UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

  

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2019

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______to _______

 

Commission File Number: 001-35737

 

NORTHWEST BIOTHERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 94-3306718
(State or Other Jurisdiction of Incorporation or Organization)  (I.R.S. Employer Identification No.)

 

4800 Montgomery Lane, Suite 800, Bethesda, MD 20814

(Address of principal executive offices) (Zip Code)

 

(240) 497-9024

(Registrant's telephone number)

 

N/A

(Former Name, Former Address and Former Fiscal Year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class: Trading Symbol(s): Name of each exchange on which registered:
Common Stock, par value $0.001 per share NWBO OTCQB

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ¨  No   x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨  No  x

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No  ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x  No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer ¨ Accelerated filer x
Non-accelerated filer ¨ Smaller reporting company x
    Emerging growth company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨ No  x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ¨

  

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $138,133,000 on June 30, 2019. As of March 14, 2020, the registrant had 648,717,833 shares of common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

None.  

 

 

   

 

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

 

 

FORM 10-K

 

TABLE OF CONTENTS

 

PART I    
     
Item 1. Business 2
     
Item 1A. Risk Factors 6
     
Item 1B. Unresolved Staff Comments 19
     
Item 2. Properties 20
     
Item 3. Legal Proceedings 20
     
Item 4. Mine Safety Disclosures 20
     
PART II    
     
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21
     
Item 6. Selected Financial Data 21
     
Item 7. Management's Discussion and Analysis of Financial Condition And Results of Operations 21
     
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 28
     
Item 8. Financial Statements and Supplementary Data 28
     
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 28
     
Item 9A. Controls and Procedures 28
     
Item 9B. Other Information 29
     
PART III    
     
Item 10. Directors, Executive Officers and Corporate Governance 29
     
Item 11. Executive Compensation 29
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 29
     
Item 13. Certain Relationships and Related Transactions, and Director Independence 29
     
Item 14. Principal Accountant Fees and Services 29
     
PART IV    
     
Item 15. Exhibits and Financial Statement Schedules 30
     
SIGNATURES 35

    

 

 

 

PART I

 

This Report on Form 10-K for Northwest Biotherapeutics, Inc. may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are characterized by future or conditional verbs such as “may,” “will,” “expect,” “intend,” “anticipate,” believe,” “estimate” and “continue” or similar words. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. Such statements are only predictions and our actual results may differ materially from those anticipated in these forward-looking statements. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Factors that may cause such differences include, but are not limited to, those discussed under Item 1A of this Report, including the uncertainties associated with product development, the risk that products that appeared promising in early clinical trials do not demonstrate safety and efficacy in larger-scale clinical trials, the risk that we will not obtain approval to market our products, the risks associated with dependence upon key personnel and the need for additional financing. We do not assume any obligation to update forward-looking statements as circumstances change.

 

Unless the context otherwise requires, “Northwest Biotherapeutics,” the “Company,” “we,” “us,” “our” and similar names refer to Northwest Biotherapeutics, Inc. DCVax® is a registered trademark of the Company.

 

ITEM 1. BUSINESS.

 

Overview

 

We are a biotechnology company focused on developing personalized immune therapies for cancer. We have developed a platform technology, DCVax®, which uses activated dendritic cells to mobilize a patient's own immune system to attack their cancer.

 

Our lead product, DCVax®-L, is designed to treat solid tumor cancers in which the tumor can be surgically removed. This product is in a 331-patient Phase III trial for newly diagnosed Glioblastome multiforme (GBM) which is in the process of moving towards data lock. On May 29, 2018, interim blinded data from the Phase III trial collected in March 2017 were published in a peer reviewed scientific journal. On November 17, 2018, updated interim blinded data from the Phase III trial collected in October 2018 were presented at the Society for Neuro-Oncology annual meeting. As the Company noted in its announcement of the publication and in subsequent reports, the data could get either better or worse as it continues to mature. The Company has been consulting with its Scientific Advisory Board, the Steering Committee of the trial and other independent experts about the ongoing handling of the trial and the preparations for data lock, unblinding and analyses.

 

The preparations for data lock and analyses include the Statistical Analysis Plan, final data collection, data validation and data lock, and then unblinding and analyzing the data. The Company is working with teams of independent outside experts as well as Company personnel. This work also involves substantial pioneering, without a well-established pathway or roadmap since very few personalized cell therapies have reached late stage development. Accordingly, the Company’s projections, estimates and expectations are subject to material changes as the work proceeds.

 

Our second product, DCVax®-Direct, is designed to treat inoperable solid tumors. A 40-patient Phase I trial has been completed, and included treatment of a diverse range of more than a dozen types of cancers. The Company is working on preparations for Phase II trials of DCVax-Direct.

 

The DCVax Technology

 

Our platform technology, DCVax, is a personalized immune therapy that uses a patient's own dendritic cells, or DCs, the master cells of the immune system, as the therapeutic agent. The patient’s DCs are obtained through a blood draw, or leukapheresis. The DCs are then activated and loaded with biomarkers (“antigens”) from the patient’s own tumor. For DCVax-L, the antigen loading process takes place during the manufacturing of the product. For DCVax-Direct, the antigen loading process takes place in situ in the tumor after the product is directly injected into the patient’s inoperable tumor. The loading of antigens into the DCs “educates” the DCs about what the immune system needs to target.   

 

Clinical Trials and Early Access Programs

 

DCVax-L for Operable Solid Tumors: GBM Brain Cancer

 

Our lead product candidate is DCVax-L for Glioblastoma multiforme (GBM): the most aggressive and lethal type of brain cancer. With standard of care treatment for GBM today, including surgery, radiation and chemotherapy, the median time to tumor recurrence is about 7 months, and the median survival is about 15-17 months. There is an urgent need for new and better treatments.

 

DCVax-L is currently in a 331-patient Phase III trial. The Company has reported on the blinded interim data (the data from both arms of the trial combined) collected in March 2017 and October 2018, and the Company is now in the process of working towards data lock, unblinding and analyses, as described above.

  

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The Company plans to conduct Phase II trials of DCVax-L in combination with other agents, such as checkpoint inhibitors, when resources permit. Such combination trials may include DCVax-L and Pembrolizumab (Keytruda) for colorectal cancer, as the Company has previously reported. Certain preparatory work will be required and regulatory approvals will have to be obtained for these trials, in addition to financing.

  

DCVax-L Early Access Programs

 

In March 2014, we received approval from the German regulatory authority of a “Hospital Exemption” for DCVax-L for glioma brain cancers under Section 4b of the German Drug Law outside of our Phase III trial. We undertook treatment of 9 patients under the Hospital Exemption. During 2018, we transferred our European manufacturing to the UK, and terminated such activities in Germany. As part of this termination of activities, we notified the German regulatory authorities that we were returning the Hospital Exemption license (which requires in-country manufacturing).

 

As previously reported, we have also treated a substantial number of compassionate use patients, under an Expanded Access Protocol in the US. We have also treated compassionate use patients as “Specials” in the U.K.  

  

DCVax-Direct for Inoperable Solid Tumor Cancers

 

Our DCVax-Direct product offers a potential new treatment option for inoperable tumors. This can potentially apply to a wide range of clinical situations: for example, situations in which patients' tumors are considered inoperable because the patient has multiple tumors, or their tumor cannot be completely removed, or the surgery would cause undue damage to the patient and impair their quality of life.

 

A large number of patients with a variety of cancer types are faced with this situation, because their tumors are already locally advanced or have begun to metastasize by the time symptoms develop and the patients seek diagnosis and treatment. For these patients, the outlook today is bleak and survival remains quite limited.

 

DCVax-Direct is administered by direct injection into a patient's tumors. It can potentially be injected into any number of tumors, enabling patients with locally advanced disease or with metastases to be treated. With image guidance, DCVax-Direct can also be injected into tumors in virtually any location in the body.

 

We conducted a 40-patient Phase I trial of DCVax-Direct at MD Anderson Cancer Center and at Orlando Health. The patients enrolled in this trial had failed other treatments, and had multiple tumors and actively progressing disease. In spite of this heavy disease burden, since the trial was primarily intended to demonstrate safety, the treatment regimen in this first clinical trial was very conservative: only one tumor was injected in each patient, and most of the patients received only 3 treatments over the course of 2 weeks, with some receiving a 4th treatment at week 8 and beyond.

 

Despite these challenging circumstances, effects seen in various patients include examples of tumor necrosis (i.e., cell death) in the injected tumors, shrinkage or stabilization in some non-injected tumors, stabilization of disease and survival times beyond what was expected.

 

This Phase I trial was designed to be very informative: we treated numerous diverse types of cancers (sarcoma, pancreatic, colorectal, lung, melanoma and others); we tested three different dose levels and various methods of image-guided administration; we collected both imaging and biopsy data, and correlated them with clinical effects in patients; we evaluated both local effects in the injected tumors and systemic effects in the non-injected tumors; we evaluated potential endpoints for future trials; and most importantly, we evaluated safety.

 

In the Phase I stage of the DCVax-Direct Phase I/II trial, the safety profile was excellent (as has also been the case over the years with our other technology, DCVax-L). Typically, patients develop a fever after the injections, to a limited extent and for a limited duration, and they do not generally experience any significant toxicities.

 

Based upon the data and experience to date, we are planning to proceed with Phase II trials of DCVax-Direct in various cancers, when resources permit. In the Phase II trials, we plan to inject multiple tumors, rather than just one tumor, and we plan to administer more doses than in the Phase I trial.

 

Target Markets for DCVax Products

 

Since our DCVax-L product is potentially applicable to all types of operable solid tumors, and our DCVax-Direct product is potentially applicable to all types of inoperable solid tumors, we believe that the potential markets for DCVax products are particularly large. According to the American Cancer Society, 1 in 2 men, and 1 in 3 women, in the U.S. will develop some form of cancer in their lifetime. There are nearly 1.5 million new cases of cancer per year in the U.S., and nearly 600,000 deaths from cancer. The incidence is similar in Europe, the U.K. and elsewhere.

 

3

 

 

Brain cancer

 

Brain cancers fall into two broad categories: primary (meaning the cancer first originates in the brain) and metastatic (meaning the cancer first appears elsewhere in the body, but subsequently metastasizes or spreads to the brain). In the U.S. alone, on an annual basis, there are some 40,000 new cases of primary brain cancer (including about 12,000 cases of GBM, the most severe grade of primary brain cancer), and some 160,000 new cases of metastatic brain cancer. The incidence is similar in Europe, the U.K. and elsewhere.

 

In addition, brain cancer is a serious medical problem in children 18 years and under. It is the second most frequent type of childhood cancers (after leukemias) and, following progress in reducing death rates from leukemias, it is now a leading cause of childhood cancer deaths.

 

Very little has changed in the last 30 years in the treatment and clinical outcomes for GBM. With typical standard of care treatment today - surgery, radiation and chemotherapy - patients still generally die within a median of about 15-17 months from diagnosis. Loco-regional therapy with alternating electric fields has recently shown an increase in median Progression Free Survival (i.e., time to tumor recurrence) to 6.7 months, and median Overall Survival to 20.9 months, respectively from randomization in clinical trials. However, there has been no material advance in survival with systemic therapies since the addition of temozolomide about 15 years ago, despite many clinical trials with many diverse agents. There is an urgent need for new treatment options.

  

Manufacturing of DCVax

 

We use a batch manufacturing technology for our DCVax products, and we believe this manufacturing approach is a key part of the practicality of our product and its economic feasibility. Generally, we are able to produce enough doses for the patient’s treatment regimen through just one manufacturing process. When a batch of DCVax product has been made, we then cryopreserve it.

 

Both of these technologies, the personalized batch manufacturing for each patient and the cryopreservation, are essential elements of our manufacturing model and product economics. Together, they enable us to usually incur the high costs of manufacturing just one time for each patient, and then store the multi-year or multi-dose quantity of product, frozen, in single doses. This makes DCVax effectively an “off the shelf” product for the patient after the initial manufacturing, even though it is personalized, and we anticipate that this will enable the pricing of DCVax to be in line with other new cancer drugs. We also believe that both economies of scale and automation will further enhance the product economics. The manufacturing process today is also rapid: about 8 days for DCVax-L, and 7 days for DCVax-Direct, followed by quality control and release testing (including a sterility test that may take a couple of weeks).

  

We contract out the manufacturing of our DCVax products to Cognate BioServices for the U.S. and Canada, and to Advent BioServices for Europe. Although there are many contract manufacturers for small molecule drugs and for biologics, there are very few companies who specialize in manufacturing living cell products. Manufacturing of cellular products is fundamentally different than production of small molecules or biologics, and the regulatory requirements are very difficult to meet. Both Cognate BioServices and Advent BioServices specialize in the production of cellular products.

 

Our DCVax programs generally require that the applicable manufacturing capacity be dedicated exclusively to our programs. Most medical products, including other types of cellular products, are made in batches on a pre-scheduled basis. In contrast, our products are fully personalized and can only be made in individual personalized batches, not large-scale batches of standardized products, and our products are made on demand, on an ongoing basis. So, the manufacturing suites generally must be dedicated entirely to our products.

 

Cognate BioServices’ manufacturing facility for clinical-grade cell products is located in Memphis, Tennessee. Cognate BioServices' facility is approximately 80,000 square feet, and produces both the Company’s DCVax products and other clients’ products. We believe the current manufacturing facilities have the potential to produce DCVax products for at least several thousand patients per year. Advent has been manufacturing DCVax products and providing related services in an existing GMP facility in London. We are also developing new and expanded facilities for manufacturing in Sawston for the U.K. and the European market.

 

Intellectual Property and Orphan Drug Designation

 

We have an integrated strategy for protection of our technology through both patents and other mechanisms, such as Orphan Drug status. As of December 31, 2019, we have 199 issued patents and 65 pending patent applications worldwide, grouped into 11 patent families. Of these, 191 issued patents and 52 pending patent applications directly relate to our DCVax products. In the United States and Europe, some of our patents and applications relate to compositions and the use of products, while other patents and applications relate to other aspects such as manufacturing and quality control. For example, in the United States, we have four issued and seven pending patent applications that relate to the composition and/or use of our DCVax products. We also have other U.S patents and applications that cover, among other things, quality control for DCVax and an automated system which we believe will help enable the scale-up of production for large numbers of patients on a cost-effective basis. Similarly, in Europe, we have seven patents issued by and five pending patent applications with the European Patent Office ("EPO") that cover our DCVax products, and other patents and applications that cover aspects such as manufacturing and quality control, and the automated system. In Japan, we have seven issued patents and four pending patent applications relating to our DCVax products, as well as manufacturing related patents. Patents have been granted and are pending in other foreign jurisdictions which may be potential future markets for our DCVax products.

 

4

 

 

During 2019, six new patents were issued to us as part of our worldwide patent portfolio. The newly issued patents cover methods and devices for manufacturing dendritic cells related to our DCVax products, as well as encompassing certain methods and compositions that may be potential future markets related DCVax products.

 

During 2018, two new patents were issued to us as part of our worldwide patent portfolio. The newly issued patents cover methods and devices for manufacturing dendritic cells related to our DCVax products, as well as encompassing certain dendritic cell compositions for direct injection into patient tumors related to our DCVax-Direct product.

 

The expiration dates of the issued U.S. patents involved in our current business range from 2022 to 2026. The expiration dates of the issued European patents involved in our current business range from 2022 to 2024. For some of the earlier dates, we plan to seek extensions of the patent life, and believe we have reasonable grounds for doing so.

 

In addition to our patent portfolio, we have obtained Orphan Drug designation for our lead product, DCVax-L for glioma brain cancers. Such designation brings with it a variety of benefits, including potential market exclusivity for seven years in the U.S. and ten years in Europe if our product is the first of its type to reach the market.

 

This market exclusivity applies regardless of patents, (i.e., even if the company that developed it has no patent coverage on the product). In addition, the time period for such market exclusivity does not begin to run until product sales begin. In contrast, the time period of a patent begins when the patent is filed and runs down during the years while the product is going through development and clinical trials. 

 

Competition

 

The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. A large and growing number of companies are actively involved in the research and development of immune therapies or cell-based therapies for cancer (including Juno, Kite, Bellicum, Agenus, Asterias, Dandrit, Immunicum, Sotio, Tocagen, AiVita and many others). In addition, many big pharma companies (including BMS, Merck, Pfizer, Astra Zeneca, Roche and others) are rapidly commercializing checkpoint inhibitor drugs to “take the brakes off” patients’ immune responses to cancer. Other novel technologies for cancer are also under development or have recently been approved, such as the Optune electro-therapy device developed by NovoCure and various oncolytic virus therapies and gene therapies. Additionally, many companies are actively involved in the research and development of monoclonal antibody-based and bi-specific or tri-specific antibody-based cancer therapies. Currently, a substantial number of antibody-based drugs are approved for commercial sale for cancer therapy, and a large number of additional ones are under development. 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, as well as some medical device companies.

