use any one or more of the
following methods when disposing of shares or interests therein:
|
|
|
|
|
ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
|
|
|
|
block trades in which the broker-dealer will attempt to sell the
shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
|
|
|
|
purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
|
|
|
|
an exchange distribution in accordance with the rules of the
applicable exchange;
|
|
|
|
privately negotiated transactions;
|
|
|
|
short sales effected after the date the registration statement
of which this prospectus is a part is declared effective by the
SEC;
|
|
|
|
through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
|
|
|
|
broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
|
|
|
|
a combination of any such methods of sale; and
|
|
|
|
any other method permitted pursuant to applicable law.
|
The selling stockholders may, from time to time, pledge or grant
a security interest in some or all of the shares of common stock
owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer
and sell the shares of common stock, from time to time, under
this prospectus, or under an amendment to this prospectus under
Rule 424(b)(3) or other applicable provision of the
Securities Act amending the list of selling stockholders to
include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling
stockholders also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or
other successors in interest will be the selling beneficial
owners for purposes of this prospectus.
In connection with the sale of our common stock or interests
therein, the selling stockholders may enter into hedging
transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume.
The selling stockholders may also sell shares of our common
stock short and deliver these securities to close out their
short positions, or loan or pledge the common stock to
broker-dealers that in turn may sell these securities. The
selling stockholders may also enter into option or other
transactions with broker-dealers or other financial institutions
or the creation of one or more derivative securities which
require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares
such broker-dealer or other financial institution may resell
pursuant to this prospectus (as supplemented or amended to
reflect such transaction).
68
The aggregate proceeds to the selling stockholders from the sale
of the common stock offered by them will be the purchase price
of the common stock less discounts or commissions, if any. Each
of the selling stockholders reserves the right to accept and,
together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be
made directly or through agents. We will not receive any of the
proceeds from this offering. Upon any exercise of the warrants
by payment of cash, however, we will receive the exercise price
of the warrants.
The selling stockholders also may resell all or a portion of the
shares in open market transactions in reliance upon
Rule 144 under the Securities Act, provided that they meet
the criteria and conform to the requirements of that rule.
The selling stockholders and any underwriters, broker-dealers or
agents that participate in the sale of the common stock or
interests therein may be underwriters within the
meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any
resale of the shares may be underwriting discounts and
commissions under the Securities Act. Selling stockholders who
are underwriters within the meaning of
Section 2(11) of the Securities Act will be subject to the
prospectus delivery requirements of the Securities Act.
To the extent required, the shares of our common stock to be
sold, the names of the selling stockholders, the respective
purchase prices and public offering prices, the names of any
agents, dealer or underwriter, any applicable commissions or
discounts with respect to a particular offer will be set forth
in an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement that
includes this prospectus.
In order to comply with the securities laws of some states, if
applicable, the common stock may be sold in these jurisdictions
only through registered or licensed brokers or dealers. In
addition, in some states the common stock may not be sold unless
it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and
is complied with.
We have advised the selling stockholders that the
anti-manipulation rules of Regulation M under the Exchange
Act may apply to sales of shares in the market and to the
activities of the selling stockholders and their affiliates. In
addition, we will make copies of this prospectus (as it may be
supplemented or amended from time to time) available to the
selling stockholders for the purpose of satisfying the
prospectus delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares
against certain liabilities, including liabilities arising under
the Securities Act.
We have agreed to indemnify the selling stockholders against
liabilities, including liabilities under the Securities Act and
state securities laws, relating to the registration of the
shares offered by this prospectus.
We have agreed with the selling stockholders to keep the
registration statement of which this prospectus constitutes a
part effective until the earlier of (1) the second
anniversary of the effective date of the registration statement;
(2) such time as all of the shares covered by this
prospectus have been disposed of pursuant to and in accordance
with the registration statement or (3) the date on which
the shares may be sold pursuant to Rule 144(k) of the
Securities Act.
LEGAL MATTERS
The validity of the issuance of the common stock offered by this
prospectus has been passed upon for us by Johnston Law Firm,
11808 Northup Way, Suite W-190, Bellevue, WA 98005.
EXPERTS
The financial statements of Northwest Biotherapeutics, Inc. as
of December 31, 2005 and 2004 and for each of the years in
the two year period ended December 31, 2005 and the period
from March 18, 1996 (inception) through
December 31, 2005 have been included in this prospectus and
registration
69
statement in reliance upon the report of Peterson Sullivan PLLC,
a registered independent public accounting firm, appearing
elsewhere herein, and upon the authority of said firm as experts
in accounting and auditing.
The report of Peterson Sullivan PLLC covering the
December 31, 2005 financial statements contains an
explanatory paragraph that states that the Company has
experienced recurring losses from operations, has a net capital
deficiency and, at December 31, 2005, a net working capital
deficit that raise substantial doubt about its ability to
continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of
that uncertainty.
The financial statements of Northwest Biotherapeutics, Inc. for
the year ended December 31, 2003 and the period from
March 18, 1996 (inception) through December 31,
2003 (which period does not appear herein) have been included in
this prospectus and registration statement in reliance upon the
report of KPMG LLP, a registered independent public accounting
firm, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
The report of KPMG LLP covering the December 31, 2003
financial statements contains an explanatory paragraph that
states that the Company has experienced recurring losses from
operations, has a working capital deficit and has a deficit
accumulated during the development stage which raise substantial
doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC, a registration statement on
Form
S-1,
of which
this prospectus is a part, under the Securities Act with respect
to the common stock offered hereby. This prospectus does not
contain all of the information included in the registration
statement. Statements in this prospectus concerning the
provisions of any document are not necessarily complete. You
should refer to the copies of the documents filed as exhibits to
the registration statement or otherwise filed by us with the SEC
for a more complete understanding of the matter involved. Each
statement concerning these documents is qualified in its
entirety by such reference.
We are subject to the informational requirements of the Exchange
Act, and, accordingly, file reports, proxy statements and other
information with the SEC. The SEC maintains a web site at
http://www.sec.gov that contains reports and information
statements and other information regarding registrants that file
electronically with the SEC. You may read and copy the
registration statement, these reports and other information at
the public reference facility maintained by the SEC at the
SECs Public Reference Room at 100 F Street, N.E.,
Washington, DC 20549. You may obtain information on the
operation of the public reference room by calling the SEC at
1-800-SEC-0330.