  

We face extensive competition from companies developing new treatments for brain cancer. These include a variety of immune therapies, as mentioned above, as well as a variety of small molecule drugs and biologics. There are also a number of existing drugs used for the treatment of brain cancer that may compete with our product, including, Avastin® (Roche Holding AG), Gliadel® (Eisai Co. Ltd.), and Temodar® (Merck & Co., Inc.), as well as the Optune electro-therapy device (Novocure) and oncolytic viruses. Both checkpoint inhibitor drugs and T cell-based therapies are pursuing clinical trials for solid tumors, including brain cancer, as well.

 

Most 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 and sales than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly if they enter into collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel and collaborators, as well as in acquiring technologies complementary to our programs, and in obtaining sites for our clinical trials and enrolling patients.

 

Corporate Information

 

We were formed in 1996 and incorporated in Delaware in July 1998. Our principal executive offices are located in Bethesda, Maryland, and our telephone number is (240) 497-9024. Our website address is www.nwbio.com. The information on our website is not part of this report. We have included our website address as a factual reference and do not intend it to be an active link to our website.

 

Available Information

 

Our website address is www.nwbio.com. We make available, free of charge through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as is reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”), but other information on our website is not incorporated into this report. The SEC maintains an Internet site that contains these reports at www.sec.gov.

 

5

 

 

Employees and Contractors

 

As of December 31, 2019, we had 15 full-time employees in the US, and 2 full-time employees in Europe. We believe our employee relations are positive.

 

In addition to our full-time employees, a substantial number of contractors provide various services for our operations. For example, we have contract management of our clinical trials and contract manufacturing of our products.

 

ITEM 1A. RISK FACTORS

 

Our business, financial condition, operating results and prospects are subject to the following material risks. Additional risks and uncertainties not presently foreseeable to us may also impair our business operations. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, the trading price of our common stock could decline, and our stockholders may lose all or part of their investment in the shares of our common stock.

 

Risks Related to our Operations

 

We will need to raise substantial funds, on an ongoing basis, for general corporate purposes and operations, including our clinical trials. Such funding may not be available or may not be available on acceptable terms.

 

We will need substantial additional funding, on an ongoing basis, in order to continue execution of our clinical trials, to move our product candidates towards commercialization, to continue prosecution and maintenance of our large patent portfolio, to continue development and optimization of our manufacturing and distribution arrangements, and for other corporate purposes. Any financing, if available, may include restrictive covenants and provisions that could limit our ability to take certain actions, preference provisions for the investors, and/or discounts, warrants, anti-dilution rights, the provision of collateral, or other incentives. Any financing will involve issuance of equity and/or debt, and such issuances will be dilutive to existing shareholders. There can be no assurance that we will be able to complete any of the financings, or that the terms for such financings will be acceptable. If we are unable to obtain additional funds on a timely basis or on acceptable terms, we may be required to curtail or cease some or all of our operations at any time.

 

We are likely to continue to incur substantial losses, and may never achieve profitability.

 

As of December 31, 2019, we had net cash outflows (losses) from operations, since inception. We may never achieve or sustain profitability.

 

Our auditors have issued a “going concern” audit opinion.

 

Management has determined and our independent auditors have indicated in their report on our December 31, 2019 financial statements that there is substantial doubt about our ability to continue as a going concern. We have received such a “going concern” opinion each of the preceding years for more than a decade. 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 if we do not continue as a going concern. Therefore, you should not rely on our consolidated 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.

 

Our management and our independent auditors previously identified certain internal control deficiencies which, while now considered remediated, had been considered by our management and our independent auditor as material weaknesses.

 

In connection with the preparation of our financial statements for the year ended December 31, 2018, and prior years, our management and our independent auditor identified certain internal control deficiencies that, in the aggregate, represent material weaknesses, as described more fully in “Item 9A. Controls and Procedures” of Part I of this Form 10-K.  Although we have undertaken and continue to undertake efforts to strengthen our internal controls and have remediated the material weaknesses as previously noted, maintaining a consistently strong control environment requires the ability to retain sufficient qualified personnel and other factors.  

 

If we do not successfully maintain a strong controlled environment this could lead to heightened risk for financial reporting mistakes and irregularities, and/or lead to a loss of public confidence in our internal controls that could have a negative effect on the market price of our common stock. In addition, our ability to retain or attract qualified individuals to serve on our Board and to take on key management or other roles within our Company is uncertain.

 

As a company with a novel technology and unproven business strategy, an evaluation of our business and prospects is difficult.

 

We are still in the process of developing our product candidates through clinical trials. Our technology is novel and involves mobilizing the immune system to fight a patient’s cancer. Immune therapies have been pursued by many parties for decades, and have experienced many failures. In addition, our technology involves personalized treatment products, a new approach to medical products that involves new product economics and business strategies, which have not yet been shown to be commercially feasible or successful. We have not yet gone through scale-up of our operations to commercial scale. The novelty of our technology, product economics, and business strategy, and the limited scale of our operations to date, makes it difficult to assess our prospects for generating revenues commercially in the future.

 

6

 

 

We will need to expand our management and technical personnel as our operations progress, and we may not be able to recruit such additional personnel and/or retain existing personnel.

 

As of December 31, 2019, we had 15 full-time employees in the US, and 2 full-time employees in Europe. Of this group, only five employees are considered Management. Other personnel are retained on a consulting or contractor basis. Many biotech companies would typically have a larger number of employees by the time they reach late stage clinical trials. Such trials and other programs require extensive management capabilities, activities and skill sets, including scientific, medical, regulatory (for FDA and foreign regulatory counterparts), manufacturing, distribution and logistics, site management, reimbursement, business, financial, legal, public relations outreach to both the patient community and physician community, intellectual property, administrative, regulatory (SEC), investor relations and other.

  

In order to fully perform all these diverse functions, at many sites across the U.S. and in Europe, we may need to expand our management, technical and other personnel. However, with respect to management and technical personal, the pool of such personnel with expertise and experience with living cell products, such as our DCVax immune cell product, is very limited. In addition, we are a small company with limited resources, our business prospects are uncertain and our stock price is volatile. For some or all of such reasons, we may not be able to recruit all the management, technical and other personnel we need, and/or we may not be able to retain all of our existing personnel. In such event, we may have to continue our operations with a small team of personnel, and our business and financial results may suffer.

 

We rely at present on third-party contract manufacturers. As a result, we may be at risk for issues with manufacturing agreements, capacity limitations and/or supply disruptions, and/or issues with product equivalency.

 

We currently rely upon Cognate BioServices, Inc., or Cognate, to produce all of our DCVax product candidates for the U.S. and Canada, and we currently rely upon Advent BioServices Ltd., or Advent, to produce our DCVax products for Europe. Until February 2018, Cognate BioServices was owned by Toucan Capital Fund III, L.P., who is an affiliate. Advent continued to be owned by Toucan Capital Fund III through 2018 and then transferred to Toucan Holdings, LLC. We have an existing agreement with Cognate BioServices for manufacturing in the US and an existing agreement with Advent BioServices for manufacturing in London. The existing agreements require us to make certain minimum monthly payments to Cognate BioServices and to Advent BioServices in order to have dedicated manufacturing capacity available for our products, irrespective of whether we actually order any DCVax products. The agreements also specify the amounts we must pay for Cognate BioServices’ and Advent BioServices’ manufacturing of DCVax products for patients.

 

We negotiated a new agreement with Cognate for production of DCVax-Direct products in 2019, and we will need to negotiate a new agreement with Cognate in 2020 for production of DCVax-L products for commercial purposes and new programs. We also need to negotiate an agreement (Statement of Work, or SOW) with Advent relating to the design, development, buildout, testing, regulatory inspection and regulatory certification of a new manufacturing facility in Sawston, UK, and a new agreement with Advent for production of DCVax-L products in that new facility when it is ready. We also need to negotiate an agreement with Advent for production of DCVax-Direct in the UK. There can be no assurance that we will be able to negotiate favorable terms in each of these agreements. Following negotiations, if it is necessary or desirable to change our facility design and development arrangements or our manufacturing arrangements, that could involve increased facility costs and/or increased costs related to manufacturing of our products, and could result in delays in our programs or applications for various regulatory approvals.

 

We have been in breach of the services agreements with Cognate and Advent on numerous occasions, primarily for untimely or non-payment. Our breaches of the services agreements may not be tolerated in the future as they have been in the past, and if we continue to breach the services agreements, for non-payment or otherwise, Cognate and/or Advent could cease providing services and/or terminate these agreements.

 

The DCVax-L products for the Phase III clinical trial in the US were manufactured by Cognate, and for the Phase III trial in Europe and the U.K. were manufactured by a different party (the Fraunhofer Institute), under oversight by Cognate. Subsequently, our DCVax-L products in the U.K. have been manufactured by Advent. Having separate manufacturers in the U.S. and Europe, and/or having added a new manufacturer in the U.K., could result in a lack of consistency or continuity in the manufacturing of DCVax products which could delay or adversely affect our ability to obtain approvals and commercialize our products.

 

We have exited from our manufacturing arrangements in Germany and Israel, and have consolidated our manufacturing arrangements in the U.K. Our DCVax-L products in the U.K. have been made under an existing agreement with Advent in an existing facility in London for the last couple of years. We are also designing and developing new facilities and operations in the U.K. for expanded production. Such facilities or operations may take more time and involve more costs than anticipated, and/or may not obtain the necessary approvals.

 

Our intention is for the U.K. facility to manufacture DCVax products for the whole European region. With the recent exit of the U.K. from the European Union (Brexit), it is unclear whether it will be feasible for U.K.-based manufacturing to supply DCVax products throughout Europe. It could be years before the full legal and regulatory rules and requirements become clear. We anticipate that the manufacturing facilities in the U.K. will eventually obtain the necessary approvals for Europe, and will be able to supply DCVax products, for clinical trials or otherwise, anywhere in Europe; however, this may not turn out to be feasible, for regulatory, operational and/or logistical reasons.

 

7

 

 

Problems with the manufacturing facilities, processes or operations of Cognate BioServices or Advent BioServices could result in a failure to produce, or a delay in producing adequate supplies of our DCVax product candidates. A number of factors could cause interruptions or delays, including the inability of a supplier to provide raw materials, equipment malfunctions or failures, damage to a facility due to natural disasters or otherwise, changes in FDA, U.K. or European regulatory requirements or standards that require modifications to our manufacturing processes, action by the FDA, U.K. or European regulators, or by us that results in the halting or slowdown of production of components or finished products due to regulatory issues, our manufacturers going out of business or failing to produce product as contractually required, insufficient technical personnel and/or specialized facilities to produce sufficient products, and/or other factors. Because manufacturing processes for our DCVax product candidates are highly complex, require specialized facilities (dedicated exclusively to DCVax production) and personnel that are not widely available in the industry, involve equipment and training with long lead times, and are subject to lengthy regulatory approval processes, alternative qualified production capacity may not be available on a timely basis or at all. Also, as noted above, Cognate or Advent could choose to terminate their agreements with us if we are in breach, or if we undergo a change of control. Difficulties, delays or interruptions in the manufacturing and supply and delivery of our DCVax product candidates could require us to stop enrolling new patients into clinical trials, and/or require us to stop the trials or other programs, stop the treatment of patients in the trials or other programs, increase our costs, damage our reputation and, if our product candidates are approved for sale, cause us to lose revenue or market share if our manufacturers are unable to timely meet market demands.

  

The manufacturing of our product candidates will have to be greatly scaled up for commercialization, and neither we nor our contract manufacturers have experience with such scale-up.

 

As is the case with any clinical trial, our Phase III clinical trial of DCVax-L for GBM involves a number of patients that is a small fraction of the number of potential patients for whom DCVax-L may be applicable in the commercial market. The same will be true of our other clinical programs with DCVax-L or other DCVax product candidates. If our DCVax-L and/or other DCVax product candidates are approved for commercial sale, it will be necessary to greatly scale up the volume of manufacturing, far above the level needed for clinical trials. Neither we nor our contract manufacturers have experience with such scale-up. In addition, there are likely only a few consultants or advisors in the industry who have such experience and can provide guidance or assistance, because active immune therapies such as DCVax are a fundamentally new category of product in two major ways: these active immune therapy products consist of living cells, not chemical or biologic compounds, and the products are personalized. To our knowledge, very few such products have successfully completed the necessary scale-up for commercialization. For example, Dendreon Corporation encountered substantial difficulties trying to scale up the manufacturing of its Provenge® product for commercialization. To our knowledge, even the CAR-T products which are being commercialized have so far only scaled up to moderate product volumes.

 

The necessary specialized facilities, equipment and personnel may not be available or obtainable for the scale-up of manufacturing of our product candidates.

 

The manufacture of living cells requires specialized facilities, equipment and personnel which are entirely different than what is required for the manufacturing of chemical or biologic compounds. Scaling up the manufacturing of living cell products to volume levels required for commercialization will require enormous amounts of these specialized facilities, equipment and personnel - especially where, as in the case of our DCVax product candidates, the product is personalized and must be made for each patient individually. Since living cell products are so new, and have barely begun to reach commercialization, the supply of the specialized facilities and personnel needed for them has not yet developed. However, there has been a sharp increase in the demand for these specialized facilities and personnel, as large numbers of companies seek to develop T cell and other immune cell products. It may not be possible for us or our manufacturers to obtain all of the specialized facilities and personnel needed for commercialization of our DCVax product candidates, or even for further sizeable trials. This could delay or halt our commercialization and/or further substantial trials.

 

Our technology is novel, involves complex immune system elements, and may not prove to be effective.

 

Data already obtained, or in the future obtained, from pre-clinical studies and clinical trials do not necessarily predict the results that will be obtained from later pre-clinical studies and clinical trials. Over the course of several decades, there have been many different immune therapy product designs - and many product failures and company failures. To our knowledge, to date, only a couple of active immune therapies have been approved by the FDA, including one dendritic cell therapy and a couple of CAR-T cell therapies. The human immune system is complex, with many diverse elements, and the state of scientific understanding of the immune system is still limited. Some immune therapies previously developed by other parties showed surprising and unexpected toxicity in clinical trials. Other immune therapies developed by other parties delivered promising results in early clinical trials, but failed in later stage clinical trials.

 

Although we believe the results from the small early stage clinical trials of DCVax-L for newly diagnosed GBM were quite positive, those results may not be achieved in our later stage clinical trials, such as the 331-patient Phase III trial for GBM that is nearing completion, and our product candidates may not ultimately be found to be effective. Similarly, although we believe the interim blinded data from the Phase III trial that we have collected and reported to date are encouraging, the results of this trial when the data are unblinded may not be as encouraging or may not be positive at all. Further, although the safety profile of our DCVax-L product was excellent in the early stage clinical trials, toxicity may be seen as we treat larger numbers of patients in late stage clinical trials. If such toxicity occurs, it could limit, delay or stop further clinical development or commercialization of our DCVax-L product.

 

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We have only conducted the Phase I portion of our first-in-man Phase I/II clinical trial with our DCVax Direct product, after prior early stage trials with DCVax-L and DCVax-Prostate. Although the early results have not indicated any significant toxicity, we do not yet know what efficacy or toxicity DCVax-Direct may show in a larger sample of human patients. This product may not ultimately be found to be effective, and/or it may be found to be toxic, which could limit, delay or stop clinical development or commercialization of DCVax-Direct.

  

Clinical trials for our product candidates are expensive and time consuming, and their outcome is uncertain.

 

The process of obtaining and maintaining regulatory approvals for new therapeutic products is expensive, lengthy and uncertain. Costs and timing of clinical trials may vary significantly over the life of a project owing to any or all of the following non-exclusive reasons:

 

the duration of the clinical trial;
the number of sites included in the trials;
the countries in which the trial is conducted;
the length of time required and ability to enroll eligible patients;
the number of patients that participate in the trials;
the number of doses that patients receive;
the drop-out or discontinuation rates of patients;
per patient trial costs;
third party contractors failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner;
our final product candidates having different properties in humans than in laboratory testing;
the need to suspend or terminate our clinical trials;
insufficient or inadequate supply or quality of necessary materials to conduct our trials;
potential additional safety monitoring, or other conditions required by the FDA or comparable foreign regulatory authorities regarding the scope or design of our clinical trials, or other studies requested by regulatory agencies;
problems engaging independent review Boards, or IRBs, to oversee trials or in obtaining and maintaining IRB approval of studies;
the duration of patient follow-up;
the efficacy and safety profile of a product candidate;
the costs and timing of obtaining regulatory approvals; and
the costs involved in enforcing or defending patent claims or other intellectual property rights.

 

Late stage clinical trials, such as our Phase III clinical trial for GBM patients, are especially expensive, typically requiring tens or hundreds of millions of dollars, and take years to reach their outcomes. Such outcomes often fail to reproduce the results of earlier trials. It is often necessary to conduct multiple late stage trials (including multiple Phase III trials) in order to obtain sufficient results to support product approval, which further increases the expense and time involved. Sometimes trials are further complicated by changes in requirements while the trials are under way (for example, when the standard of care changes for the disease that is being studied in the trial, or when there are changes in the scientific understanding of the disease or the treatment, and/or changes in the competitive landscape.) For example, while the Company’s lead program, the Phase III clinical trial of DCVax-L for brain cancer, has been under way, there has been a very large proliferation of new treatments in various stages of development, as well as some new product approvals, for brain cancer. Any of our current or future product candidates could take a significantly longer time to gain regulatory approval than we expect, or may never gain approval, either of which could delay or stop the commercialization of our DCVax product candidates.

 

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We may be required to suspend or discontinue clinical trials due to unexpected side effects or other safety risks that could preclude approval of our product candidates.

 

Our clinical trials may be suspended at any time for a number of reasons. For example, we may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to the clinical trial patients. In addition, the FDA or other regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the clinical trial patients.

 

Administering any product candidate to humans may produce undesirable side effects. These side effects could interrupt, delay or halt clinical trials of our product candidates and could result in the FDA and/or other regulatory authorities denying further development or approval of our product candidates for any or all targeted indications. Ultimately, some or all of our product candidates may prove to be unsafe for human use. Moreover, we could be subject to significant liability if any volunteer or patient suffers, or appears to suffer, adverse health effects as a result of participating in our clinical trials.

 

We have limited experience in conducting and managing clinical trials, and we rely on third parties to assist with these services.

 

We rely on third parties to assist us, on a contract services basis, in managing and monitoring all of our clinical trials. We do not have experience conducting late stage clinical trials by ourselves without third party service firms, nor do we have experience in supervising such third parties in managing late stage, multi-hundred patient clinical trials, other than our current Phase III trial for GBM. Our lack of experience and/or our reliance on these third-party service firms may result in delays or failure to complete these trials successfully or on time. If the third parties fail to perform, we may not be able to find sufficient alternative suppliers of those services in a reasonable time period, or on commercially reasonable terms, if at all. If we were unable to obtain alternative suppliers of such services, we might be forced to delay, suspend or stop our Phase III trial for GBM.

 

We may fail to comply with regulatory requirements.

 

Our success will be dependent upon our ability, and our collaborative partners’ abilities, to maintain compliance with regulatory requirements in multiple countries, including current good manufacturing practices, or cGMP, and safety reporting obligations. The failure to comply with applicable regulatory requirements can result in, among other things, fines, injunctions, civil penalties, total or partial suspension of regulatory approvals, refusal to approve pending applications, recalls or seizures of products, operating and production restrictions and criminal prosecutions.

 

Regulatory approval of our product candidates may be withdrawn at any time.

 

After any regulatory approval has been obtained for medicinal products (including any early or conditional approval), the product and the manufacturer are subject to continual review, including the review of adverse experiences and clinical results that are reported after our products are made available to patients, and there can be no assurance that such approval will not be withdrawn or restricted. Regulators may also subject approvals to restrictions or conditions, or impose post-approval obligations on the holders of these approvals, and the regulatory status of such products may be jeopardized if such obligations are not fulfilled. If post-approval studies are required, such studies may involve significant time and expense.

 

The manufacturer and manufacturing facilities we use to make any of our products will also be subject to periodic review and inspection by the FDA, MHRA, EMA or other regulator, as applicable. The discovery of any new or previously unknown problems with the product, manufacturer or facility may result in restrictions on the product or manufacturer or facility, including withdrawal of the product from the market. We will continue to be subject to the FDA, the U.K. Medicines and Healthcare Products Regulatory Agency, or MHRA, the European Medicines Agency, or EMA, and other regulatory requirements, as applicable, governing the labeling, packaging, storage, advertising, promotion, recordkeeping, and submission of safety and other post-market information for all of our product candidates, even those that the FDA, MHRA, EMA, or other regulator, as applicable, had approved. If we fail to comply with applicable continuing regulatory requirements, we may be subject to fines, restriction, suspension or withdrawal of regulatory approval, product recalls and seizures, operating restrictions and other adverse consequences.  

 

Our Operations under early access programs may not be successful.

 

There is not much accumulated or available experience, information or precedents in regard to early access programs, especially for new types of treatments such as immune therapies. Establishing operations under an early access program will require us to establish and implement new operational, contractual, financial and other arrangements with physicians, hospitals, patients and others. We may not be successful in establishing and implementing such arrangements, and/or such arrangements may not be financially satisfactory or viable.

 

We may not be successful in negotiating reimbursement.

 

If our DCVax-L product obtains regulatory approval for commercialization, such commercialization will be difficult and may not be feasible unless we obtain coverage by health insurance and/or national health systems for reimbursement of our product price. Obtaining such coverage by health insurance and/or national health systems will be difficult and we do not have experience with such processes. Our DCVax-L product is a fully personalized, individual product and, as such, is expected to be expensive. In addition, our DCVax-L product involves a cost structure (with much of the costs upfront, in connection with the manufacturing of the personalized DCVax-L product for a patient) that is different than traditional drugs and may require different reimbursement arrangements. These factors may make our negotiations for reimbursement more difficult. We may not be successful in negotiating or obtaining reimbursement, or obtaining it on acceptable or viable terms.

 

10

 

 

Our product candidates will require a different distribution model than conventional therapeutic products, and this may impede commercialization of our product candidates.

 

Our DCVax product candidates consist of living human immune cells. Such products are entirely different from chemical or biologic drugs, and require different handling, distribution and delivery than chemical or biologic drugs. One crucial difference is that the biomaterial ingredients (immune cells and tumor tissue) from which we make DCVax products and the finished DCVax products themselves are subject to time constraints in the shipping and handling. The biomaterial ingredients come from the medical centers to the manufacturing facility fresh and not frozen, and must arrive within a certain window of time and in usable condition. Performance failures by the medical center or the courier company can result in biomaterials that are not usable, in which case it may not be possible to make DCVax product for the patient involved. The finished DCVax products are frozen, and must remain frozen throughout the process of distribution and delivery to the medical center or physician’s office, until the time of administration to the patient, and cannot be handled at room temperature until then or their viability will be lost. In addition, our DCVax product candidates are personalized and they involve ongoing treatment cycles over several years for each patient. Each product shipment for each patient must be tracked and managed individually. For all of these reasons, among others, we will not be able to simply use the distribution networks and processes that already exist for conventional drugs. It may take time for shipping companies, hospitals, pharmacies and physicians to adapt to the requirements for handling, distribution and delivery of these products, which may adversely affect our commercialization.

   

Our product candidates will require different marketing and sales methods and personnel than conventional therapeutic products. Also, we lack sales and marketing experience. These factors may result in significant difficulties in commercializing our 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 marketing or sales force and have no experience in marketing or sales of products like our lead product, DCVax-L for GBM, or our additional product, DCVax-Direct. To fully commercialize our product candidates, we will need to recruit and train marketing staff and a sales force with technical expertise and ability to manage the distribution of our DCVax-L for GBM. As an alternative, we could seek assistance from a corporate partner or a third-party services firm with a large distribution system and a large direct sales force. However, since our DCVax products are living cell, immune therapy products, and these are a fundamentally new and different type of product than are on the market today, we would still have to train such partner’s or such services firm’s personnel about our products, and would have to make changes in their distribution processes and systems to handle our products. We may be unable to recruit and train effective sales and marketing forces or our own, or of a partner or a services firm, and/or doing so may be more costly and difficult than anticipated. Such factors may result in significant difficulties in commercializing our product candidates, and we may be unable to generate significant revenues.

 

The availability and amount of potential reimbursement for our product candidates by government and private payers is uncertain and may be delayed and/or inadequate.

 

The availability and extent of reimbursement by governmental and/or private payers is essential for most patients to be able to afford expensive treatments, such as cancer treatments. In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare. Private payers tend to follow CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for fundamentally novel products such as ours, as there have been very few products similar to ours to date., We are aware of only a couple of active immune therapies that have reached the stage of reimbursement decision making processes, including one dendritic cell therapy and a couple of CAR-T cell therapies. Although CMS has approved coverage and reimbursement for a couple of these products, and private payers seem to be following suit in the US, there remain substantial questions and concerns about reimbursement for these products, especially outside the US.

 

Reimbursement agencies in Europe can be even more conservative than CMS in the U.S. A number of cancer drugs which have been approved for reimbursement in the U.S. have not been approved for reimbursement in certain European countries, and/or the level of reimbursement approved in Europe is lower than in the U.S. Reportedly, in Europe reimbursement for certain immune therapies was initially declined, and reportedly involved difficult negotiations. The same could happen with respect to our DCVax products.

  

Various factors could increase the difficulties for our DCVax products to obtain reimbursement. Costs and/or difficulties associated with the reimbursement of Provenge and/or T cell therapies could create an adverse environment for reimbursement of other immune therapies, such as our DCVax products. Approval of other competing products (drugs and/or devices) for the same disease indications could make the need for our products and the cost-benefit balance seem less compelling. The cost structure of our product is not a typical cost structure for medical products, as the majority of our costs are incurred up front, when the manufacturing of the personalized product is done. Our atypical cost structure may not be accommodated in any reimbursement for our products. If we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell our product candidates will be adversely affected.

 

11

 

 

The manner and level at which reimbursement is provided for services related to our product candidates (e.g., for administration of our product to patients) are also important. If the reimbursement for such services is inadequate, that may lead to physician resistance and adversely affect our ability to market or sell our products.

 

The methodology under which CMS makes coverage and reimbursement determinations is subject to change, particularly because of budgetary pressures facing the Medicare program. For example, the Medicare Prescription Drug, Improvement, and Modernization Act, or Medicare Modernization Act, enacted in 2003, provided for a change in reimbursement methodology that has reduced the Medicare reimbursement rates for many drugs, including oncology therapeutics. The Affordable Care Act may also result in changes in reimbursement arrangements that adversely affect the prospects for reimbursement of our products.

 

In markets outside the U.S., the prices of medical products are subject to direct price controls and/or to reimbursement with varying price control mechanisms, as part of national health systems. In general, the prices of medicines under such systems are substantially lower than in the U.S. Some jurisdictions operate positive and/or negative list systems under which products may only be marketed once a reimbursement price has been agreed. Other countries allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. Accordingly, in markets outside the U.S., the reimbursement for our products may be reduced compared with the U.S. and may be insufficient to generate commercially reasonable revenues and profits.

 

Competition in the biotechnology and biopharmaceutical industry is intense, rapidly expanding and most of our competitors have substantially greater resources than we do.

 

The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. A growing number of other companies, such as Juno, Kite Bellicum, Agenus, Asterias, Dandrit, Immunicum, Sotio, Tocagen, AiVita and many others, are actively involved in the research and development of immune therapies or cell-based therapies for cancer. In addition, other novel technologies for cancer are under development or commercialization, such as checkpoint inhibitor drugs (which are being rapidly developed by numerous big pharma companies including BMS, Merck, Pfizer, Astra Zeneca, Roche and others) and various T cell-based therapies (which are also being rapidly developed by numerous companies with extraordinary resource backing), as well as the electro-therapy device of NovoCure. Additionally, many companies are actively involved in the research and development of monoclonal antibody-based cancer therapies. Currently, a substantial number of antibody-based products are approved for commercial sale for cancer therapy, and a large number of additional ones are under development, including late stage trials. 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, as well as some medical device companies (e.g., NovoCure and MagForce Nano Technologies AG).

 

We face extensive competition from companies developing new treatments for brain cancer. These include a variety of immune therapies, as mentioned above (including T cell-based therapies and checkpoint inhibitor drugs), as well as a variety of small molecule drugs and biologics drugs. There are also a number of existing drugs used for the treatment of brain cancer that may compete with our product, including, Avastin® (Roche Holding AG), Gliadel® (Eisai Co. Ltd.), and Temodar® (Merck& Co., Inc.), as well as NovoCure’s electrotherapy device.

 

Most 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 and sales than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly if they enter into collaborative arrangements with large and established companies.

 

These third parties compete with us in recruiting and retaining qualified scientific and management personnel and collaborators, as well as in acquiring technologies complementary to our programs, and in obtaining sites for our clinical trials and enrolling patients.

 

Our competitors may complete their clinical development more rapidly than we and our products do, may develop more effective or affordable products, or may achieve earlier or longer patent protection or earlier product marketing and sales. Any products developed by us may be rendered obsolete and non-competitive. 

 

Competing generic medicinal products may be approved.

 

In the E.U., there exists a process for approval of generic biological medicinal products once patent protection and other forms of data and market exclusivity have expired. Arrangements for approval of generic biologics products exist in the U.S. as well, and the FDA has begun approving bio-similar products. Jurisdictions may approve generic biologic medicinal products as well. If generic biologic medicinal products are approved, competition from such products may substantially reduce sales of our products.

 

12

 

 

We may be exposed to potential product liability claims, and our existing insurance may not cover these claims, in whole or in part. In addition, insurance against such claims may not be available to us on reasonable terms in the future, if at all.

 

Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing, marketing, sale and use of therapeutic products. We have insurance coverage but this insurance may not cover any claims made. In the future, insurance coverage may not be available to us on commercially reasonable terms (including acceptable cost), if at all. Insurance that we obtain may not be adequate to cover claims against us. Regardless of whether they have any merit or not, and regardless of their eventual outcome, product liability claims may result in substantially decreased demand for our product candidates, injury to our reputation, withdrawal of clinical trial participants or physicians, and/or loss of revenues. Thus, whether or not we are insured, a product liability claim or product recall may result in losses that could be material.

 

We may be subject to environmental regulatory requirements, and could fail to meet such requirements, and we do not carry insurance against environmental damage or injury claims.

   

We may need to store, handle, use and dispose of controlled hazardous, radioactive and biological materials in our business. Our development activities may result in our becoming subject to regulatory requirements, and if we fail to comply with applicable requirements, we could be subject to substantial fines and other sanctions, delays in research and production, and increased operating costs. In addition, if regulated materials were improperly released at our current or former facilities or at locations to which we send materials for disposal, we could be liable for substantial damages and costs, including cleanup costs and personal injury or property damages, and we could incur delays in research and production and increased operating costs.

 

Insurance covering certain types of claims of environmental damage or injury resulting from the use of these materials is available but can be expensive and is limited in its coverage. We have no insurance specifically covering environmental risks or personal injury from the use of these materials and if such use results in liability, our business may be seriously harmed.

 

Collaborations play an important role in our business, and could be vulnerable to competition or termination.

 

We work with scientists and medical professionals at a variety of academic and other institutions, some of whom have conducted research for us or have assisted in developing our research and development strategy. These scientists and medical professionals are collaborators, not our employees. They may have commitments to, or contracts with, other institutions or businesses (including competitors) that limit the amount of time they have available to work with us. We have little control over these individuals. We can only expect that they devote time to us and our programs as required by any license, consulting or sponsored research agreements we may have with them. In addition, these individuals may have arrangements with other companies to assist in developing technologies that may compete with our products. If these individuals do not devote sufficient time and resources to our programs, or if they provide substantial assistance to our competitors, our business could be seriously harmed.

 

The success of our business strategy may partially depend upon our ability to develop and maintain our collaborations and to manage them effectively. Due to concerns regarding our ability to continue our operations or the commercial feasibility of our personalized DCVax product candidates, 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.

 

We may have disputes with our collaborators, which could be costly and time consuming. 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 collaboration and any of these relationships, if established, may not be scientifically or commercially successful.

 

Our business could be adversely affected by new legislation and/or product related issues.

 

Changes in applicable legislation and/or regulatory policies or discovery of problems with the product, production process, site or manufacturer may result in delays in bringing products to market, the imposition of restrictions on the product’s sale or manufacture, including the possible withdrawal of the product from the market, or may otherwise have an adverse effect on our business.

 

Our business could be adversely affected by animal rights activists.

 

Our business activities have involved animal testing and could involve further such testing, as such testing is required before new medical products can be tested in clinical trials in human patients. Animal testing has been the subject of controversy and adverse publicity. Some organizations and individuals have attempted to stop animal testing by pressing for legislation and regulation in these areas. To the extent that the activities of such groups are successful, our business could be adversely affected. Negative publicity about us, our pre-clinical trials and our product candidates could also adversely affect our business.

  

13

 

 

Multiple late stage clinical trials of DCVax-L for GBM, our lead product, may be required before we can obtain regulatory approval.