70
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
I FINANCIAL INFORMATION
|
|
|
|
|
Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
|
F-3
|
|
|
|
|
|
F-4
|
|
|
|
|
|
F-5
|
|
II FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-14
|
|
|
|
|
F-15
|
|
|
|
|
F-16
|
|
|
|
|
F-17
|
|
|
|
|
F-18
|
|
|
|
|
F-22
|
|
|
|
|
F-24
|
|
F-1
NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
352
|
|
|
$
|
2,941
|
|
|
Accounts receivable
|
|
|
17
|
|
|
|
|
|
|
Accounts receivable, related party
|
|
|
58
|
|
|
|
58
|
|
|
Prepaid expenses and other current assets
|
|
|
117
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
544
|
|
|
|
3,085
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
Laboratory equipment
|
|
|
100
|
|
|
|
100
|
|
|
Office furniture and other equipment
|
|
|
96
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
196
|
|
|
|
196
|
|
|
Less accumulated depreciation and amortization
|
|
|
(143
|
)
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
53
|
|
|
|
43
|
|
|
|
Restricted cash
|
|
|
31
|
|
|
|
31
|
|
|
|
Deposit and other non-current assets
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
631
|
|
|
$
|
3,162
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Note payable to related parties, net of discount
|
|
$
|
6,683
|
|
|
$
|
7,641
|
|
|
Current portion of capital lease obligations
|
|
|
10
|
|
|
|
7
|
|
|
Accounts payable
|
|
|
443
|
|
|
|
375
|
|
|
Accounts payable, related party
|
|
|
3,353
|
|
|
|
3,572
|
|
|
Accrued expenses
|
|
|
117
|
|
|
|
180
|
|
|
Accrued expense, tax liability
|
|
|
336
|
|
|
|
343
|
|
|
Accrued expense, related party
|
|
|
500
|
|
|
|
500
|
|
|
Common stock warrant liability
|
|
|
604
|
|
|
|
9,436
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
12,046
|
|
|
|
22,054
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
Capital lease obligations, net of current portion
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
12,049
|
|
|
|
22,055
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 100,000,000 shares
authorized and 32,500,000 shares issued and outstanding at
December 31, 2005 and March 31, 2006
|
|
|
33
|
|
|
|
33
|
|
|
Common stock, $0.001 par value; 300,000,000 shares
authorized and 19,078,047 and 22,427,751 shares issued and
outstanding at December 31, 2005 and March 31, 2006,
respectively
|
|
|
19
|
|
|
|
22
|
|
|
Additional paid-in capital
|
|
|
71,220
|
|
|
|
67,700
|
|
|
Deficit accumulated during the development stage
|
|
|
(82,690
|
)
|
|
|
(86,648
|
)
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
(11,418
|
)
|
|
|
(18,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
631
|
|
|
$
|
3,162
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed financial statements.
F-2
NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Period from
|
|
|
|
March 31,
|
|
|
March 18, 1996
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
2005
|
|
|
2006
|
|
|
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research material sales
|
|
$
|
11
|
|
|
$
|
|
|
|
$
|
450
|
|
|
Contract research and development from related parties
|
|
|
|
|
|
|
|
|
|
|
1,128
|
|
|
Research grants
|
|
|
76
|
|
|
|
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
87
|
|
|
|
|
|
|
|
2,639
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of research material sales
|
|
|
2
|
|
|
|
|
|
|
|
382
|
|
|
Research and development
|
|
|
1,315
|
|
|
|
427
|
|
|
|
32,494
|
|
|
General and administrative
|
|
|
464
|
|
|
|
427
|
|
|
|
31,121
|
|
|
Depreciation and amortization
|
|
|
24
|
|
|
|
10
|
|
|
|
2,276
|
|
|
Loss on facility sublease and lease cancellation
|
|
|
|
|
|
|
|
|
|
|
895
|
|
|
Asset impairment loss, gain/loss on sale of equipment
|
|
|
|
|
|
|
|
|
|
|
2,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,805
|
|
|
|
864
|
|
|
|
69,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,718
|
)
|
|
|
(864
|
)
|
|
|
(66,595
|
)
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant valuation
|
|
|
|
|
|
|
(2,113
|
)
|
|
|
(2,481
|
)
|
|
Gain on sale of royalty rights
|
|
|
|
|
|
|
|
|
|
|
3,656
|
|
|
Interest expense
|
|
|
(809
|
)
|
|
|
(982
|
)
|
|
|
(14,119
|
)
|
|
Interest income
|
|
|
1
|
|
|
|
1
|
|
|
|
737
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,526
|
)
|
|
|
(3,958
|
)
|
|
|
(78,802
|
)
|
Accretion of Series A preferred stock mandatory redemption
obligation
|
|
|
|
|
|
|
|
|
|
|
(1,872
|
)
|
Series A preferred stock redemption fee
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
Beneficial conversion feature of Series D preferred stock
|
|
|
|
|
|
|
|
|
|
|
(4,274
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(2,526
|
)
|
|
$
|
(3,958
|
)
|
|
$
|
(86,648
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss per share applicable to common stockholders
basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic and diluted loss
per share (in thousands)
|
|
|
19,035
|
|
|
|
19,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed financial statements.
F-3
Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Period from
|
|
|
|
Ended March 31,
|
|
|
March 18, 1996
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
2005
|
|
|
2006
|
|
|
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(2,526
|
)
|
|
$
|
(3,958
|
)
|
|
$
|
(78,802
|
)
|
|
Reconciliation of net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
24
|
|
|
|
10
|
|
|
|
2,276
|
|
|
|
Amortization of deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
320
|
|
|
|
Amortization debt discount
|
|
|
695
|
|
|
|
771
|
|
|
|
11,029
|
|
|
|
Accrued interest converted to preferred stock
|
|
|
|
|
|
|
|
|
|
|
260
|
|
|
|
Accreted interest on convertible promissory note
|
|
|
112
|
|
|
|
201
|
|
|
|
998
|
|
|
|
Stock-based compensation costs
|
|
|
4
|
|
|
|
2
|
|
|
|
1,095
|
|
|
|
Gain on sale of intellectual property and royalty rights
|
|
|
|
|
|
|
|
|
|
|
(3,656
|
)
|
|
|
Gain on sale of property and equipment
|
|
|
(81
|
)
|
|
|
(16
|
)
|
|
|
267
|
|
|
|
Warrant valuation
|
|
|
|
|
|
|
2,113
|
|
|
|
2,481
|
|
|
|
Asset impairment loss
|
|
|
|
|
|
|
|
|
|
|
2,066
|
|
|
|
Loss on facility sublease
|
|
|
|
|
|
|
|
|
|
|
895
|
|
Increase (decrease) in cash resulting from changes in assets
and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(86
|
)
|
|
|
17
|
|
|
|
(58
|
)
|
|
|
Prepaid expenses and other current assets
|
|
|
63
|
|
|
|
31
|
|
|
|
380
|
|
|
|
Accounts payable and accrued expenses
|
|
|
341
|
|
|
|
220
|
|
|
|
5,373
|
|
|
|
Accrued loss on sublease
|
|
|
|
|
|
|
|
|
|
|
(265
|
)
|
|
|
Deferred grant revenue
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
Deferred rent
|
|
|
|
|
|
|
|
|
|
|
410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash used in Operating Activities
|
|
|
(1,489
|
)
|
|
|
(609
|
)
|
|
|
(54,931
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
(4,580
|
)
|
|
Proceeds from sale of property and equipment
|
|
|
81
|
|
|
|
16
|
|
|
|
249
|
|
|
Proceeds from sale of intellectual property
|
|
|
|
|
|
|
|
|
|
|
1,816
|
|
|
Proceeds from sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
Refund of security deposit
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
Transfer of restricted cash
|
|
|
|
|
|
|
|
|
|
|
(1,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash provided by (used in) Investing Activities
|
|
|
81
|
|
|
|
16
|
|
|
|
(1,553
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of note payable to stockholder
|
|
|
|
|
|
|
|
|
|
|
1,650
|
|
|
Repayment of note payable to stockholder
|
|
|
|
|
|
|
|
|
|
|
(1,650
|
)
|
|
Proceeds from issuance of convertible promissory note and
warrants, net of issuance costs
|
|
|
|
|
|
|
300
|
|
|
|
13,099
|
|
|
Borrowing under line of credit, Northwest Hospital
|
|
|
|
|
|
|
|
|
|
|
2,834
|
|
|
Repayment of line of credit, Northwest Hospital