 

Typically, companies conduct multiple late stage clinical trials of their product candidates before seeking product approval. Our current Phase III 331-patient clinical trial of DCVax-L for GBM is our first late stage trial. We may be required to conduct additional late stage trials with DCVax-L for GBM before we can obtain product approval. This would substantially delay our commercialization, and might not be possible to carry out, due to development and/or approval of competing products, lack of funding, and/or other factors. In addition, our Phase III trial of DCVax-L was placed on a partial clinical hold for new screening for enrollment in 2015. Although the FDA lifted its hold in February 2017 as previously reported by the Company, the Company had already closed enrollment with 331 of the planned 348 patients. Since we did not enroll the last 17 of the planned 348 patients, this could adversely affect the statistical and other analyses of our Phase III trial results, and could make it more difficult to seek product approval or more likely that further trials could be required. In addition, a rapidly growing number of products are under development for brain cancer, including immunotherapies such as checkpoint inhibitor drugs and T cell-based therapies, and some (e.g., NovoCure’s device) have been approved in the U.S. It is possible that the standard of care for brain cancer could change before we complete our Phase III trial or before we are able to seek approval for commercialization. This could necessitate further clinical trials with our DCVax-L product candidate for brain cancer, which may not be feasible.

   

14

 

 

Changes in manufacturing methods for DCVax-L could require us to conduct equivalency studies and/or additional clinical trials.

 

With biologics products, in some cases “the process is the product”: i.e., the manufacturing process is considered to be as integral to the product as is the composition of the product itself. If any changes are made in the manufacturing process, and such changes are considered material by the regulatory authorities, the company sponsor may be required to conduct equivalency studies to show that the product is equivalent under the changed manufacturing processes as under the original manufacturing processes, and/or the company sponsor may be required to conduct additional clinical trials. In addition, if there are multiple manufacturing locations, equivalency studies may be required to show that the products produced in the respective facilities are substantially the same. Our manufacturing processes have undergone some changes during or since the early clinical trials, and we have multiple manufacturing locations. Accordingly, we may be required to conduct equivalency studies, and/or additional clinical trials, before we can obtain product approval, unless the regulatory authorities are satisfied that the changes in processes do not affect the quality, efficacy or safety of the product, and satisfied that the products made in each manufacturing location are substantially the same.

 

We may not receive regulatory approvals for our product candidates or there may be a delay in obtaining such approvals.

 

Our products and our ongoing development activities are subject to regulation by regulatory authorities in the countries in which we and our collaborators and distributors wish to test, manufacture or market our products. For instance, the FDA will regulate our product in the U.S. and equivalent authorities, such as the MHRA and EMA will regulate in Europe and other jurisdictions. Regulatory approval by these authorities will be subject to the evaluation of data relating to the quality, efficacy and safety of the product for its proposed use, and there can be no assurance that the regulatory authorities will find our data sufficient to support product approval of DCVax-L or DCVax-Direct. In addition, the endpoint against which the data is measured must be acceptable to the regulatory authorities, and the statistical analysis plan for how the data will be evaluated must also be acceptable to the regulatory authorities. Under the Protocol for our Phase III trial of DCVax-L for Glioblastoma brain cancer, the primary endpoint is progression free survival, or PFS. Sometimes regulators have accepted this endpoint, and sometimes not. There can be no assurance that the regulatory authorities will find this to be an approvable endpoint for Glioblastoma multiforme cancer. In addition, as previously recognized, the PFS endpoint in our Phase III trial is complicated and potentially confounded by the phenomenon of pseudo-progression, in which a patient appears to have disease progression (tumor recurrence) but does not actually have such progression (for example, where the appearance of progression is actually inflammation or scarring, or is infiltration of beneficial immune cells). Under the Protocol for our Phase III trial the secondary endpoint is overall survival, or OS. There can be no assurance that regulatory authorities will find a secondary endpoint to be an acceptable basis for product approval. In addition, as previously recognized, the OS endpoint in our Phase III trial is complicated or confounded by the trial design, which allowed all patients (including patients initially assigned to the placebo arm of the trial) to “cross over” and receive DCVax-L treatment after recurrence of their tumor. These factors could result in regulatory authorities refusing to accept either of these endpoints, or the analysis of our data relating to either of these endpoints, as a basis for approval.

 

The time period required to obtain regulatory approval varies between countries. In the U.S., for products without “Fast Track” status, it can take up to 18 months after submission of an application for product approval to receive the FDA's decision. Even with Fast Track status, FDA review and decision can take up to 12 months. At present, we do not have Fast Track status for our lead product, DCVax-L for GBM. We plan to apply for Fast Track status, but there can be no assurance that FDA will grant us such status for DCVax-L.

 

Different regulators may impose their own requirements and may refuse to grant, or may require additional data before granting, an approval, notwithstanding that regulatory approval may have been granted by other regulators. Regulatory approval may be delayed, limited or denied for a number of reasons, including clinical data, the product not meeting safety or efficacy requirements or any relevant manufacturing processes or facilities not meeting applicable requirements as well as case load at the regulatory agency at the time.

 

We may not obtain or maintain the benefits associated with orphan drug status, including market exclusivity.

 

Although our lead product, DCVax-L for GBM, has been granted orphan drug status in both the U.S. and the E.U., we may not receive the benefits associated with orphan drug designation (including the benefit providing for market exclusivity for a number of years). This may result from a failure to maintain orphan drug status, or result from a competing product reaching the market that has an orphan designation for the same disease indication. Under U.S. and E.U. rules for orphan drugs, if such a competing product reaches the market before ours does, the competing product could potentially obtain a scope of market exclusivity that limits or precludes our product from being sold in the U.S. for seven years or from being sold in the E.U. for ten years. Also, in the E.U., even after orphan status has been granted, that status is re-examined shortly prior to the product receiving any regulatory approval. The EMA must be satisfied that there is evidence that the product offers a significant benefit relative to existing therapies, in order for the therapeutic product to maintain its orphan drug status. Accordingly, our product candidates will have to re-qualify for orphan drug status prior to any potential product approval in the E.U., and may have to do so elsewhere as well.

 

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Our intellectual property rights may be overturned, narrowed or blocked, and may not provide sufficient commercial protection for our product candidates, or third parties may infringe upon our intellectual property.

 

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Patent laws afford only limited protection and may not protect our rights to the extent necessary to sustain any competitive advantage we may have. In addition, 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 those countries. Moreover, patents and patent applications relating to living cell products are relatively new, involve complex factual and legal issues, and are largely untested in litigation - and as a result, are uncertain. Our pending and future patent applications may not result in patents being issued which adequately protect our technology or products or which effectively prevent others from commercializing the same or competitive technologies and products. As a result, we may not be able to obtain meaningful patent protection for our commercial products, and our business may suffer as a result. Third parties may challenge our existing patents, and such challenges could result in overturning or narrowing some of our patents. Even if our patents are not challenged, third parties could assert that their patents block our use of technology covered by some or all of our patents

 

As of December 31, 2019, we had over 191 issued patents and 52 pending patent applications worldwide relating to our product candidates and related matters such as manufacturing processes. The issued patents expire at various dates from 2022 to 2026. Our issued patents may be challenged, and such challenges may result in reductions in scope, cancellations or invalidations. Our pending patent applications may not result in issued patents. Moreover, our patents and patent applications may not be sufficiently broad to prevent others from using substantially similar 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. As a result, no assurance can be given that any of our pending or future patent applications will be granted, that the scope of any patent protection currently granted or that may be granted in the future will exclude competitors or provide us with competitive advantages, that any of the patents that have been or may be issued to us will be held valid if subsequently challenged, or that other parties will not claim rights to or ownership of our patents or other proprietary rights that we hold.

 

We have taken security measures (including execution of confidentiality agreements) 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 for our trade secrets or other proprietary information. In addition, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to our trade secrets. 

 

We may be exposed to claims or lawsuits that our products infringe patents or other proprietary rights of other parties.

 

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. We have not conducted a comprehensive freedom-to-operate review to determine whether our proposed business activities or use of certain of the technology covered by patent rights owned by us would infringe patents issued to third parties.

 

There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. The patent landscape is especially uncertain in regard to cell therapy products, as it involves complex legal and factual questions for which important legal principles remain unresolved. We may become party to, or be threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference proceedings, Inter Partes Reexamination, or Post Grant Review before the U.S. Patent and Trademark Office. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages. If the infringement is found to be willful, we could be liable for treble damages. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

 

We have already been exposed to one patent lawsuit by a large company, which we vigorously defended. Our defense resulted in the plaintiff withdrawing nearly all of the claims it filed, and in settlement of the last claims without our paying the plaintiff anything. However, the litigation was expensive and time consuming. In the past, we have also been exposed to claims (without a lawsuit) by a competitor asserting or implying (and commentaries by third parties based on the claims by our competitor) that a patent issued to our competitor covers our products. We obtained and publicly reported legal advice that those claims were without merit. However, in the future, we could again be exposed to claims by third parties - with or without merit - that our products infringe their intellectual property rights.   

 

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Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. 

 

DCVax is our only technology in clinical development.

 

Unlike many pharmaceutical companies that have a number of products in development and which utilize many different technologies, we are dependent on the success of our DCVax platform technology. While the DCVax technology has a wide scope of potential use, and is embodied in several different product lines for different clinical situations, if the core DCVax technology is not effective or is toxic or is not commercially viable, our business could fail. We do not currently have other technologies that could provide alternative support for us.

 

Risks Related to our Common Stock

 

The market price of our common stock is volatile and can be adversely affected by several factors.

 

The share prices of publicly traded biotechnology and emerging pharmaceutical companies, particularly companies without consistent product revenues and earnings, can be highly volatile and are likely to remain highly volatile in the future. The price which investors may realize in sales of their shares of our common stock may be materially different than the price at which our common stock is quoted, and will be influenced by a large number of factors, some specific to us and our operations, and some unrelated to our operations. Such factors may cause the price of our stock to fluctuate frequently and substantially. Such factors may include large purchases or sales of our common stock, shorting of our stock, positive or negative events, commentaries or publicity relating to our company, management or products, or other companies, management or products, including other immune therapies for cancer or immune therapies or cancer therapies generally, positive or negative events relating to healthcare and the overall pharmaceutical and biotech sector, the publication of research by securities analysts and changes in recommendations of securities analysts, legislative or regulatory changes, and/or general economic conditions. In the past, shareholder litigation, including class action litigation, has been brought against other companies that experienced volatility in the market price of their shares and/or unexpected or adverse developments in their business. Whether or not meritorious, litigation brought against a company following such developments can result in substantial costs, divert management’s attention and resources, and harm the company’s financial condition and results of operations.

  

Our Common Stock is considered a “penny stock” and may be difficult to sell.

 

The Commission has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. Historically, the price of our Common Stock has fluctuated greatly. As of the date of this filing, the market price of our common stock is less than $5.00 per share, and therefore is a “penny stock” according to Commission rules. The “penny stock” rules impose additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser’s written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule prescribed by the Commission relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. These additional burdens imposed on broker-dealers may restrict the ability or decrease the willingness of broker-dealers to sell our common stock, and may result in decreased liquidity for our common stock and increased transaction costs for sales and purchases of our common stock as compared to other securities.

 

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Linda Powers and Cognate BioServices, each have beneficial ownership of material amounts of our securities, and this concentration of ownership may have a negative effect on the Company and/or the market price of our common stock.

 

As of December 31, 2019, Linda Powers, our Chief Executive Officer and Chairperson of the Board of Directors, beneficially owned a material percentage of our outstanding securities. This concentration of ownership could involve conflicts of interest, and may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning stock of companies with stockholders who could have conflicts of interest. Ms. Powers’ holdings of our securities could enable her to exert some material influence upon 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, as well as over our business plans, strategies or operations. This influence could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination or action that could be favorable to investors. Cognate BioServices also beneficially owned and/or had a contractual claim to receive a material percentage of our outstanding securities as of December 31, 2019. Since the management buyout of Cognate BioServices in February 2018, Cognate BioServices is no longer a related party; however, Cognate’s continued beneficial ownership of a material percentage of our outstanding securities could adversely affect the Company and/or our stock, for example if perceived adversely by investors, and could enable Cognate to exert influence over matters requiring approval by our stockholders, as well as over our business plans, strategies or operations.

 

The requirements of the Sarbanes-Oxley Act of 2002 and other U.S. securities laws impose substantial costs, and may drain our resources and distract our management.

 

We are subject to certain of the requirements of the Sarbanes-Oxley Act of 2002, as well as the reporting requirements under the Exchange Act.  The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We have tested and concluded that we have have remediated the identified material weaknesses in our internal controls that were reported over the years.  The substantial efforts and resources the Company has invested achieved remediation of the previously identified weaknesses. However, requirements continue to become more stringent, requiring even more time and resources to be invested to maintain a controlled environment, which is difficult for a small company like ours. Continued additional investments and management time to meet these requirements will be necessary since control weaknesses raise the risk of future material errors in the company's financial statements.  We may not be able to maintain effective controls over time. If we have material weaknesses in the future, this may subject us to SEC enforcement action, which could include monetary fines or other equitable remedies that could be detrimental to the ongoing business of the Company.

 

We do not intend to pay any cash dividends in the foreseeable future and, therefore, any return on your investment in our common stock must come from increases in the market price of our common stock.

 

We have not paid any cash dividends on our common stock to date in our history, and we do not intend to pay cash dividends on our common stock in the foreseeable future. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business. Also, any credit agreements which we may enter into with institutional lenders may restrict our ability to pay dividends. Therefore, any return on your investment in our capital stock must come from increases in the fair market value and trading price of our common stock. Such increases in the trading price of our stock may not occur.

 

Our certificate of incorporation and bylaws and Delaware law, have provisions that could discourage, delay or prevent a change in control.

 

Our certificate of incorporation and bylaws and Delaware law contain provisions which could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. We are authorized to issue up to 100,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our Board of Directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. No preferred stock is currently outstanding. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management.

  

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Provisions of our certificate of incorporation and bylaws and Delaware law also could have the effect of discouraging potential acquisition proposals or tender offers or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, the certificate of incorporation and bylaws and Delaware law, as applicable, among other things:

 

provide the Board of Directors with the ability to alter the bylaws without stockholder approval;
establish staggered terms for board members;
place limitations on the removal of directors; and
provide that vacancies on the Board of Directors may be filled by a majority of directors in office, although less than a quorum.

 

We are also subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits “business combinations” between a publicly-held Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that such stockholder became an interested stockholder.

 

A substantial number of shares of common stock may be sold in the market, which may depress the market price for our common stock.

 

Sales of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to decline. A substantial majority of the outstanding shares of our common stock are freely tradable without restriction or further registration under the Securities Act. As of December 31, 2019, 614.3 million shares of our common stock are issued and outstanding. In addition, as of December 31, 2019, 359.5 million shares of our common stock are issuable upon exercise of outstanding warrants and 104.7 million shares of our common stock are issuable upon exercise of outstanding options.

  

We may have claims and lawsuits against us that may result in adverse outcomes.

 

From time to time, we may be subject to a variety of claims and lawsuits. As described more fully in “Item 3. Legal Proceedings,” of Part I of this Form 10-K, in the past, we were engaged in responding to a shareholder demand for access to certain corporate books and records, and we were also engaged in several shareholder litigations. We believed that that the claims were without merit, fought them vigorously and settled them. We have also had several small litigations, for example relating to certain payables. However, litigation and claims are subject to inherent uncertainties, and adverse rulings or outcomes could occur, and/or could lead to further claims or litigation. Adverse outcomes or further litigation could result in significant monetary damages or injunctive relief that could adversely affect our business. A material adverse impact on our financial statements also could occur for the period in which an unfavorable final outcome becomes probable and its effect becomes reasonably estimable. In addition, litigation and claims may divert material amounts of management time and attention from our business, and/or involve significant legal costs and expenses.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

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ITEM 2. PROPERTIES

 

Our corporate headquarters are located at 4800 Montgomery Lane, Bethesda, Maryland, where we lease and occupy an aggregate of approximately 7,097 square feet of office space. The lease covering this property is currently scheduled to expire in April 2021. 

 

We also lease and occupy approximately 915 square feet of office space in Germany. The lease covering this property is currently scheduled to expire in December 2020.

 

We also lease and occupy approximately 505 square feet of office space in England. The lease covering this property is currently scheduled to expire in April 2020.

 

Our research and development operations are mainly based in Sawston, U.K., where we lease and occupy an aggregate of approximately 87,000 square feet of building. The lease covering this property is currently scheduled to expire in December 2038.

 

We believe that our existing facilities are adequate for our immediate needs and that, should it be needed, additional space can be leased to accommodate any future growth.

 

ITEM 3. LEGAL PROCEEDINGS  

  

U.S. Securities and Exchange Commission

 

As previously reported, the SEC has been investigating the Company regarding various topics that have been previously disclosed, including regarding the Company’s internal controls. The Company has been cooperating with the SEC investigation.  On October 10, 2019, the Company entered into a settlement agreement with the SEC.  Under the settlement, in which the Company neither admits nor denies any violations, the Company paid a fine of $250,000 in connection with past weaknesses in its internal controls. As part of the investigation and settlement, the Company, with SEC oversight, has retained an additional independent consultant to review remediation efforts implemented and provide guidance to help the Company remediate outstanding deficiencies, if any.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

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PART II

 

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUERS PURCHASES OF EQUITY SECURITIES

 

Market for Common Equity and Related Stockholder Matters

 

Our common stock trade on OTCQB under the trading symbols “NWBO” effective December 19, 2016.  No assurance can be given that an active market will exist for our common stock.  

 

As of March 5, 2020, there were approximately 15,000 holders of record of our common stock. Such holders may include any broker or clearing agencies as holders of record, and in such cases exclude the individual stockholders whose shares are held by such brokers or clearing agencies.

 

Dividend Policy

 

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all future earnings, if any, to fund the ongoing development and growth of our business.  We do not currently anticipate paying any cash dividends in the foreseeable future.

 

Stock Performance Graph

 

Not Applicable 

 

Recent Sales of Unregistered Securities

 

During the year ended December 31, 2019, the Company issued certain equity securities as set forth in footnote 11 (Stockholders’ Equity) to our financial statements, for the consideration described in such footnote, which disclosure is incorporated into this Item 5.  Such securities were issued by the Company pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, or the provisions of Rule 506 of Regulation D promulgated under the Securities Act. Except as set forth in such footnote, the Company did not utilize an underwriter or a placement agent for any of these offerings of its securities

 

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

 

Not Applicable

  

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read this discussion together with the Financial Statements, related Notes and other financial information included elsewhere in this Form 10-K. The following discussion contains assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” and elsewhere in this Form 10-K. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.

 

Overview

 

The Company is focused on developing personalized immune therapies for cancer. We have developed a platform technology, DCVax®, which uses activated dendritic cells to mobilize a patient's own immune system to attack their cancer.

 

Our lead product, DCVax®-L, is designed to treat solid tumor cancers that can be surgically removed. This product is in an ongoing Phase III trial for newly diagnosed Glioblastome multiforme (GBM). 331 patients were enrolled in the trial, and the Company is working to reach completion. The Company, the physicians and the patients remain blinded. On May 29, 2018, interim blinded data from the Phase III trial collected in March 2017 were published in a peer reviewed scientific journal. On November 17, 2018, updated interim blinded data from the Phase III trial collected through October 2018 were presented at the Society for Neuro-Oncology annual meeting. As the Company noted in its announcement of the May 2018 publication and in subsequent reports, the data could get either better or worse as it continues to mature. The Company has been consulting with its Scientific Advisory Board, the Steering Committee of the trial and other independent experts about the ongoing handling of the trial and preparations for completion.

 

As previously reported, the Company has been moving forward with the several stages of work that are needed to reach data lock and unblinding of the data from this Phase III trial. These stages include completing the draft Statistical Analysis Plan, conducting the final data collection and data validation, then data lock and unblinding and analyzing the data. Each of these stages involves teams of outside experts as well as Company personnel.

 

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The Company worked with three sets of highly experienced and independent statisticians, from both the U.K. and the U.S. to develop the Statistical Analysis Plan (SAP).  The Company is continuing to consult with its Scientific Advisory Board, independent consultants and the Board of Directors to move forward as prudently and expeditiously as possible to data lock, unblinding and top line data.

 

The independent contract research organization (CRO) managing the trial has been moving forward on the final data collection site visits and query resolutions to complete the trial data. The Company’s understanding is that the site visits are nearing completion and most of the queries will have been resolved, with only a modest number remaining outstanding. In parallel, the medical monitors are checking the blinded data as well, and other third parties are collecting confirmatory information.

 

Our second product, DCVax®-Direct, is designed to treat inoperable solid tumors. A 40-patient Phase I trial has been completed, and included treatment of a diverse range of cancers. As resources permit, the Company is working on preparations for Phase II trials of DCVax-Direct.

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses.

 

On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates.

 

Warrant Liability

 

We account for certain common stock warrants outstanding as a liability at fair value and adjusts the instruments to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our consolidated statements of operations. The fair value of the warrants issued by us has been estimated using Monte Carlo simulation and or a Black Scholes model.

 

Fair Value Measurements

 

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date.  U.S. GAAP establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  These tiers include:

 

· Level 1 - defined as observable inputs such as quoted prices for identical instruments in active markets;
· Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable
· Level 3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

 

Impairment of Long-Lived Assets

 

The Company assesses its long-lived assets for impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of such assets. If these projected cash flows are less than the carrying amounts, an impairment loss would be recognized, resulting in a write-down of the assets with a corresponding charge to earnings. The impairment loss is measured based upon the difference between the carrying amounts and the fair values of the assets. Assets to be disposed of are reported at the lower of the carrying amounts or fair value less cost to sell. Management determines fair value using the discounted cash flow method or other accepted valuation techniques. 

 

As of December 31, 2019 and 2018, the undiscounted net future cash flows of the U.K. property were greater than the carrying value. Therefore, no impairment loss was considered necessary.

  

Sale and Leaseback Transactions

 

The Company accounts for the sale and leaseback of the U.K. manufacturing facility in accordance with ASC 842. Gains on sale leaseback transactions are recognized at the time of sale if the fair value of the property sold is more than the net book value of the property. Gains on sale and leaseback transactions are deferred and amortized over the remaining lease term. On December 14, 2018, the Company completed the sale and leaseback of the real estate assets associated with the U.K. manufacturing facility for proceeds net of closing costs of $45.6 million. Total gain from the sale was approximately $8.0 million, of which we recognized approximately $3.3 million upfront gain on the closing date in December 2018, and approximately $4.7 million of the gain has been deferred. In addition, we will continue to benefit from the substantial investment costs we had incurred for improvements to the 87,000 square foot Vision Centre building on the U.K. property prior our sale of the property, since the sale transaction included a lease-back of that facility to us for 20 years with a renewal option for another 20 years.

 

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Stock Based Compensation

 

Effective January 1, 2019, we adopted ASU 2018-07, by which the accounting for share-based payments to non-employees and employees is substantially aligned. There was no cumulative effect of the adoption of this standard.

 

Share-based compensation cost is recorded for all option grants and awards of non-vested stock based on the grant date fair value of the award using the Black-Scholes option-pricing model, and is recognized over the service period required for the award. Prior to January 1, 2019, share-based compensation cost for non-employees was remeasured at every reporting period.

 

We estimate the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

 

Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term.

 

Expected Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices.

 

Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues with an equivalent remaining term.

 

Expected Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.

 

We recognize forfeitures when they occur.

 

Recent Accounting Standards

 

Income Taxes

 

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

 

Adoption of Recent Accounting Standards

 

Accounting for Certain Financial Instruments with Down Round Features

 

In July 2017, the FASB has issued a two-part ASU No. 2017-11, (i). Accounting for Certain Financial Instruments with Down Round Features and (ii) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception which simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings. It is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company adopted this standard on its consolidated financial statements and disclosures as of January 1, 2019, and given its sequencing policy in effect as of October 13, 2016, the impact of this standard was not material.

 

Improvements to Non-employee Share-Based Payment Accounting

 

In June 2018, the FASB issued ASU 2018-07 “Improvements to Nonemployee Share-Based Payment Accounting”, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company adopted this standard on its consolidated financial statements as of January 1, 2019, and the adoption did not have a material impact on its consolidated financial statements.

 

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Leases

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described above. Based on the analysis, on January 1, 2019, the Company recorded right of use assets and lease liabilities of approximately $4.3 million, which represented operating lease entered prior to January 1, 2019. Additionally, the Company recorded an adjustment to opening accumulated deficit of $4.8 million related to the derecognition of deferred profit related to the U.K facility sales leaseback transaction.

 

Results of Operations

 

Operating costs:

 

Operating costs and expenses consist primarily of research and development expenses, including clinical trial expenses, which increase when we are actively participating in clinical trials and especially when we are in a large ongoing international phase III trial or we are completing such a large international trial, and undertaking substantial one-time expenses such as for final site visits, query resolutions, statistical work for the Statistical Analysis Plan, preparations for data analyses and other activities related to completion and assessment of the trial. The operating costs also include administrative expenses associated with trials, and increase as such operating activities grow.

 

In addition to clinical trial related costs, our operating costs may include ongoing work relating to our DCVax products, including R&D, product characterization, and related matters. Going forward, we are also incurring large amounts of costs to carry out and complete statistical analyses, process validation work, final data collection and validation, and other work associated with moving towards preparing for locking, unblinding and analyzing the trial results.

 

Our operating costs also include the costs of preparations for the launch of new or expanded clinical trial programs, such as our planned Phase II clinical trials. The preparation costs include payments to regulatory consultants, lawyers, statisticians, sites and others, evaluation of potential investigators, the clinical trial sites and the CROs managing the trials and other service providers, and expenses related to institutional approvals, clinical trial agreements (business contracts with sites), training of medical and other site personnel, trial supplies and other. Additional substantial costs relate to the maintenance and substantial expansion of manufacturing capacity, in both the US and Europe.

 

Our operating costs also include significant legal and accounting costs in operating the Company.

 

Research and development:

 

Discovery and preclinical research and development expenses include costs for substantial external scientific personnel, technical and regulatory advisers, and others, costs of laboratory supplies used in our internal research and development projects, travel, regulatory compliance, and expenditures for preclinical and clinical trial operation and management when we are actively engaged in clinical trials.

 

Because we are pre-revenue company, we do not allocate research and development costs on a project basis. We adopted this policy, in part, due to the unreasonable cost burden associated with accounting at such a level of detail and our limited number of financial and personnel resources.

 

General and administrative:

 

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

 

For the Years Ended December 31, 2019 and 2018

 

We recognized a net loss of $20.3 million and $35.8 million for the years ended December 31, 2019 and 2018, respectively. Net cash used in operations was $31.9 million and $34.6 million for the years ended December 31, 2019 and 2018, respectively.

 

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Research and development expense

 

For the years ended December 31, 2019 and 2018, research and development expense was $13.6 million and $18.2 million, respectively. The decrease of $4.6 million for the year ended December 31, 2019 was primarily due to lower expenses incurred from Cognate BioServices, Advent Bioservices, and other major third-party vendors compared to last year. We also incurred lower stock-based compensation arrangements compared to last year. We recorded approximately $1.8 million of stock-based compensation expense related to research and development expenses during the year ended December 31, 2018 as compared to $0.5 million for the year ended December 31, 2019.

 

The following table summarizes expenses incurred (i.e., amounts invoiced, including those which have only been partly paid) to entities as related parties during the years ended December 31, 2019 and 2018 (amount in thousands):

 

    For the years ended  
    December 31,  
    2019     2018  
Cognate BioServices, Inc. (related party until February 2018)      N/A     $ 873  
Cognate BioServices GmbH      N/A       66  
Cognate Israel      N/A       168  
Advent BioServices     5,218       6,258  
Total   $ 5,218     $ 7,365  

 

 

General and Administrative Expense

 

General and administrative expenses were $12.5 million and $22.5 million for the years ended December 31, 2019 and 2018, respectively. The decrease compared with 2018 was primarily due to lower non-cash expense for stock-based compensation from issuance of stock options to our officers and directors. We recorded approximately $1.4 million and $12.5 million of stock-based compensation under general and administrative expense during the years ended December 31, 2019 and 2018, respectively.

 

Legal Expenses

 

Legal costs were $3.7 million and $4.5 million for the years ended December 31, 2019 and 2018, respectively. The decrease in legal costs reflects a reduction in the need for legal services.

      

Gain on sale of property in the U.K.

 

We recognized a gain of approximately $8.0 million on the sale of most of our U.K. property in December 2018, of which we recognized approximately $3.3 million upfront gain on the closing date, and approximately $4.7 million of the gain has been deferred. In addition, we will continue to benefit from the substantial investment costs we had incurred for improvements to the 87,000 square foot Vision Centre building on the U.K. property prior our sale of the property, since the sale transaction included a lease-back of that facility to us for 20 years with a renewal option for another 20 years.

 

The following table summarizes details of the breakdown on the gain recorded during the year ended December 31, 2018 (amount in thousands):

 

Cash consideration received, net of fees   $ 45,595  
Extinguishment of environmental liability     6,200  
Land and buildings – carrying value     (45,168 )
Accumulated depreciation costs written off     1,397  
Deferred profit on sale-leaseback transaction *     (4,748 )
Gain from sale of property in the United Kingdom   $ 3,276  

 

* On January 1, 2019, we adopted the new lease standard under ASC 842 and recorded an adjustment to opening accumulated deficit of $4.8 million (adjusted based on currency rate on January 1, 2019) related to the derecognition of deferred profit related to the U.K facility sales leaseback transaction.

 

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Change in fair value of derivatives

 

We recognized a non-cash gain of $11.8 million and $18.3 million for the years ended December 31, 2019 and 2018, respectively.

 

The non-cash gain was primarily due to the decrease in stock price as of December 31, 2019 compared with December 31, 2018.

  

Loss from Extinguishment of Debt

 

During the year ended December 31, 2019, we recorded loss from extinguishment of debt of $1.9 million. The debt extinguishment loss resulted from debt conversion, when the fair value of common stock exceeded the book value of the debt as of the conversion date. We also amended certain notes in 2019, which was treated as an extinguishment for accounting purposes.

 

Interest expense

 

During the years ended December 31, 2019 and 2018, we recorded interest expense of $3.0 million and $9.9 million, respectively. We recorded $1.7 million interest expense related to mortgage loans on our U.K. property during the year ended December 31, 2018.  

 

Foreign currency transaction gain (loss)

 

During the years ended December 31, 2019 and 2018, we recognized foreign currency transaction gain of $0.3 million and a foreign currency transaction loss of $2.8 million, respectively. The loss was due to the strengthening of the U.S. dollar relative to the British pound sterling. The foreign currency fluctuation throughout the period is smaller in 2019 compared to 2018.

 

Liquidity and Capital Resources

 

We have experienced recurring losses from operations since inception. We have not yet established an ongoing source of revenues and must cover our operating expenses through debt and equity financings to allow us to continue as a going concern. Our ability to continue as a going concern depends on the ability to obtain adequate capital to fund operating losses until we generate adequate cash flows from operations to fund our operating costs and obligations. If we are unable to obtain adequate capital, we could be forced to cease operations.

 

We depend upon our ability, and will continue to attempt, to secure equity and/or debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Our management determined that there was substantial doubt about our ability to continue as a going concern within one year after the consolidated financial statements were issued, and management’s concerns about our ability to continue as a going concern within the year following this report persist.

 

Contingent Contractual Payment

 

The following table summarizes our contractual obligations as of December 31, 2019 (amount in thousands):

 

    Payment Due by Period  
          Less than     1 to 2  
    Total     1 Year     Years  
Short term convertible notes payable (1)                        
6% unsecured     218       218       -  
10% unsecured     550       550       -  
Short term notes payable (2)                        
8% unsecured     565       565       -  
10% unsecured     3,906       3,906          
12% unsecured     571       571       -  
0% unsecured     1,156       1,156       -  
Short term notes payable - related parties (3)                        
10% unsecured - (on demand)     74       74       -  
Long term notes payable (4)                        
8% unsecured     8,036       -       8,036  
Operating leases (5)     11,833       6,060       5,773  
Purchase obligation (6)                        
Total   $ 26,909     $ 13,100     $ 13,809  

  

(1) The obligations related to short term convertible notes were approximately $0.8 million as of December 31, 2019, which included remaining contractual unpaid interest of $0.1 million.

 

(2) The obligations related to short term notes were approximately $6.2 million as of December 31, 2019, which included remaining contractual unpaid interest of $0.5 million.

 

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(3) The obligations related to short term notes to related parties were approximately $74,000 as of December 31, 2019, which included unpaid loans of $66,000 and unpaid interest of $8,000 owed to Advent BioServices, Ltd.

 

(4) The obligations related to long term notes were approximately $8.0 million as of December 31, 2019, which included remaining contractual unpaid interest of $1.0 million.

 

(5) The operating lease obligations during the next 1 to 2 years included $416,000, $16,000, $20,000 and $4,000 to our offices in Maryland, Germany, London and Netherlands, respectively. Approximately £1 million ($1.4 million) lease obligations during the next 2 years related to the Vision Centre in the U.K. that we leased back in December 2018. We also included approximately $10.0 million of anticipated payments to Advent BioServices, which represents the next 2 years’ obligation. The remaining contract term as of December 31, 2019 was approximately 3 years under the Manufacturing Services Agreement with Advent.