|
|
|
|
|
|
|
|
|
|
|
(2,834
|
)
|
|
Repayment of convertible promissory note
|
|
|
(55
|
)
|
|
|
(13
|
)
|
|
|
(119
|
)
|
|
Payment on capital lease obligations
|
|
|
(11
|
)
|
|
|
(5
|
)
|
|
|
(316
|
)
|
|
Payments on note payable
|
|
|
|
|
|
|
|
|
|
|
(420
|
)
|
|
Proceeds from issuance Series A cumulative preferred stock,
net
|
|
|
1,276
|
|
|
|
|
|
|
|
28,708
|
|
|
Proceeds from exercise of stock options and warrants
|
|
|
2
|
|
|
|
|
|
|
|
220
|
|
|
Proceeds from issuance common stock, net
|
|
|
|
|
|
|
|
|
|
|
17,373
|
|
|
Advance on funding commitment for common stock
|
|
|
|
|
|
|
2,900
|
|
|
|
2,900
|
|
|
Mandatorily redeemable Series A preferred stock redemption
fee
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
|
Deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
(320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (used in) provided by Financing Activities
|
|
|
1,212
|
|
|
|
3,182
|
|
|
|
59,425
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(196
|
)
|
|
|
2,589
|
|
|
|
2,941
|
|
Cash and cash equivalents at beginning of period
|
|
|
248
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
52
|
|
|
$
|
2,941
|
|
|
$
|
2,941
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
1,398
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash financing activities Equipment
acquired through capital leases
|
|
|
|
|
|
|
|
|
|
|
285
|
|
Common stock warrant liability
|
|
|
|
|
|
|
6,719
|
|
|
|
12,037
|
|
Accretion of mandatorily redeemable Series A preferred
stock redemption obligation
|
|
|
|
|
|
|
|
|
|
|
1,872
|
|
Beneficial conversion feature of convertible promissory notes
|
|
|
|
|
|
|
64
|
|
|
|
6,906
|
|
Conversion of convertible promissory notes and accrued interest
to Series D preferred stock
|
|
|
|
|
|
|
|
|
|
|
5,324
|
|
Issuance of Series C preferred stock warrants in connection
with lease agreement
|
|
|
|
|
|
|
|
|
|
|
43
|
|
Issuance of common stock for license rights
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Issuance of common stock and warrants to Medarex
|
|
|
|
|
|
|
|
|
|
|
840
|
|
Issuance of common stock to landlord
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Deferred compensation on issuance of stock options and
restricted stock grants
|
|
|
4
|
|
|
|
|
|
|
|
759
|
|
Cancellation of options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
849
|
|
Stock subscription receivable
|
|
|
|
|
|
|
|
|
|
|
480
|
|
Financing of prepaid insurance through note payable
|
|
|
|
|
|
|
|
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed financial statements.
F-4
Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements
(unaudited)
The accompanying condensed financial statements are unaudited
and include the accounts of Northwest Biotherapeutics, Inc. The
accompanying unaudited condensed financial statements should be
read in conjunction with the financial statements included in
our Annual Report on
Form
10-K
for the
year ended December 31, 2005. The year-end condensed
balance sheet data was derived from audited financial
statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of
America. All normal recurring adjustments which are necessary
for the fair presentation of the results for the interim periods
are reflected herein. Operating results for the three-month
period ended March 31, 2006 are not necessarily indicative
of results to be expected for a full year.
The auditors report on the financial statements for the
fiscal year ended December 31, 2005 states that
because of recurring operating losses, a working capital
deficit, and a deficit accumulated during the development stage,
there is substantial doubt about the Companys ability to
continue as a going concern. A going concern opinion
indicates that the financial statements have been prepared
assuming the Company will continue as a going concern and do not
include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from
the outcome of this uncertainty.
|
|
2.
|
Summary of significant accounting policies
|
The significant accounting policies used in the preparation of
the Companys consolidated financial statements are
disclosed in the Annual Report on
Form
10-K
for the
year ended December 31, 2005. Additional significant
accounting policies for fiscal 2006 are disclosed below.
On January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123(R),
Share-Based Payment (Revised 2004),
SFAS 123(R), which requires the measurement and recognition
of compensation for all stock-based awards made to employees and
directors including stock options and employee stock purchases
under a stock purchase plan based on estimated fair values.
SFAS 123(R) supersedes previous accounting under Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees for periods beginning January 1,
2006.
The Company adopted SFAS 123(R) using the modified
prospective transition method, which requires the application of
the accounting standard as of January 1, 2006. In
accordance with the modified prospective transition method, the
Companys condensed financial statements for periods prior
to the first quarter of 2006 have not been restated to reflect
this change. Stock-based compensation recognized during the
period is based on the value of the portion of the stock-based
award that will vest during the period, adjusted for expected
forfeitures. Stock-based compensation recognized in the
Companys condensed consolidated financial statements for
the first quarter of 2006 includes compensation cost for
stock-based awards granted prior to, but not fully vested as of
December 31, 2005 and stock-based awards granted subsequent
to December 31, 2005, as applicable.
|
|
3.
|
Stock-Based Compensation Plans
|
Effective January 1, 2006, the Company adopted
SFAS 123(R), which establishes accounting for stock-based
awards exchanged for employee services, using the modified
prospective application transition method. Accordingly,
stock-based compensation cost is measured at grant date, based
on the fair value of
F-5
Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Notes to Condensed Financial
Statements (Continued)
the award, over the requisite service period. Previously, the
Company applied APB 25 and related Interpretations, as
permitted by SFAS 123.
For options and warrants issued to non-employees, the Company
recognizes stock compensation costs utilizing the fair value
methodology prescribed in SFAS No. 123(R) over the
related period of benefit.
|
|
|
Determining Fair Value Under SFAS 123(R)
|
Valuation and Amortization Method.
The Company estimates
the fair value of stock-based awards granted using the
Black-Scholes option valuation model. The Company amortizes the
fair value of all awards on a straight-line basis over the
requisite service periods, which are generally the vesting
periods.
Expected Life.
The expected life of awards granted
represents the period of time that they are expected to be
outstanding. The Company determines the expected life based on
historical experience with similar awards, giving consideration
to the contractual terms, vesting schedules and pre-vesting and
post-vesting forfeitures.
Expected Volatility.
The Company estimates the volatility
of our common stock at the date of grant based on the historical
volatility of our common stock. The volatility factor used in
the Black-Scholes option valuation model is based on the
Companys historical stock prices over the most recent
period commensurate with the estimated expected life of the
award.
Risk-Free Interest Rate.
The Company bases the risk-free
interest rate used in the Black-Scholes option valuation model
on the implied yield currently available on U.S. Treasury
zero-coupon issues with an equivalent remaining term equal to
the expected life of the award.