 

(6) We have possible contingent obligations to pay certain fees to manufacturers if we shut down or suspend programs.

For Cognate BioServices (in addition to any other remedies) if we shut down or suspend its DCVax-L program or DCVax-Direct program, the following obligations exist are not reflected in the accompanying balance sheets. See Note 12, Variable Interest Entities, for further details.

 

For a shut down or suspension of the DCVax-Direct program at Cognate, the Company must give 3 months’ advance notice.

 

For a shut down or suspension of the DCVax-L program at Cognate, the fees will be as follows:

 

· Prior to the last dose of the last patient enrolled in the Phase III trial for DCVax®-L or After the last dose of the last patient enrolled in the Phase III clinical trial for DCVax®-L but before any submission for product approval in any jurisdiction or after the submission of any application for market authorization but prior to receiving a marketing authorization approval: in any of these cases, the fee shall be $3 million.

 

· At any time after receiving product approval for DCVax®-L in any jurisdiction, the fee shall be $5 million.

 

While our DCVax programs are ongoing, under our agreements with Cognate we are required to pay certain fees for dedicated production suites or capacity reserved exclusively for DCVax production, and pay for a certain minimum number of patients, whether or not we fully utilize the dedicated capacity and number of patients. The same is the case under our agreement with Advent. On May 21, 2019, we settled certain disputed amounts that had been invoiced to us by Cognate.

 

For a shut down or suspension of the DCVax-L program at Advent, the Company must give 12 months’ advance notice. During the notice period services would still be provided. Minimum required payments for this notice period total approximately £3.8 million ($5 million).

 

As of December 31, 2019, no shut-down or suspension fees were triggered.

 

Operating Activities

 

We used $31.9 million and $34.6 million in cash for operating activities during the years ended December 31, 2019 and 2018, respectively. The decrease in cash used in operating activities was primarily attributable to the decrease in the levels of activity in our ongoing clinical programs.

  

Investing Activities

 

During the year ended December 31, 2019, we spent approximately $360,000 to purchase additional equipment in the UK.

 

During the year ended December 31, 2018, we received approximately $45.6 million cash, net of approximately $1.6 million fees, from sale of certain property in U.K.

 

Financing Activities

 

We received approximately $6.9 million and $8.4 million in cash proceeds from issuance of convertible preferred stock, common stock and warrants, in both public and private offerings during the years ended December 31, 2019 and 2018, respectively.

  

We received approximately $2.2 million and $2.6 million cash proceeds from exercise of warrants during the years ended December 31, 2019 and 2018, respectively.

 

We received approximately $7.0 million and $15.2 million in cash proceeds from issuance of multiple notes during the years ended December 31, 2019 and 2018, respectively.

 

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We made aggregate debt payments of $6.1 million and $18.3 million during the years ended December 31, 2019 and 2018, respectively.  

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not Applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The full text of our audited consolidated financial statements as of December 31, 2019 and 2018 and for the fiscal years ended December 31, 2019 and 2018, begins on page F-1 of this Annual Report on Form 10-K.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We, the management of Northwest Biotherapeutics, Inc. (the “Company”), are responsible for establishing and maintaining adequate internal control over financial reporting of the Company.

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2019. In making this assessment, the Company’s management used the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). 

 

Our management concluded that as of December 31, 2019, our disclosure controls and procedures were effective, and previous noted deficiencies have been remediated, as described below.

 

Management's Report on Internal Control Over Financial Reporting

 

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

 

Management of the Company, including our CEO and CFO, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2019.  Based on this assessment, we determined that we have effectively designed and implemented, consistently performed and tested the functioning of these controls.

 

Based on the efforts identified above, we have concluded that the previously identified material weaknesses in the Company’s internal control over financial reporting have been remediated through the following efforts:

 

  1. To maintain effective controls over the operating effectiveness of information technology ("IT") systems that are relevant to the preparation of our financial statements, we designated a  Chief Information Officer, formalized and consistently implemented appropriate IT policies, and strengthened the oversight of the Company’s third-party service providers with regards to maintaining documentation related to the areas of: managing user access, IT change management, IT infrastructure (cybersecurity, network security) and IT operations (physical security, contingency planning, disaster recovery, backups). The Chief Information Officer oversees and approves all of the activities performed by our third party service providers.

 

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  2. We improved our level of documentation to support reviews and retention of such documentation to support management’s review activities. This documentation is used as evidence of such review procedures being performed by management over the processing, recording and reviewing of transactions related to certain contracts, accounting memos and certain monthly closing procedures.  We have also invested additional resources to continue to improve our financial control environment through the hiring of an additional executive dedicated to these efforts as the Chief Financial and Accounting Officer (CFO/CAO).

 

  3. The Company has formalized and implemented a complete set of financial operational policies and related procedures which govern our system of internal controls over financial reporting.  These policies were reviewed and tested to be effective as of December 31, 2019.

 

Because these material weaknesses were successfully remediated and additional material weaknesses were not identified, management, including our principal executive officer and principal financial officer, has concluded that our internal control over financial reporting was effective as of December 31, 2019.

 

The effectiveness of our internal control over financial reporting has been audited by Marcum LLP, an independent registered public accounting firm, as stated in their attestation report in Item 8 of this Annual Report on Form 10-K, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2019.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes, other than those described above, in our internal control over financial reporting during the fiscal quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

  

ITEM 9B. OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information required by Item 10 is hereby incorporated by reference from our 2020 Proxy Statement under the captions “Election of Directors”, andCode of Ethics. To the extent that we do not file the 2020 Proxy Statement prior to the end of the 120-day period following December 31, 2019, we will amend this Annual Report on Form 10-K to provide the required information.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Information required by this item will be contained in the Proxy Statement and is incorporated herein by reference. 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS-EQUITY COMPENSATION PLAN INFORMATION

 

Information required by this item will be contained in the Proxy Statement and is incorporated herein by reference.

 

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

Information required by this item will be contained in the Proxy Statement and is incorporated herein by reference.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Information required by this item will be contained in the Proxy Statement and is incorporated herein by reference.

 

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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

The Exhibits listed below are identified by numbers corresponding to the Exhibit Table of Item 601 of Regulation S-K. The Exhibits designated by an asterisk (*) are management contracts or compensatory plans or arrangements required to be filed pursuant to Item 15.

   

EXHIBIT INDEX

 

Exhibit

Number

  Description
3.1   Seventh Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 filed with the Registrant’s Amendment No. 1 to the Registration Statement on Form S-1(File No. 333-134320) on July 17, 2006).
3.2   Third Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 filed with the Registrant’s Current Report on Form 8-K on June 22, 2007).
3.3   Amendment to Seventh Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 filed with the Registrant’s Current Report on Form 8-K on June 22, 2007).
3.5   Amendment to Seventh Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 filed with the Registrant’s Quarterly Report on Form 10-Q on May 21, 2012).
3.6   Amendment to Seventh Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 filed with the Registrant’s Current Report on Form 8-K on September 26, 2012).
3.7   Amendment to Third Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 filed with the Registrant’s Current Report on Form 8-K on December 11, 2012).
3.8   Amended and Restated Certificate of Designations of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 filed with the Registrant’s Current Report on Form 8-K on December 21, 2017).
3.9   Amended and Restated Certificate of Designations of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 filed with the Registrant’s Current Report on Form 8-K on January 4, 2018).
4.1   Description of Securities
4.2   Form of common stock certificate (incorporated by reference to Exhibit 4.1 filed with the Registrant’s Amendment No. 3 to the Registration Statement on Form S-1 (Registration No. 333-67350) on November 14, 2001).
4.3   Form of Warrant Agency Agreement by and between Northwest Biopharmaceuticals, Inc. and Computershare Trust Company, N.A. and Form of Warrant Certificate (incorporated by reference to Exhibit 4.2 filed with the Registrant’s Form S-1 on December 4, 2012).
10.1   Form of Loan Agreement and 10% Convertible, Promissory Note between the Company and Toucan Partners, LLC (incorporated by reference to Exhibit 10.4 filed with the Registrant’s Form 10-K on April 17, 2007).
10.2   Second Amended and Restated Investor Rights Agreement dated June 22, 2007 between the Company and Toucan Capital Fund II, LLP (incorporated by reference to Exhibit 10.3 filed with the Registrant’s Current Report on Form 8-K on June 22, 2007).
10.3   Warrant to purchase securities of the Company dated July 26, 2005 issued to Toucan Capital Fund II, L.P (incorporated by reference to Exhibit 10.3 filed with the Registrant’s Current Report on Form 8-K on August 1, 2005).
10.4   Warrant to purchase securities of the Company dated September 7, 2005 issued to Toucan Capital Fund II, L.P (incorporated by reference to Exhibit 10.3 filed with the Registrant’s Current Report on Form 8-K on September 9, 2005).
10.5   Amended Form of Warrant to purchase securities of the Company dated November 14, 2005 and April 17, 2006, as amended April 14, 2007, issued to Toucan Partners, LLC (incorporated by reference to Exhibit 10.21 filed with the Registrant’s Form 10-K on April 17, 2007).
10.6   Form of Warrant to purchase securities of the Company dated April 14, 2007 issued to Toucan Partners, LLC (incorporated by reference to Exhibit 10.22 filed with the Registrant’s Form 10-K on April 17, 2007).

 

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10.7   Loan Agreement and 10% Convertible Promissory Note in the principal amount of $100,000 between the Company and Toucan Partners, LLC, dated April 27, 2007 (incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K on May 3, 2007).
10.8   Warrant to purchase securities of the Company issued to Toucan Partners, LLC, dated April 27, 2007 (incorporated by reference to Exhibit 10.2 filed with the Registrant’s Current Report on Form 8-K on May 3, 2007).
10.9   Form of Toucan Partners Loan Agreement and 10% Convertible Note, dated as of June 1, 2007 (incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K on June 7, 2007).
10.10   Form of Toucan Partners Warrant, dated as of June 1, 2007 (incorporated by reference to Exhibit 10.2 filed with the Registrant’s Current Report on Form 8-K on June 7, 2007).
10.11   Amended and Restated Warrant to purchase Series A Preferred Stock issued to Toucan Capital Fund II, L.P., dated as of June 1, 2007 (incorporated by reference to Exhibit 10.3 filed with the Registrant’s Current Report on Form 8-K on June 7, 2007).
10.12   Warrant to purchase Series A-1 Preferred Stock issued to Toucan Capital Fund II, L.P., dated as of June 1, 2007 (incorporated by reference to Exhibit 10.4 filed with the Registrant’s Current Report on Form 8-K on June 7, 2007).
10.13   Warrant to purchase Series A-1 Preferred Stock issued to Toucan Capital Fund II, L.P., dated as of June 1, 2007 (incorporated by reference to Exhibit 10.5 filed with the Registrant’s Current Report on Form 8-K on June 7, 2007).
10.14   Northwest Biotherapeutics, Inc. $225,000 Demand Note dated June 13, 2007 (incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K on June 18, 2007).
10.15   Conversion Agreement dated June 15, 2007 and effective June 22, 2007 between the Company and Toucan Capital Fund II, LLP (incorporated by reference to Exhibit 10.1 filed with the Registrant’s Current Report on Form 8-K on June 22, 2007).
10.16*   Services Agreement between Cognate BioServices, Inc. and Northwest Biotherapeutics dated April 1, 2011 (incorporated by reference to Exhibit 10.19 filed with the Registrant’s Registration Statement on Form S-1 (Registration No. 333-182470 on June 29, 2012 ).
10.17   1998 Stock Option Plan (incorporated by reference to Exhibit 10.15 filed with the Registration Statement on Form S-1 (Registration No. 333-67350) on August 13, 2001).
10.18   1999 Executive Stock Option Plan (incorporated by reference to Exhibit 10.16 filed with the Registration Statement on Form S-1 (Registration No. 333-67350) on August 13, 2001).
10.19   2001 Stock Option Plan (incorporated by reference to Exhibit 10.17 filed with the Registration Statement on Form S-1 (Registration No. 333-67350) on August 13, 2001).
10.20   2001 Nonemployee Director Stock Incentive Plan (incorporated by reference to Exhibit 10.18 filed with the Registration Statement on Form S-1 (Registration No. 333-67350) on August 13, 2001).
10.21   Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.19 filed with the Registration Statement on Form S-1 (Registration No. 333-67350) on August 13, 2001).
10.22   Form of Stock Option Agreement under the 2007 Stock Option Plan (incorporated by reference to Exhibit 10.2 filed with the Registrant’s Registration Statement on Form S-8 on November 21, 2007).
10.23   Loan Agreement and Promissory Note, dated May 6, 2008 between the Company and Al Rajhi Holdings WLL (incorporated by reference to Exhibit 4.5 filed with the Registrant’s Current Report on Form 8-K on May 15, 2008).
10.24   Loan Agreement and Promissory Note, dated August 19, 2008 between the Company and Toucan Partners LLC (incorporated by reference to Exhibit 10.1 filed with the Registrant’s Quarterly Report on Form 10-Q on November 19, 2008).
10.25   Loan Agreement and Promissory Note, dated October 1, 2008 between the Company and SDS Capital Group SPC, Ltd (incorporated by reference to Exhibit 10.2 filed with the Registrant’s Quarterly Report on Form 10-Q on November 19, 2008).
10.26   Warrant, dated October 1, 2008, between the Company and SDS Capital Group SPC, Ltd (incorporated by reference to Exhibit 10.3 filed with the Registrant’s Quarterly Report on Form 10-Q on November 19, 2008).

 

31

 

 

10.27   Loan Agreement and Promissory Note, dated October 21, 2008, between the Company and SDS Capital Group SPC, Ltd (incorporated by reference to Exhibit 10.4 filed with the Registrant’s Quarterly Report on Form 10-Q on November 19, 2008).
10.28   Form of Loan Agreement and Promissory Note, between the Company and a Group of Private Investors (incorporated by reference to Exhibit 10.5 filed with the Registrant’s Quarterly Report on Form 10-Q on November 19, 2008).
10.29   Form of Warrant, between the Company and SDS Capital Group SPC. Ltd and a Group of Private Investors (incorporated by reference to Exhibit 10.6 filed with the Registrant’s Quarterly Report on Form 10-Q on November 19, 2008).
10.30   Loan Agreement and Promissory Note, dated December 22, 2008, between the Company and Toucan Partners LLC (incorporated by reference to Exhibit 10.62 filed with the Registrant’s Form 10-K on April 15, 2009).
10.31   Form of Warrant, dated December 22, 2008, between the Company and Toucan Partners LLC (incorporated by reference to Exhibit 10.63 filed with the Registrant’s Form 10-K on April 15, 2009).
10.32   Form of Securities Purchase Agreement, by and among the Company and Al Rajhi Holdings (incorporated by reference to Exhibit 10.64 filed with the Registrant’s Form 10-K on April 15, 2009).
10.33   Securities Purchase Agreement, by and among the Company and a Group of Equity Investors (incorporated by reference to Exhibit 10.65 filed with the Registrant’s Form 10-K on April 15, 2009).
10.34   Form of Warrant, between the Company and a Group of Equity Investors (incorporated by reference to Exhibit 10.66 filed with the Registrant’s Form 10-K on April 15, 2009).
10.35   Form of Loan Agreement and Promissory Note, dated March 27, 2009, between the Company and a Group of Private Lenders (incorporated by reference to Exhibit 10.67 filed with the Registrant’s Form 10-K on April 15, 2009).
10.36   Amended and Restated Northwest Biotherapeutics, Inc. 2007 Stock Option Plan (incorporated by reference to Schedule 14A filed on December 3, 2013).
10.37   DC Vax ®-L Manufacturing and Services Agreement between the Company and Cognate BioServices, Inc. dated January 17, 2014 (incorporated by reference to Exhibit 10.40 filed with the Company’s Quarterly Report on Form 10-Q on May 15, 2014).
10.38   DC Vax ®-L Direct Manufacturing and Services Agreement between the Company and Cognate BioServices, Inc. dated January 17, 2014 (incorporated by reference to Exhibit 10.41 filed with the Company’s Quarterly Report on Form 10-Q on May 15, 2014).
10.39   Ancillary Services Agreement between the Company and Cognate BioServices, Inc. dated January 17, 2014 (incorporated by reference to Exhibit 10.42 filed with the Company’s Quarterly Report on Form 10-Q on May 15, 2014).
10.40   Manufacturing Expansion Service Agreement between the Company and Cognate BioServices, Inc. dated January 17, 2014 (incorporated by reference to Exhibit 10.43 filed with the Company’s Quarterly Report on Form 10-Q on May 15, 2014).
10.41   Form of Warrant between the Company and H.C. Wainwright & Co., LLC dated April 9, 2014 (incorporated by reference to Exhibit 4.1 filed with the Company’s Current Report on Form 8-K on April 14, 2014).
10.42   Form of Warrant between the Company and certain investors (incorporated by reference as Exhibit 4.1 filed with the Company’s Current Report on Form 8-K on October 10, 2014).
10.43   Form of Warrant between the Company and certain investors (incorporated by reference as Exhibit 10.2 filed with the Company’s Current Report on Form 8-K on December 29, 2015).
10.44   Form of Warrant between the Company and certain investors (incorporated by reference as Exhibit 10.2 filed with the Company’s Current Report on Form 8-K on March 3, 2016).
10.45   Form of Common Stock Purchase Warrant by and between Northwest Biotherapeutics, Inc. and certain purchasers (incorporated by reference as Exhibit 10.1 filed with the Company’s Current Report on Form 8-K on July 11, 2016).
10.46   Exchange Agreement, dated as of August 29, 2016, between Cognate BioServices, Inc. and Northwest Biotherapeutics, Inc. (incorporated by reference as Exhibit 10.1 filed with the Company’s Current Report on Form 8-K on September 6, 2016).