Expected Dividend Yield.
The Company has never paid any
cash dividends on common stock and does not anticipate paying
any cash dividends in the foreseeable future. Consequently, the
Company uses an expected dividend yield of zero in the
Black-Scholes option valuation model.
Expected Forfeitures.
The Company uses historical data to
estimate pre-vesting option forfeitures. The Company records
stock-based compensation only for those awards that are expected
to vest.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model. There were
no shares purchased under the stock purchase plan during the
three months ended March 31, 2006 and 2005, respectively.
The stock-based compensation expense related to stock-based
awards under SFAS 123(R) totaled $1,000 for the three
months ended March 31, 2006. At March 31, 2006 the
Company had approximately 108,000 non-vested stock options that
had a weighted average grant date fair value of $0.12. As of
March 31, 2006, the Company had approximately $3,000 of
total unrecognized compensation cost related to non-vested
stock-based awards granted under all equity compensation plans.
Total unrecognized compensation cost will be adjusted for any
future changes in estimated forfeitures. The Company expects to
recognize this cost over the next two years.
|
|
|
Pro Forma Information Under SFAS 123 and
APB 25
|
Prior to January 1, 2006, stock-based compensation plans
were accounted for using the intrinsic value method prescribed
in APB 25 and related Interpretations. No stock-based
compensation was reflected in net loss in the three months ended
March 31, 2005, as all stock options granted under those
plans had an exercise price equal to or greater than the market
value of the underlying common stock on the date of grant. Had
compensation cost for the plans been determined based on the
fair value at the grant dates for awards under those plans
consistent with the method of SFAS 123, net income (loss)
and basic and
F-6
Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Notes to Condensed Financial
Statements (Continued)
diluted net income (loss) per share would have been changed to
the pro forma amounts indicated below (in thousands, except for
per share data):
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2005
|
|
|
|
|
|
Net loss applicable to common stockholders as reported
|
|
|
|
|
|
As reported
|
|
$
|
(2,526
|
)
|
|
Add: Stock-based employee compensation expense included in
reported net loss, net
|
|
|
4
|
|
|
Deduct: Stock-based employee compensation determined under fair
value based method for all awards
|
|
|
(24
|
)
|
|
|
|
|
|
Pro forma
|
|
$
|
(2,546
|
)
|
|
|
|
|
Net loss per share-basic and diluted:
|
|
|
|
|
|
As reported
|
|
$
|
(0.13
|
)
|
|
Pro forma
|
|
$
|
(0.13
|
)
|
There were no stock options granted during the three months
ended March 31, 2006 and 2005.
Since 2004, the Company has undergone a significant
recapitalization pursuant to which Toucan Capital Fund II,
L.P., or Toucan Capital, has loaned us $7.7 million and
Toucan Partners, LLC, or Toucan Partners, has loaned us
$950,000. On January 26, 2005, the Company entered into a
securities purchase agreement with Toucan Capital pursuant to
which they purchased 32.5 million shares of the
Companys newly designated Series A Preferred Stock at
a purchase price of $0.04 per share, for a net purchase
price of $1.267 million, net of issue related costs of
approximately $24,000.
These funds enabled the Company to continue to operate and
advance programs, while attempting to raise additional capital.
On March 30, 2006, the Company entered into an equity
financing (PIPE financing) with unrelated investors
pursuant to which aggregate gross proceeds of approximately
$5.5 million was raised.
As of July 10, 2006 the Company had cash in the amount of
$2.4 million which the Company believes, based on recurring
operating and associated financing costs, will be sufficient to
fund its operations for the next twelve months. Approximately
$11.7 million of the Companys current liabilities at
March 31, 2006 were payable to related parties, net of the
related debt discount and $9.4 million relates to a common
stock warrant liability which has subsequently been reversed
because the Company obtained stockholder approval to increase
the Companys authorized capital at the Annual Meeting of
Stockholders held on May 25, 2006. Further, approximately
$7.1 million of these current liabilities, net of the
related debt discount, were converted into
Series
A-1
Preferred Stock and $268,000 of these current liabilities were
converted into common stock on April 17, 2006. During April
and May 2006, the Company paid $1.7 million of the
remaining current related party liabilities as of March 31,
2006. For purposes of our assessment of the Companys
ability to fund its operations through the next twelve months it
was assumed that it would be able to refinance or otherwise
defer the payment of the remaining $2.6 million of related
party liabilities, net of the related debt discount. These
liabilities consist primarily of $254,000 related to notes
payable to Toucan Partners, net of the related debt discount,
$1.9 million due to Cognate Therapeutics, Inc for contract
manufacturing as of March 31, 2006 and $500,000 related to
expenses paid by Toucan Capital on behalf of the Company. These
parties have not yet agreed to any refinancing or
F-7
Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Notes to Condensed Financial
Statements (Continued)
deferral and may not do so. If these related party liabilities
are required to be repaid when currently due, the Company expect
that its current cash is only sufficient to fund its operations
until August 2006, after which time it may not be able to
continue meeting its obligations on an ongoing basis, if at all.
The Company needs to raise significant additional funding to
continue its operations, conduct research and development
activities, pre-clinical studies and clinical trials necessary
to bring its product candidates to market. However, additional
funding may not be available on terms acceptable to the Company
or at all. The alternative of issuing additional equity or
convertible debt securities also may not be available and, in
any event, would result in additional dilution to the
Companys stockholders. Any additional financing with
Toucan Capital, Toucan Partners or any other third party is
likely to be dilutive to stockholders, and any debt financing,
if available, may include additional restrictive covenants. If
the Company is unable to obtain significant additional capital
in the near-term, we may cease operations at anytime. The
Company does not believe that its assets would be sufficient to
satisfy the claims of all of its creditors and the liquidation
preferences of its preferred stockholders in full. Therefore, if
the Company were to pursue liquidation, it is highly unlikely
that any proceeds would be received by the holders of the
Companys common stock.
There can be no assurance that the recapitalization plan or any
other alternative will be successful. If the recapitalization is
unsuccessful, the Companys inability to obtain additional
cash as needed could have a material adverse effect on its
financial position, results of operations and its ability to
continue its existence. The Companys independent auditors
have indicated in their report on the financial statements,
included in the December 31, 2005 annual report on
Form
10-K,
that
there is substantial doubt about the Companys ability to
continue as a going concern.
|
|
5.
|
Net Loss Per Share Applicable to Common Stockholders
|
For the three months ended March 31, 2006 and 2005,
respectively, options to purchase 635,000 and
784,000 shares of common stock and warrants to
purchase 146 million and 117 million shares of
common and preferred stock were not included in the computation
of diluted net income (loss) per share because they were
antidilutive.
On November 13, 2003, the Company borrowed an aggregate of
$335,000 from certain members of its management which enabled
the Company to continue operating into the first quarter of
2004. Net of repayments and conversions into common stock, the
aggregate loan principal and accrued interest payable to
management at March 31, 2006 is $224,000 and $51,800,
respectively. In connection with the April 26, 2004
recapitalization agreement with Toucan Capital, these notes were
amended to set the conversion price at $0.10 per share and
to extend the maturity date. The outstanding principal balance
on the remaining notes, along with the related accrued interest,
were converted into 2,687,719 shares of common stock on
April 17, 2006.
As part of the November 13, 2003 loan from management, the
lenders received warrants initially exercisable to acquire an
aggregate of 3.7 million shares of the Companys
common stock. These warrants expire in November 2008 and are
subject to certain antidilution adjustments. In connection with
the April 26, 2004 recapitalization agreement, the warrants
were amended to remove the anti-dilution provisions and set the
warrant exercise price at the lesser of (i) $0.10 per
share or (ii) a 35% discount to the average closing price
during the twenty trading days prior to the first closing of the
sale by the Company of convertible preferred stock as
contemplated by the recapitalization agreement but not less
F-8
Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Notes to Condensed Financial
Statements (Continued)
than $0.04 per share. During March 2006, warrants for the
purchase of 3.6 million shares of common stock were
exercised on a net exercise basis. As a result, an aggregate of
3.3 million shares of common stock were issued to current
and prior members of management.
From February 2004 through March 2006, the Company entered into
multiple agreements with Toucan Capital and its affiliate,
Toucan Partners, all of which relate to the recapitalization
agreement originally entered into on April 26, 2004 with
Toucan Capital. At Toucan Capitals option, and if
successfully implemented, the recapitalization could provide the
Company with up to $40 million through the issuance of new
securities to Toucan Capital and a syndicate of other investors
to be determined. The proposed recapitalization would occur in
two stages, a loan period, followed by a potential equity
financing.
The Company and Toucan Capital amended the recapitalization
agreement in conjunction with each successive loan agreement.
The amendments (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.
As part of the Companys recapitalization, the Company
borrowed an aggregate of $6.75 million from Toucan Capital,
from February 2, 2004 through September 7, 2005. As of
March 31, 2006, the Company has recorded approximately
$923,000 in accrued interest related to these loans. Interest
accrues at 10% per annum. Further, as of March 31,
2006, the aggregate principal and accrued interest were
convertible into approximately 192 million shares of common
or Series A Preferred Stock. In connection with the loans
from Toucan Capital, the Company issued warrants to
purchase 122.5 million aggregate shares of capital
stock. These warrants provide Toucan Capital the ability to
purchase 66 million and 56.5 million aggregate
shares of capital stock at an exercises price of $0.01 per
share and $0.04 per share, respectively. The warrant
exercise period is seven years from the issuance date of the
related convertible notes.
On April 17, 2006, Toucan Capital elected to convert all of
its convertible promissory notes and the related accrued
interest into approximately 4.8 million shares of the
Companys Series A-1 Preferred Stock. The
Series A-1 Preferred Stock is substantially identical to
the Companys Series A Preferred Stock, except that
(i) the issuance price and liquidation preference of the
Series A-1 Preferred Stock are $1.60 per share (as
opposed to $0.04 per share for the Series A Preferred
Stock), and (ii) each share of Series A-1 Preferred
Stock is convertible into 40 shares of Common Stock (as
opposed to one share of common stock in the case of the
Series A Preferred Stock). The foregoing differences result
in the Series A-1 Preferred Stock being economically
equivalent to the Series A Preferred Stock.
In conjunction with the conversion of Toucan Capitals
notes into Series A-1 Preferred Stock, on April 17,
2006, the Company entered into an Amended and Restated Investor
Rights Agreement (the IRA) with Toucan Capital. The
IRA implements the provisions of the binding term sheet the
Company executed on April 26, 2004, under which Toucan
Capital and other investors, such as Toucan Partners, who are
holders of Series A or Series A-1 Preferred Stock
receive registration rights in respect of the shares of common
stock issuable upon conversion of the Series A Preferred
Stock and Series A-1 Preferred Stock held by such
investors, as well as the shares of common stock underlying the
warrants held by such investors.
F-9
Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Notes to Condensed Financial
Statements (Continued)
The Company borrowed $950,000 from Toucan Partners, an affiliate
of Toucan Capital, from November 14, 2005 to March 9,
2006, comprised of the following loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Conversion
|
|
|
Warrant
|
|
Loan Date
|
|
Principal(1)
|
|
|
Due Date
|
|
|
Rate(2)
|
|
|
Shares(3)
|
|
|
Shares(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
11/14/2005
|
|
$
|
400
|
|
|
|
11/14/2006
|
|
|
|
10
|
%
|
|
|
10,391
|
|
|
|
4,000
|
(4)
|
12/30/2005
|
|
|
250
|
|
|
|
12/30/2006
|
|
|
|
10
|
%
|
|
|
6,402
|
|
|
|
2,500
|
(5)
|
03/09/2006
|
|
|
300
|
|
|
|
03/09/2007
|
|
|
|
10
|
%
|
|
|
7,545
|
|
|
|
3,000
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
950
|
|
|
|
|
|
|
|
|
|
|
|
24,338
|
|
|
|
9,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The notes are secured by a first priority senior security
interest in all of the Companys assets.
|
|
(2)
|
Interest accrues at 10% per annum, based on a
365-day
basis
compounded annually from the respective original issuance dates
of the notes.
|
|
(3)
|
The notes are convertible into, and the warrants are exercisable
for, shares of convertible preferred stock if the convertible
preferred stock is approved and authorized and other investors
have purchased in cash a minimum of $15 million of such
convertible preferred stock, on the terms and conditions set
forth in the recapitalization agreement. However, if, for any
reason, such convertible preferred stock is not approved or
authorized and/or if other investors have not purchased in cash
a minimum of $15 million of such convertible preferred
stock, on the terms and conditions set forth in the
recapitalization agreement, these notes shall be convertible
into, and the warrants shall be exercisable for, any equity
security and/or debt security and/or any combination thereof.
|
|
(4)
|
Exercise period is 7 years from the issuance date of the
note.
|
|
(5)
|
Exercise period is 7 years from April 17, 2006 (the
issuance date of the warrant).
|
Proceeds from the issuance of $950,000 senior convertible
promissory notes and warrants between November 14, 2005 and
March 9, 2006 were allocated between the notes and warrants
on a relative fair value basis. The value allocated to the
warrants on the date of the grant was approximately $587,000.
The fair value of the warrants was determined using the
Black-Scholes option pricing model with the following
assumptions: expected dividend yield of 0%, risk-free interest
rate ranging from 4.1% to 4.4%, volatility ranging between 398%
and 408%, and a contractual life of 7 years. The value of
the warrants was recorded as a deferred debt discount against
the $950,000 proceeds of the notes. In addition, a beneficial
conversion feature related to the notes was determined to be
approximately $363,000. As a result, the total discount on the
notes equaled $950,000 which is being amortized over the
twelve-month term of the respective notes. Amortization of
deferred debt discount of approximately $179,000 was recorded
for the three months ended March 31, 2006. Interest
accretion on the notes of approximately $18,300 was recorded for
the three months ended March 31, 2006.
|
|
7.
|
Liability for Potentially Dilutive Securities in Excess of
Authorized Number of Common Shares
|
In accordance with
EITF
00-19,
the
Company accounts for potential shares that can be converted to
common stock, that are in excess of authorized shares, as a
liability that is recorded at fair value. Total potential
outstanding common stock exceeded the Companys authorized
shares as of December 31, 2005 when the Company entered
into another convertible promissory note and warrant agreement
with Toucan Partners as of December 30, 2005. The fair
value of the warrants in excess of the authorized shares at
December 31, 2005 totaling approximately $604,000 was
recognized as a liability on December 31, 2005. This
liability is required to be evaluated at each reporting date
with any change in value included in other
F-10
Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Notes to Condensed Financial
Statements (Continued)
income/(expense) until such time as enough shares are authorized
to cover all potentially convertible instruments. Accordingly,
during first quarter 2006, the Company recognized a loss
totaling $2.1 million with respect to the revaluation of
this warrant liability. Further, during March 2006, the Company
issued an additional warrant to Toucan Partners, along with a
convertible promissory note. The fair value of the warrants in
excess of the authorized shares was approximately
$6.7 million was recognized as an additional liability as
of March 31, 2006.