 

32

 

 

10.47   Form of Warrant to Purchase Common Stock to Cognate BioServices, Inc. to purchase 4,305,772 shares of Common Stock (incorporated by reference as Exhibit 99.1 filed with the Company’s Current Report on Form 8-K on September 6, 2016).
10.48   Letter Agreement, dated August 23, 2016, by and between Northwest Biotherapeutics, Inc. and certain purchasers (incorporated by reference as Exhibit 10.1 filed with the Company’s Current Report on Form 8-K/A on September 19, 2016).
10.49   Series E Common Stock Purchase Warrant (incorporated by reference as Exhibit 10.2 filed with the Company’s Current Report on Form 8-K/A on September 19, 2016).
10.50   Registration Rights Agreement dated August 22, 2016 (incorporated by reference as Exhibit 10.3 filed with the Company’s Current Report on Form 8-K/A on September 19, 2016).
10.51   Engagement Agreement, dated August 21, 2016, by and between Northwest Biotherapeutics, Inc. and H.C. Wainwright & Co., LLC, as placement agent 2016 (incorporated by reference as Exhibit 10.4 filed with the Company’s Current Report on Form 8-K/A on September 19, 2016).
10.52   Agreement, dated as of October 13, 2016, between Cognate BioServices, Inc. and Northwest Biotherapeutics, Inc. (incorporated by reference as Exhibit 10.1 filed with the Company’s Current Report on Form 8-K on October 19, 2016).
10.53   Omnibus Amendment Agreement dated as of September 22, 2016 between Cognate BioServices, Inc. and Northwest Biotherapeutics, Inc. (incorporated by reference as Exhibit 10.2 filed with the Company’s Current Report on Form 8-K on October 19, 2016).
10.54   Release Agreement dated as of October 13, 2016 between Cognate BioServices, Inc. and Northwest Biotherapeutics, Inc.  (incorporated by reference as Exhibit 10.3 filed with the Company’s Current Report on Form 8-K on October 19, 2016).
10.55   Assignment and Assumption Agreement dated as of October 13, 2016 between Cognate BioServices, Inc. and Northwest Biotherapeutics, Inc. (incorporated by reference as Exhibit 10.4 filed with the Company’s Current Report on Form 8-K on October 19, 2016).
10.56   Form of Securities Purchase Agreement, dated March 17, 2017, by and between Northwest Biotherapeutics, Inc. and certain purchasers. (incorporated by reference as Exhibit 10.1 filed with the Company’s Current Report on Form 8-K on March 23, 2017).
10.57   Form of Class A Common Stock Purchase Warrant (incorporated by reference as Exhibit 10.2 filed with the Company’s Current Report on Form 8-K on March 23, 2017).
10.58   Form of Class B Common Stock Purchase Warrant (incorporated by reference as Exhibit 10.3 filed with the Company’s Current Report on Form 8-K on March 23, 2017).
10.59   Form of Class C Common Stock Purchase Warrant (incorporated by reference as Exhibit 10.4 filed with the Company’s Current Report on Form 8-K on March 23, 2017).
10.60   Engagement Agreement with Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC (incorporated by reference as Exhibit 10.5 filed with the Company’s Current Report on Form 8-K on March 23, 2017).
10.61   Securities Exchange Agreement (incorporated by reference as Exhibit 10.1 filed with the Company’s Current Report on Form 8-K on May 31, 2017).
10.62   Securities Exchange Agreement (incorporated by reference as Exhibit 10.1 filed with the Company’s Current Report on Form 8-K on June 21, 2017).
10.63   Note Purchase Agreement (incorporated by reference as Exhibit 10.2 filed with the Company’s Current Report on Form 8-K on June 21, 2017).
10.64   Form of Warrant Repricing Letter Agreement dated August 7, 2017 by and between Northwest Biotherapeutics, Inc. and a certain institutional investor (incorporated by reference as Exhibit 10.1 filed with the Company’s Current Report on Form 8-K on August 7, 2017).
10.65   Form of Series A Common Stock Purchase Warrant (incorporated by reference as Exhibit 10.2 filed with the Company’s Current Report on Form 8-K on August 7, 2017).

 

33

 

 

10.66   Form of Securities Purchase Agreement, dated September 20, 2017, by and between Northwest Biotherapeutics, Inc. and certain institutional investors (incorporated by reference as Exhibit 10.1 filed with the Company’s Current Report on Form 8-K on September 22, 2017).
10.67   Form of Class A Common Stock Purchase Warrant (incorporated by reference as Exhibit 10.2 filed with the Company’s Current Report on Form 8-K on September 22, 2017).
10.68   Engagement Agreement with Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC (incorporated by reference as Exhibit 10.3 filed with the Company’s Current Report on Form 8-K on September 22, 2017).
10.69   Sawston Lease, dated October 10, 2017.
10.70   Form of Class D-1 Common Stock Purchase Warrant (incorporated by reference as Exhibit 10.1 filed with the Company’s Current Report on Form 8-K on December 7, 2017).
10.71   Form of Voting Agreement (incorporated by reference as Exhibit 10.2 filed with the Company’s Current Report on Form 8-K on December 7, 2017).
10.72   Form of Subscription Agreement (incorporated by reference as Exhibit 10.3 filed with the Company’s Current Report on Form 8-K on December 7, 2017).
10.73   Settlement and Amendment Agreement (2016 Obligations Agreement), dated as of December 31, 2017, by and between Northwest Biotherapeutics, Inc. and Cognate BioServices, Inc.
10.74   Settlement and Amendment Agreement (2017 Obligations Agreement), dated as of December 31, 2017, by and between Northwest Biotherapeutics, Inc. and Cognate BioServices, Inc.
10.75   Note and Loan Agreement, dated as of March 14, 2018, by and between Northwest Biotherapeutics, Inc. and Linda F. Powers.
10.76   Note and Loan Agreement, dated as of March 19, 2018, by and between Northwest Biotherapeutics, Inc. and Linda F. Powers.
10.77   Promissory Note in the principal amount of $1,388,888.89, dated as of May 1, 2018, by and between Northwest Biotherapeutics, Inc. and Adar Bays, LLC.
10.78   Form of Loan Agreement, dated as of November 7, 2018, by and between Northwest Biotherapeutics, Inc. and a Group of Private Lenders.
10.79   Contract Relating to Sale of Spicers, Sawston, Cambridge, dated as of December 5, 2018, by and between Aracaris Capital Limited and Huawei Technologies Research & Development (UK) Limited.
10.80   Lease Relating to Vision Centre, Sawston, Cambridge, by and between Aracaris Capital Limited and Aracaris Limited, dated as of December 14, 2018.
21.1   Subsidiaries of the Registrant.
23.1   Independent Registered Public Accounting Firm’s Consent.
31.1   Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2   Certification of the Chief Financial Officer and Chief Accounting Officer and Interim Chief Information Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1   Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of the Chief Financial Officer and Chief Accounting Officer and Interim Chief Information Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS   XBRL Instance Document.
101.SCH    XBRL Schema Document.
101.CAL   XBRL Calculation Linkbase Document.
101.DEF   XBRL Definition Linkbase Document.
101.LAB    XBRL Label Linkbase Document.
101.PRE   XBRL Presentation Linkbase Document.

 

34

 

 

  * Confidential information in this exhibit has been omitted and filed separately with the SEC pursuant to a confidential treatment request.

  

ITEM 16. FORM 10–K SUMMARY

 

None.

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

(Registrant)

   

Date: March 16, 2020

By: /s/ Linda F. Powers
    Linda F. Powers,
    Chief Executive Officer (Principal Executive Officer)

 

Date: March 16, 2020 By: /s/ Jean M. Davis
    Jean M. Davis,
    Chief Financial Officer (Chief Accounting Officer and Interim Chief Information Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Linda F. Powers   Chief Executive Officer   March 16, 2020
Linda F. Powers   Principal Executive Officer    
         
/s/ Jean M. Davis   Chief Financial Officer   March 16, 2020
Jean M. Davis   Chief Accounting Officer    
    Interim Chief Information Officer    
         
/s/ Alton L. Boynton   Director   March 16, 2020
Alton L. Boynton        
         
/s/ Navid Malik   Director   March 16, 2020
Dr. Navid Malik        
         
/s/ Jerry Jasinowski   Director   March 16, 2020
Jerry Jasinowski        
         
/s/ J. Cofer Black   Director   March 16, 2020
J. Cofer Black        

 

35

 

 

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

NORTHWEST BIOTHERAPEUTICS, INC.

 

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Reports of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets as of December 31, 2019 and 2018 F-4
   
Consolidated Statements of Operations and Comprehensive Loss  for the years ended December 31, 2019 and 2018 F-5
   
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2019 and 2018 F-6
   
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018 F-7
   
Notes to the Consolidated Financial Statements F-9

 

F-1

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of

Northwest Biotherapeutics, Inc. and Subsidiaries

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Northwest Biotherapeutics, Inc. and Subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2019, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March 16, 2020, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

 

Explanatory Paragraph – Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred recurring operating losses and net operating cash flow deficits, and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Change in Accounting Principle

 

As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of the guidance in ASC Topic 842, Leases (“Topic 842”).

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Marcum llp

 

Marcum llp

 

We have served as the Company’s auditor since 2013.

 

New York, NY
March 16, 2020

 

F-2

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

To the Shareholders and Board of Directors of

Northwest Biotherapeutics, Inc. and Subsidiaries

 

Opinion on Internal Control over Financial Reporting

 

We have audited Northwest Biotherapeutics, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of December 31, 2019 and 2018 and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ deficit, and cash flows and the related notes for each of the two years in the period ended December 31, 2019 of the Company, and our report dated March 16, 2020 expressed an unqualified opinion on those financial statements.

 

Basis for Opinion

 

The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.

 

/s/ Marcum llp

 

Marcum llp

New York, NY

March 16, 2020

 

F-3

 

  

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

    December 31,     December 31,  
    2019     2018  
ASSETS                
Current assets:                
Cash and cash equivalents   $ 372     $ 22,224  
Prepaid expenses and other current assets     2,828       1,574  
Total current assets     3,200       23,798  
                 
Non-current assets:                
Property, plant and equipment, net     281       108  
Construction in progress     171       -  
Right-of-use asset, net     4,679       -  
Other assets     798       761  
Total non-current assets     5,929       869  
                 
TOTAL ASSETS   $ 9,129     $ 24,667  
                 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
Current liabilities:                
Accounts payable and accrued expenses   $ 6,348     $ 15,506  
Accounts payable and accrued expenses to related parties and affiliates     842       4,588  
Convertible notes, net     568       1,863  
Convertible notes to related party     -       5,400  
Notes payable, net     5,501       7,155  
Notes payable to related party     66       393  
Shares payable     -       138  
Contingent payable derivative liability     7,261       -  
Warrant liability     20,213       29,995  
Lease liabilities     395       -  
Deferred profit on sale-leaseback transaction     -       4,802  
Total current liabilities     41,194       69,840  
                 
Non-current liabilities:                
Note payable, net of current portion, net     6,588       1,986  
Lease liabilities, net of current portion     4,914       -  
Total non-current liabilities     11,502       1,986  
                 
Total liabilities     52,696       71,826  
                 
COMMITMENTS AND CONTINGENCIES (Note 13)                
                 
Stockholders' deficit:                
Preferred stock ($0.001 par value); 100,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2019 and 2018     -       -  
Common stock ($0.001 par value); 1,200,000,000 shares authorized; 614.3 million and 523.2 million shares issued and outstanding as of December 31, 2019 and 2018, respectively     614       523  
Additional paid-in capital     794,900       775,741  
Stock subscription receivable     (10 )     (10 )
Accumulated deficit     (839,907 )     (824,413 )
Accumulated other comprehensive income     836       1,000  
Total stockholders' deficit     (43,567 )     (47,159 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $ 9,129     $ 24,667  

 

See accompanying notes to the consolidated financial statements

 

F-4

 

 

 NORTHWEST BIOTHERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)

 

    For the years ended  
    December 31,  
    2019     2018  
Revenues:                
Research and other   $ 2,410     $ 412  
Total revenues     2,410       412  
Operating costs and expenses:                
Research and development     13,590       18,154  
General and administrative     12,541       22,511  
Legal expenses     3,742       4,504  
Total operating costs and expenses     29,873       45,169  
Gain on sale of property in the United Kingdom     -       3,276  
Loss from operations     (27,463 )     (41,481 )
Other income (expense):                
Change in fair value of derivative liabilities     11,828       18,303  
(Loss) gain from extinguishment of debt     (1,941 )     85  
Interest expense     (2,975 )     (9,871 )
Foreign currency transaction gain (loss)     255       (2,830 )
Total other income     7,167       5,687  
Net loss   $ (20,296 )   $ (35,794 )
Deemed dividend on convertible preferred stock     -       (17,765 )
Net loss applicable to common stockholders   $ (20,296 )   $ (53,559 )
                 
Other comprehensive income (loss)                
Foreign currency translation adjustment     (164 )     1,597  
Total comprehensive loss   $ (20,460 )   $ (34,197 )
                 
Net loss per share attributable to common stockholders - basic and diluted   $ (0.04 )   $ (0.12 )
Weighted average shares used in computing basic and diluted loss per share     564,188       440,016  

 

See accompanying notes to the consolidated financial statements

 

F-5

 

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(in thousands)

 

                            Accumulated        
          Additional                 Other     Total  
    Common Stock     Paid-in     Subscription     Accumulated     Comprehensive     Stockholders'  
    Shares     Par value     Capital     Receivable     Deficit     Income (loss)     Equity (Deficit)  
Balance at January 1, 2018     328,857     $ 329     $ 721,554     $ -     $ (788,619 )   $ (597 )   $ (67,333 )
Issuance of common stock and warrants for cash in a registered direct offering (net of $0.3 million warrant liability)     4,000       4       696       -       -       -       700  
Issuance of common stock in a private offering     100       -       23       -       -       -       23  
Issuance of common stock for conversion of Series A convertible preferred stock     100,141       100       18,938       (109 )     -       -       18,929  
Deemed dividend on conversion of Series A convertible preferred stock to common stock     -       -       (10,892 )     -       -       -       (10,892 )
Beneficial conversion feature of Series B convertible preferred stock     -       -       2,086       -       -       -       2,086  
Deemed dividend related to immediate accretion of beneficial conversion feature of Series B convertible preferred stock     -       -       (2,086 )     -       -       -       (2,086 )
Issuance of common stock for conversion of Series B convertible preferred stock     32,491       33       19,674       (10 )     -       -       19,697  
Deemed dividend on conversion of Series B convertible preferred stock to common stock     -       -       (4,787 )     -       -       -       (4,787 )
Warrants exercised for cash     10,936       11       2,564       -       -       -       2,575  
Reclassification of warrant liabilities related to warrants exercised for cash     -       -       2,492       -       -       -       2,492  
Conversion of share settled debt into common stock     14,214       14       3,294       -       -       -       3,308  
Issuance of common stock and warrants for conversion of debt and accrued interest     32,393       32       8,040       -       -       -       8,072  
Reclass between accrued interest and subscription receivable     -       -       -       9       -       -       9  
Proceeds from investor to offset subscription receivable     -       -       -       100       -       -       100  
Stock-based compensation     100       -       14,145       -       -       -       14,145  
Net loss     -       -       -       -       (35,794 )     -       (35,794 )
Cumulative translation adjustment     -       -       -       -       -       1,597       1,597  
Balance at December 31, 2018     523,232       523       775,741       (10 )     (824,413 )     1,000       (47,159 )
Issuance of common stock and warrants for cash in a registered direct offering (net of $2.7 million warrant liability and $0.4 million cash offering cost)     32,708       33       4,040       -       -       -       4,073  
Warrants exercised for cash     9,532       10       2,210       -       -       -       2,220  
Reclassification of warrant liabilities related to warrants exercised for cash     -       -       1,759       -       -       -       1,759  
Issuance of common stock and warrants for conversion of debt and accrued interest     35,480       35       9,138       -       -       -       9,173  
Stock-based compensation     1,340       1       1,818       -       -       -       1,819  
Cumulative effect of adopting new accounting standard     -       -       -       -       4,802       -       4,802  
Issuance of common shares in connection with a settlement agreement     12,000       12       (12 )     -       -       -       -  
Beneficial conversion feature related to amended convertible note     -       -       68       -       -       -       68  
Reclass between shares payable and additional paid-in capital     -       -       138       -       -       -       138  
Net loss     -       -       -       -       (20,296 )     -       (20,296 )
Cumulative translation adjustment     -       -       -       -       -       (164 )     (164 )
Balance at December 31, 2019     614,292     $ 614     $ 794,900     $ (10 )   $ (839,907 )   $ 836     $ (43,567 )