Similarly, total potential outstanding common stock exceeded the
Companys authorized shares on July 30, 2004 when an
additional $2.0 million loan, convertible into common
stock, was received from Toucan Capital and additional a warrant
was issued. The fair value of the warrant shares in excess of
the authorized shares was approximately $2.8 million and
was recognized as a liability on July 30, 2004. During the
fourth quarter of 2004, the Company received three additional
loans from Toucan Capital, convertible into shares of common
stock totaling $1.25 million and additional warrants were
issued with each loan. The total fair value of the warrant
shares in excess of the authorized shares was approximately
$1.5 million and was recognized as a liability at the dates
of issuance of the convertible debt and warrants. This liability
was evaluated at each reporting date and any changes in value
were included in other income/(expense) until enough shares were
authorized to cover all potentially convertible instruments.
Effective December 29, 2004, the number of authorized
common shares was increased to 300 million. The liability
for potential shares in excess of total authorized shares was
revalued at that date. This valuation resulted in a fourth
quarter loss of approximately $1.0 million, due to net
increases in the net fair value of related warrants at that
date. This loss was offset against the September 30, 2004
gain of approximately $717,000 for a net loss as of
December 31, 2004 of approximately $368,000, included in
the 2004 statement of operations as a warrant valuation.
On March 30, 2006, the Company entered into a securities
purchase agreement (the Purchase Agreement) with a
group of accredited investors pursuant to which the Company
agreed to sell an aggregate of approximately 39.5 million
shares of its common stock, at a price of $0.14 per share,
and to issue, for no additional consideration, warrants to
purchase up to an aggregate of approximately 19.7 million
shares of Companys common stock. The PIPE Financing closed
and stock was issued to the new investors in early April and the
Company received gross proceeds of approximately
$5.5 million, before offering expenses. As of
March 31, 2006, the Company had received $2.9 million
related to advanced funding received in connection with certain
investors commitments to purchase common stock.
The warrants expire five years after issuance, and are initially
exercisable at a price of $0.14 per share, subject to
adjustments under certain circumstances.
Under the Purchase Agreement, the Company agreed to register for
resale under the Securities Act of 1933, as amended (the
Securities Act) both the shares of common stock and
the warrant shares. Under the terms of the Purchase Agreement,
the Company is required to file a registration statement with
the Securities and Exchange Commission (SEC) within
45 days of the transaction closing date. The Company also
agreed to other customary obligations regarding registration,
including matters relating to indemnification, maintenance of
the registration statement, payment of expenses, and compliance
with state blue sky laws. The Company may be liable
for liquidated damages (a) if the registration statement is
not filed on or prior to May 19, 2006; (b) if the
registration statement is not declared effective by the SEC on
or prior to August 2, 2006; or (c) if the registration
statement (after being declared effective) ceases to be
effective in a manner, and for a period of time, that violates
the Companys obligations under the Purchase Agreement. The
amount of the liquidated
F-11
Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Notes to Condensed Financial
Statements (Continued)
damages payable to the investors is, in aggregate, one percent
(1%) of the aggregate purchase price of the shares per month,
subject to a cap of ten percent (10%) of the aggregate purchase
price of the shares.
The Company signed an engagement letter, dated October 15,
2003, with Soma Partners, LLC (Soma), a New
Jersey-based investment bank, pursuant to which the Company
engaged them to locate potential investors. Pursuant to the
terms of the engagement letter, any disputes arising between the
parties would be submitted to arbitration in the New York
metropolitan area. A significant dispute arose between the
parties. Soma filed an arbitration claim against the Company
with the American Arbitration Association in New York, NY
claiming unpaid commission fees of $186,000 and seeking
declaratory relief regarding potential fees for future
transactions that may be undertaken by us with Toucan Capital.
The Company vigorously disputed Somas claims on multiple
grounds, contending the Company only owed Soma approximately
$6,000.
Soma subsequently filed an amended arbitration claim, claiming
unpaid commission fees of $339,000 and warrants to
purchase 6% of the aggregate securities issued to date, and
seeking declaratory relief regarding potential fees for future
financing transactions which may be undertaken by the Company
with Toucan Capital and others, which could potentially be in
excess of $4 million. Soma also requested the arbitrator
award its attorneys fees and costs related to the
proceedings. The Company strongly disputed Somas claims
and defended itself.
The arbitration proceedings occurred from March 8-10, 2005 and
on May 24, 2005, the arbitrator ruled in favor of the
Company and denied all claims of Soma. In particular, the
arbitrator decided that the Company did not owe Soma the large
fees and warrants sought by Soma, that the Company would not owe
Soma fees in connection with future financings, if any, and that
the Company had no obligation to pay any of Somas
attorneys fees or expenses. The arbitrator agreed with the
Company that the only amount owed Soma was $6,702.87, which
payment was made on May 27, 2005.
On August 29, 2005, Soma filed a notice of petition to
vacate the May 24, 2005 arbitration award issued by the
Supreme Court of the State of New York.
On December 30, 2005, the Supreme Court of the State of New
York dismissed Somas petition, denying Somas
August 29, 2005 motion to vacate the May 24, 2005
award in the Companys favor.
On February 3, 2006, Soma filed another notice of appeal
with the Supreme Court of the State of New York. As of the date
of the filing of this report, the Supreme Court of the State of
New York has yet to act on this matter. The Company believes
that this latest appeal is without merit and intends to
vigorously defend the appeal.
The Company has no other legal proceeding pending at this time.
The Company received a tax assessment of $492,000 on
October 21, 2003 related to the abandonment of tenant
improvements at a prior facility on which use tax payments to
the State of Washington had been deferred, including the
disposal and impairment of previously qualified tax deferred
equipment. The Company appealed this assessment and was granted
a partial reduction in the assessment on July 8, 2005. The
Company filed an addendum to its appeal petition on
December 2, 2005. The net assessment, through
March 31, 2006, of approximately $343,000, inclusive of
accrued interest, is being carried as an estimated liability on
the Companys balance sheet and is included in general and
administrative expense. Final review of the addendum to the
petition is expected to take several additional months. The
Company may not be successful in further reducing this
assessment and the assessment is subject to payment on demand.
F-12
Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Notes to Condensed Financial
Statements (Continued)
In February 2004, the Company filed a refund request of
approximately $175,000 related to certain other state taxes
previously paid to the State of Washingtons Department of
Revenue. The finalization of this refund request is not expected
until mid-2006. The Company may not be successful in its efforts
to receive a tax refund.
On February 14, 2006, the Company and The Regents of the
University of California entered into a clinical study for the
University of California at Los Angeles (UCLA) to
carry out a booster vaccination immunotherapy program. During
the study, patients will receive up to five boosters over a
12 month period. The Company will pay approximately
$216,000, over the course of the study. Approximately $50,000
has been paid as of March 31, 2006. The Company will incur
no other costs in connection with this study, unless prior
approval by the parties is made in writing.
|
|
11.
|
Recent Accounting Pronouncements
|
In December 2004, the FASB issued Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment
(Revised 2004). This statement addresses the accounting
for stock-based payment transactions in which a company receives
employee services in exchange for the companys equity
instruments or liabilities that are based on the fair value of
the companys equity securities or may be settled by the
issuance of these securities. SFAS 123(R) eliminates the
ability to account for stock-based compensation using
APB 25 and generally requires that such transactions be
accounted for using a fair value method. The provisions of this
statement are effective for financial statements issued for
fiscal years beginning after June 15, 2005. We adopted
SFAS 123(R) on January 1, 2006. The impact from our
adoption of SFAS 123(R) is further described in
Notes 2 and 3.
In November 2005, the FASB issued final FASB Staff Position
SFAS No. 123(R)-3, Transition Election Related
to Accounting for the Tax Effects of Share-Based Payment
Awards. The FSP provides an alternative method of
calculating excess tax benefits (the APIC pool) from the method
defined in SFAS 123(R) for stock-based payments. A one-time
election to adopt the transition method in this FSP is available
to those entities adopting SFAS 123(R) using either the
modified retrospective or modified prospective method. This FSP
did not have a material impact on our financial statements or
results of operations.
In February 2006, the FASB issued final FASB Staff Position
SFAS No. 123(R)-4 Classification of Options and
Similar Instruments Issued as Employee Compensation That Allow
for Cash Settlement upon the Occurrence of a Contingent
Event was finalized. The FSP amends SFAS 123(R) for
awards with contingent events that are not probable and outside
the control of the employee that are settled in cash to classify
such awards as an equity award. If the contingent event later
becomes probable and the award had been reported as an equity
award, the change in classification would be accounted for as a
modification. This FSP did not have an impact on our financial
statements or results of operations since we do not have such
awards.
In May 2005, the FASB issued Statement of Financial Accounting
Standards No. 154, Accounting Changes and Error
Corrections. This statement replaces APB 20
cumulative effect accounting with retroactive restatement of
comparative financial statements. It applies to all voluntary
changes in accounting principle and defines retrospective
application to differentiate it from restatements due to
incorrect accounting. The provisions of this statement are
effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005 and
became effective for the Company on January 1, 2006. The
adoption of this accounting principle is not expected to have a
significant impact on our financial position or results of
operations.
F-13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors
Northwest Biotherapeutics, Inc.
Bothell, Washington
We have audited the accompanying balance sheets of Northwest
Biotherapeutics, Inc. (a development stage company) as of
December 31, 2005 and 2004, and the related statements of
operations, stockholders equity (deficit), and cash flows
for the years ended December 31, 2005 and 2004, and for the
period from March 18, 1996 (date of inception) to
December 31, 2005. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. The Companys financial
statements for the period from March 18, 1996 (date of
inception) through December 31, 2003, were audited by other
auditors whose report, dated March 12, 2004, except as to
Notes 1 and 12, which were as of April 26, 2004,
expressed an unqualified opinion on those statements and
included an explanatory paragraph that referred to substantial
doubt about the Companys ability to continue as a going
concern. The financial statements for the period from
March 18, 1996 (date of inception) through
December 31, 2003, reflect a net loss of $64,245 (in
thousands) of the accumulated deficit as of December 31,
2005. The other auditors report has been furnished to us,
and our opinion, insofar as it relates to the amounts included
for such prior periods, is based solely on the report of such
other auditors.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company has determined that
it is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we
express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other
auditors, the financial statements referred to above present
fairly, in all material respects, the financial position of
Northwest Biotherapeutics, Inc. (a development stage company) as
of December 31, 2005 and 2004, and the results of its
operations and its cash flows for the years ended
December 31, 2005 and 2004, and for the period from
March 18, 1996 (date of inception) to December 31,
2005, in conformity with accounting principles generally
accepted in the United States.
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the
Company has experienced recurring losses from operations since
inception, has a working capital deficit, and has a deficit
accumulated during the development stage. These conditions raise
substantial doubt about the Companys ability to continue
as a going concern. Managements plans regarding these
matters are also described in Note 1. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Peterson Sullivan PLLC
January 25, 2006, except with respect to the subsequent
events referred to in Note 13,
the date for which is March 30, 2006
Seattle, Washington
F-14
Report of Independent Registered Public Accounting Firm
The Board of Directors
Northwest Biotherapeutics, Inc.:
We have audited the accompanying statements of operations,
stockholders equity (deficit) and comprehensive loss,
and cash flows for the year ended December 31, 2003 and for
the period from March 18, 1996 (inception) through
December 31, 2003 (which period doesnt appear herein)
of Northwest Biotherapeutics, Inc. (a development stage company)
(Company). These financial statements are the responsibility of
the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the results of
Northwest Biotherapeutics, Inc.s (a development stage
company) operations and its cash flows for the year ended
December 31, 2003 and the period from March 18, 1996
(inception) through December 31, 2003, in conformity
with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in note 2 to the financial statements, the
Company has experienced recurring losses from operations, has a
working capital deficit and has a deficit accumulated during the
development stage which raise substantial doubt about its
ability to continue as a going concern. Managements plans
in regard to these matters are also described in note 2.
The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/
KPMG LLP
Seattle, Washington
March 12, 2004, except as to note 2, which is as of
April 26, 2004
F-15
NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
248
|
|
|
$
|
352
|
|
|
Accounts receivable
|
|
|
11
|
|
|
|
17
|
|
|
Accounts receivable, related party
|
|
|
|
|
|
|
58
|
|
|
Prepaid expenses and other current assets
|
|
|
151
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
410
|
|
|
|
544
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
|
69
|
|
|
|
|
|
|
Laboratory equipment
|
|
|
139
|
|
|
|
100
|
|
|
Office furniture and other equipment
|
|
|
104
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
196
|
|
|
Less accumulated depreciation and amortization
|
|
|
(194
|
)
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
118
|
|
|
|
53
|
|
|
|
Restricted cash
|
|
|
30
|
|
|
|
31
|
|
|
|
Deposit and other non-current assets
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
558
|
|
|
$
|
631
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Note payable to related parties, net
|
|
$
|
3,226
|
|
|
$
|
6,683
|
|
|
Current portion of capital lease obligations
|
|
|
38
|
|
|
|
10
|
|
|
Accounts payable
|
|
|
469
|
|
|
|
443
|
|
|
Accounts payable, related party
|
|
|
984
|
|
|
|
3,353
|
|
|
Accrued expenses
|
|
|
201
|
|
|
|
117
|
|
|
Accrued expense, tax liability
|
|
|
494
|
|
|
|
336
|
|
|
Accrued expense, related party
|
|
|
316
|
|
|
|
500
|
|
|
Common stock warrant liability
|
|
|
|
|
|
|
604
|
|
|
Deferred grant revenue
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
5,763
|
|
|
|
12,046
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
Capital lease obligations, net of current portion
|
|
|
12
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,775
|
|
|
|
12,049
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 100,000,000 shares
authorized and zero and 32,500,000 shares issued and
outstanding at December 31, 2004 and 2005
|
|
|
|
|
|
|
33
|
|
|
Common stock, $0.001 par value; 300,000,000 shares
authorized and 19,028,779 and 19,078,048 shares issued and
outstanding at December 31, 2004 and 2005, respectively
|
|
|
19
|
|
|
|
19
|
|
|
Additional paid-in capital
|
|
|
67,524
|
|
|
|
71,220
|
|
|
Deferred compensation
|
|
|
(7
|
)
|
|
|
|
|
|
Deficit accumulated during the development stage
|
|
|
(72,753
|
)
|
|
|
(82,690
|
)
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
(5,217
|
)
|
|
|
(11,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
558
|
|
|
$
|
631
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed financial statements.
F-16
NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
March 18, 1996
|
|
|
|
Years Ended December 31,
|
|
|
(Inception) to
|
|
|
|
|
|
|
December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except per share
|
|
|
|
|
|
data)
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research materials sales
|
|
$
|
24
|
|
|
$
|
52
|
|
|
$
|
38
|
|
|
$
|
450
|
|
|
Contract research and development from related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,128
|
|
|
Research grants and other
|
|
|
505
|
|
|
|
338
|
|
|
|
86
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
529
|
|
|
|
390
|
|
|
|
124
|
|
|
|
2,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of research material sales
|
|
|
79
|
|
|
|
40
|
|
|
|
12
|
|
|
|
382
|
|
|
Research and development
|
|
|
1,624
|
|
|
|
3,621
|
|
|
|
4,469
|
|
|
|
32,067
|
|
|
General and administrative
|
|
|
4,059
|
|
|
|
2,845
|
|
|
|
2,005
|
|
|
|
30,694
|
|
|
Depreciation and amortization
|
|
|
207
|
|
|
|
132
|
|
|
|
63
|
|
|
|
2,266
|
|
|
Loss on facility sublease
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
895
|
|
|
Asset impairment loss
|
|
|
904
|
|
|
|
130
|
|
|
|
|
|
|
|
2,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
7,047
|
|
|
|
6,768
|
|
|
|
6,549
|
|
|
|
68,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(6,518
|
)
|
|
|
(6,378
|
)
|
|
|
(6,425
|
)
|
|
|
(65,731
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant valuation
|
|
|
|
|
|
|
(368
|
)
|
|
|
|
|
|
|
(368
|
)
|
|
Gain on sale of intellectual property to Medarex
|
|
|
816
|
|
|
|
|
|
|
|
|
|
|
|
3,656
|
|
|
Interest expense
|
|
|
(73
|
)
|
|
|
(1,765
|
)
|
|
|
(3,517
|
)
|
|
|
(13,137
|
)
|
|
Interest income
|
|
|
23
|
|
|
|
3
|
|
|
|
5
|
|
|
|
736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(5,752
|
)
|
|
|
(8,508
|
)
|
|
|
(9,937
|
)
|
|
|
(74,844
|
)
|
Accretion of Series A preferred stock mandatory redemption
obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,872
|
)
|
Series A preferred stock redemption fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
Beneficial conversion feature of Series D preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(5,752
|
)
|
|
$
|
(8,508
|
)
|
|
$
|
(9,937
|
)
|
|
$
|
(82,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share applicable to common stockholders
basic and diluted
|
|
$
|
(0.30
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(0.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic and diluted loss
per share
|
|
|
18,908
|
|
|
|
19,028
|
|
|
|
19,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-17
NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) AND
COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Additional
|
|
|
|
|
During the
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Paid-In
|
|
|
Deferred
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
Stage
|
|
|
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Balances at March 18, 1996
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Accretion of membership units mandatory redemption obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106
|
)
|
|
|
(106
|
)
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,233
|
)
|
|
|
(1,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 1996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,339
|
)
|
|
|
(1,339
|
)
|
Accretion of membership units mandatory redemption obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(275
|
)
|
|
|
(275
|
)
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,560
|
)
|
|
|
(2,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 1997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,174
|
)
|
|
|
(4,174
|
)
|
Conversion of membership units to common stock
|
|
|
2,203
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
Accretion of Series A preferred stock mandatory redemption
obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(329
|
)
|
|
|
(329
|
)
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,719
|
)
|
|
|
(4,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 1998
|
|
|
2,203
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,224
|
)
|
|
|
(9,222
|
)
|
Issuance of Series C preferred stock warrants for services
related to sale of Series C preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
394
|
|
Accretion of Series A preferred stock mandatory redemption
obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(354
|
)
|
|
|
(354
|
)
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,609
|
)
|
|
|
(5,609
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 1999
|
|
|
2,203
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
394
|
|
|
|
|
|
|
|
(15,187
|
)
|
|
|
(14,791
|
)
|
Issuance of Series C preferred stock warrants in connection
with lease agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
Exercise of stock options for cash
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Issuance of common stock at $0.85 per share for license
rights
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Issuance of Series D preferred stock warrants in
convertible promissory note offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,039
|
|
|
|
|
|
|
|
|
|
|
|
4,039
|
|
Beneficial conversion feature of convertible promissory notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,026
|
|
|
|
|
|
|
|
|
|
|
|
1,026
|
|
Issuance of Series D preferred stock warrants for services
related to sale of Series D preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
368
|
|
Issuance of common stock warrants in conjunction with issuance
of promissory note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Cancellation of common stock
|
|
|
(275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT) AND
COMPREHENSIVE LOSS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Additional
|
|
|
|
|
During the
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Stage
|
|
|
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Accretion of Series A preferred stock mandatory redemption
obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(430
|
)
|
|
|
(430
|
)
|
Comprehensive loss net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,779
|
)
|
|
|
(12,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2000
|
|
|
1,935
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
5,878
|
|
|
|
|
|
|
|
(28,396
|
)
|
|
|
(22,516
|
)
|
Issuance of Series D preferred stock warrants in
conjunction with refinancing of note payable to stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
|
225
|
|
Beneficial conversion feature of convertible promissory note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
456
|
|
Beneficial conversion feature of Series D preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,274
|
|
|
|
|
|
|
|
(4,274
|
)
|
|
|
|
|
Issuance of Series D preferred stock warrants for services
related to the sale of Series D preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,287
|
|
|
|
|
|
|
|
|
|
|
|
2,287
|
|
Exercises of stock options and warrants for cash
|
|
|
1,158
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
408
|
|
Issuance of common stock in initial public offering for cash,
net of offering costs of $2,845
|
|
|
4,000
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
17,151
|
|
|
|
|
|
|
|
|
|
|
|
17,155
|
|
Conversion of preferred stock into common stock
|
|
|
9,776
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
31,569
|
|
|
|
|
|
|
|
|
|
|
|
31,579
|
|
Series A preferred stock redemption fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,700
|
)
|
|
|
(1,700
|
)
|
|