 

See accompanying notes to the consolidated financial statements
 

F-6

 

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

`   For the years ended  
    December 31,  
    2019     2018  
Cash Flows from Operating Activities:                
Net Loss   $ (20,296 )   $ (35,794 )
Reconciliation of net loss to net cash used in operating activities:                
Depreciation and amortization     21       1,291  
Amortization of debt discount     1,430       6,706  
Amortization of debt premium     -       (355 )
Change in fair value of derivatives     (11,828 )     (18,303 )
Loss (gain) from extinguishment of debt     1,941       (85 )
Gain on sale of property in the United Kingdom     -       (3,276 )
Amortization of operating lease right-of-use asset     (322 )     -  
Stock-based compensation related to warrants modification     3       141  
Stock-based compensation for services     1,819       14,145  
Subtotal of non-cash charges     (6,936 )     264  
Changes in operating assets and liabilities:                
Prepaid expenses and other current assets     (1,226 )     (304 )
Other non-current assets     (11 )     (734 )
Accounts payable and accrued expenses     30       (436 )
Related party accounts payable and accrued expenses     (3,746 )     4,002  
Exit fee liability related to mortgage loan     -       (120 )
Renewal liability related to mortgage loan     -       (1,464 )
Lease liabilities     326       -  
Net cash used in operating activities     (31,859 )     (34,586 )
Cash Flows from Investing Activities:                
Proceeds from sale of property in the United Kingdom     -       45,595  
Additional cost of leasehold improvement related to UK construction     -       (193 )
Purchase of equipment     (360 )     -  
Net cash (used in) provided by investing activities     (360 )     45,402  
Cash Flows from Financing Activities:                
Proceeds from issuance of Series A convertible preferred stock and warrants     -       527  
Proceeds from issuance of Series B convertible preferred stock and warrants, net     -       6,594  
Proceeds from issuance of common stock and warrants in a registered direct offering, net     6,874       1,000  
Proceeds from issuance of common stock and warrants in a private offering     -       23  
Proceeds from private offering (shares payable)     -       138  
Proceeds from investor to offset subscription receivable     -       100  
Proceeds from exercise of warrants     2,220       2,575  
Proceeds from warrants modification     7       -  
Proceeds from issuance of notes payable, net     7,000       8,000  
Proceeds from issuance of notes payable to related party     -       95  
Proceeds from issuance of convertible notes payable, net     -       1,700  
Proceeds from issuance of convertible notes payable to related party     -       5,400  
Repayment of notes payable     (420 )     (2,350 )
Repayment of notes payable to related parties     (329 )     (823 )
Repayment of convertible notes payable     -       (5,350 )
Repayment of convertible notes payable to related parties     (5,400 )     -  
Repayment of mortgage loan     -       (9,758 )
Net cash provided by financing activities     9,952       7,871  
Effect of exchange rate changes on cash and cash equivalents     415       3,420  
Net (decrease) increase in cash and cash equivalents     (21,852 )     22,107  
                 
Cash and cash equivalents, beginning of the year     22,224       117  
Cash and cash equivalents, end of the year   $ 372     $ 22,224  
                 
Supplemental disclosure of cash flow information                
Interest payments on mortgage loan   $ -     $ (1,135 )
Interest payments on notes payable   $ (43 )   $ (22 )
Interest payments on notes payable to related party   $ (177 )   $ (27 )
Interest payments on senior convertible note   $ -     $ (1,012 )
Interest payments on convertible notes payable to related party   $ (795 )   $ -  

 

See accompanying notes to the consolidated financial statements

 

F-7

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

    For the years ended  
    December 31,  
    2019     2018  
Supplemental schedule of non-cash investing and financing activities:                
Issuance of common stock for conversion of Series A convertible preferred stock   $ -     $ 18,929  
Deemed dividend on conversion of Series A convertible preferred stock to common stock   $ -     $ 10,892  
Beneficial conversion feature of Series B convertible preferred stock   $ -     $ 2,086  
Deemed dividend related to immediate accretion of beneficial conversion feature of Series B convertible preferred stock   $ -     $ 2,086  
Issuance of common stock for conversion of Series B convertible preferred stock   $ -     $ 19,697  
Deemed dividend on conversion of Series B convertible preferred stock to common stock   $ -     $ 4,787  
Reclassification of warrant liabilities related to warrants exercised for cash   $ 1,759     $ 2,492  
Conversion of share settled debt into common stock   $ -     $ 3,308  
Issuance of common stock and warrants for conversion of debt and accrued interest   $ 7,313     $ 6,480  
Conversion of outstanding accounts payables to note payable and contingent payable   $ 8,560     $ -  
Issuance of common shares in connection with a settlement agreement   $ 12     $ -  
Offering cost related to warrant liability   $ 2,693     $ -  
Deferred offering cost   $ 108     $ -  
Beneficial conversion feature related to amended convertible note   $ 68     $ -  
Reclass between shares payable and additional paid-in capital   $ 138     $ -  
Warrants and contingently issuable warrants associated with convertible notes payable to related party   $ -     $ 4,217  
Issuance of warrants in conjunction with note payable           $ 67  
Conversion of note payable to offset Series A convertible preferred stock subscription receivable   $ -     $ 500  
Conversion of interest payable to offset Series A convertible preferred stock subscription receivable   $ -     $ 71  
Accrued renewal fee incurred from mortgage loan           $ 500  
Reclass between accrued interest and subscription receivable   $ -     $ 9  

  

See accompanying notes to the consolidated financial statements

 

F-8

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

Notes to the Consolidated Financial Statements

 

1. Organization and Description of Business

 

Northwest Biotherapeutics, Inc. and its wholly owned subsidiaries NW Bio GmbH, Aracaris Ltd, Aracaris Capital, Ltd, and Northwest Biotherapeutics B.V. (collectively, the “Company”, “we”, “us” and “our”) were organized to discover and develop innovative immunotherapies for cancer. The Company has developed DCVax® platform technologies for both operable and inoperable solid tumor cancers. The Company has wholly owned subsidiaries in the U.K. and on April 25, 2019, the Company established a new wholly owned subsidiary Northwest Biotherapeutics B.V. in the Netherlands, where the European Medicines Agency is relocating.

 

The Company relies upon contract manufacturers for production of its DCVax products, research and development services, distribution and logistics, and related services, in compliance with the Company’s specifications and the applicable regulatory requirements. The companies are Cognate BioServices in the U.S. and Advent BioServices (a related party) in the U.K. Both of these companies specialize in the production of living cell products.  

  

2. Financial Condition, Going Concern and Management Plans

 

The Company has incurred annual net operating losses since its inception. The Company had a net loss of $20.3 million for the year ended December 31, 2019. The Company used approximately $31.9 million of cash in its operating activities for the year ended December 31, 2019. Management believes that the Company has access to capital resources through the sale of equity and debt financing arrangements. However, the Company has not secured any commitments for new financing for this specific purpose at this time.

 

The Company has not yet generated any material revenue from the sale of its products and is subject to all of the risks and uncertainties that are typically faced by biotechnology companies that devote substantially all of their efforts to R&D and clinical trials and do not yet have commercial products. The Company expects to continue incurring losses for the foreseeable future. The Company’s existing liquidity is not sufficient to fund its operations, anticipated capital expenditures, working capital and other financing requirements until the Company reaches significant revenues.  Until that time, the Company will need to obtain additional equity and/or debt financing, especially if the Company experiences downturns in its business that are more severe or longer than anticipated, or if the Company experiences significant increases in expense levels resulting from being a publicly-traded company or from expansion of operations.  If the Company attempts to obtain additional equity or debt financing, the Company cannot assume that such financing will be available to the Company on favorable terms, or at all.

 

Because of recurring operating losses and operating cash flow deficits, there is substantial doubt about the Company’s ability to continue as a going concern within one year from the date of this filing. The consolidated financial statements have been prepared assuming that 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.

  

3. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements of the Company were prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”) and include the assets, liabilities, revenues and expenses of the wholly owned subsidiaries in Germany and the United Kingdom. All intercompany transactions and accounts have been eliminated in consolidation.

 

Consolidation

 

The Company’s policy is to consolidate all entities in which it can vote a majority of the outstanding voting stock.  In addition, the Company consolidates entities which meet the definition of a variable interest entity (VIE) for which the Company is the primary beneficiary, if any.  The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the VIE.

 

Cash and Cash Equivalents

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution which, at times may exceed the Federal depository insurance coverage (“FDIC”) of $250,000. The Company had not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

 

F-9

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

Notes to the Consolidated Financial Statements

 

Property, Plant and Equipment

 

Property and equipment are stated at cost. Depreciation and amortization are provided for using straight-line methods, in amounts sufficient to charge the cost of depreciable assets to operations over their estimated service lives. Repairs and maintenance costs are charged to operations as incurred.

 

Costs for capital assets not yet placed into service are capitalized as Construction in progress on the Consolidated balance sheets and will be depreciated once placed into service.

 

The Company assesses its long-lived assets for impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of such assets. If these projected undiscounted net future cash flows are less than the carrying amounts, an impairment loss would be recognized, resulting in a write-down of the assets with a corresponding charge to earnings. The impairment loss is measured based upon the difference between the carrying amounts and the fair values of the assets. Assets to be disposed of are reported at the lower of the carrying amounts or fair value less cost to sell. Management determines fair value using the discounted cash flow method or other accepted valuation techniques.

  

Use of Estimates

 

In preparing consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions. These estimates and assumptions include valuing equity securities in share-based payment arrangements, estimating the fair value of financial instruments recorded as derivative liabilities, useful lives of depreciable assets and whether impairment charges may apply.

 

Fair Value of Financial Instruments

 

ASC 820, Fair Value Measurements, provides guidance on the development and disclosure of fair value measurements. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

 

The accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes:

 

  Level 1: Quoted prices in active markets for identical assets or liabilities.

 

  Level 2: Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.

 

  Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

 

Warrant Liability

 

The Company accounts for certain common stock warrants outstanding as a liability at fair value and adjusts the instruments to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s consolidated statements of operations. The fair value of the warrants issued by the Company has been estimated using Monte Carlo simulation and or a Black Scholes model.

 

Embedded Conversion Features

 

The Company evaluates embedded conversion features within convertible debt to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in the Statement of Operations.  If the conversion feature does not require recognition of a bifurcated derivative, the convertible debt instrument is evaluated for consideration of any beneficial conversion feature (“BCF”) requiring separate recognition. When the Company record a BCF, the intrinsic value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid-in capital) and amortized to interest expense over the life of the debt.

 

F-10

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

Notes to the Consolidated Financial Statements

 

Leases

 

Prior to January 1, 2019, the Company recognized related rent expense on a straight-line basis over the term of the lease.

 

Subsequent to the adoption of the new leasing standard on January 1, 2019, the Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement is or contains a lease at contract inception. Operating leases with a duration greater than one year are included in operating lease right-of-use assets, operating lease liabilities - short-term, and operating lease liabilities - long-term in the Company’s consolidated balance sheet at December 31, 2019. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate represents the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset.

 

The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the expected lease term. Variable lease expenses are recorded when incurred. 

 

Sale and Leaseback Transactions  

 

The Company accounts for the sale and leaseback of the UK manufacturing facility in accordance with ASC 842. Gains on sale leaseback transactions are recognized at the time of sale if the fair value of the property sold is more than the net book value of the property. Gains on sale and leaseback transactions are deferred and amortized over the remaining lease term. See Note 6 for further details.

   

Foreign Currency Translation and Transactions

 

The Company has operations in Germany and the United Kingdom in addition to the U.S. The Company translated its assets and liabilities into U.S. dollars using end of period exchange rates and revenues and expenses are translated into U.S. dollars using weighted average rates. Foreign currency translation adjustments are reported as a separate component of accumulated other comprehensive income (loss) within stockholders’ equity deficit.

 

The Company converts receivables and payables denominated in other than the Company’s functional currency at the exchange rate as of the balance sheet date. The resulting transaction exchange gains or losses related to intercompany receivable and payables, are included in other income and expense.

 

Comprehensive Loss

 

The Company reports comprehensive loss and its components in its consolidated financial statements. Comprehensive loss consists of net loss and foreign currency translation adjustments, affecting stockholders’ equity deficit that, under U.S, GAAP, is excluded from net loss.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with the terms stipulated under the patient service contract. In various situations, the Company receives certain payments for DCVax®-L for patient treatment. These payments are non-refundable, and are not dependent on the Company’s ongoing future performance. Due to potential collectability issues with patients, the Company has adopted a policy of recognizing these payments as revenue when received.

 

Accrued Outsourcing Costs

 

Substantial portions of our preclinical studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors (collectively “CROs”). These CROs generally bill monthly or quarterly for services performed, or bill based upon milestones achieved. For clinical studies, expenses are accrued when services are performed. The Company monitors patient enrollment, the progress of clinical studies and related activities through internal reviews of data that is tracked by the CROs under contractual arrangements, correspondence with the CROs and visits to clinical sites.

 

Research and Development Costs

 

Research and development costs are charged to operations as incurred and consist primarily of clinical trial costs, related party manufacturing costs, consulting costs, contract research and development costs, clinical site costs and compensation costs. 

 

F-11

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

Notes to the Consolidated Financial Statements

 

Income Taxes

 

The Company evaluates its tax positions and estimates its current tax exposure along with assessing temporary differences that result from different book to tax treatment of items not currently deductible for tax purposes. These differences result in deferred tax assets and liabilities on the Company’s Consolidated Balance Sheets, which are estimated based upon the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates that will be in effect when these differences reverse. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s Consolidated Statements of Comprehensive Loss become deductible expenses under applicable income tax laws or loss or credit carryforwards are utilized. Accordingly, realization of the Company’s deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be utilized.

 

The Company must assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not more likely than not, the Company must establish a valuation allowance. Management judgment is required in determining the Company’s provision for income taxes, the Company’s deferred tax assets and liabilities and any valuation allowance recorded against the Company’s net deferred tax assets. Excluding foreign operations, the Company recorded a full valuation allowance at each balance sheet date presented because, based on the available evidence, the Company believes it is more likely than not that it will not be able to utilize all of its deferred tax assets in the future. The Company intends to maintain the full valuation allowance until sufficient evidence exists to support the reversal of the valuation allowance.

 

Stock Based Compensation

 

Effective January 1, 2019, the Company adopted ASU 2018-07, by which the accounting for share-based payments to non-employees and employees is substantially aligned. There was no cumulative effect of the adoption of this standard.

 

Share-based compensation cost is recorded for all option grants and awards of non-vested stock based on the grant date fair value of the award using the Black-Scholes option-pricing model, and is recognized over the service period required for the award. Prior to January 1, 2019, share-based compensation cost for non-employees was remeasured at every reporting period.

 

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

 

Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term.

 

Expected Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices.

 

Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues with an equivalent remaining term.

 

Expected Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.

 

The Company recognizes forfeitures when they occur.

 

Debt Extinguishment

 

The Company accounts for the income or loss from extinguishment of debt by comparing the difference between the reacquisition price and the net carrying amount of the debt being extinguished and recognizes this as gain or loss when the debt is extinguished. The gain or loss from debt extinguishment is recorded in the consolidated statements of operations under “other income (expense)” as loss from extinguishment of convertible debt.

   

Sequencing

 

As of October 13, 2016, the Company adopted a sequencing policy whereby all financial instruments issued after adoption date will be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees, non-employees or directors and convertible preferred stock.

 

F-12

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

Notes to the Consolidated Financial Statements

 

Loss per Share

 

Basic loss per share is computed on the basis of the weighted average number of shares outstanding for the reporting period. Diluted loss per share is computed on the basis of the weighted average number of common shares plus dilutive potential common shares outstanding using the treasury stock method. Any potentially dilutive securities are anti-dilutive due to the Company’s net losses. For the years presented, there is no difference between the basic and diluted net loss per share.

 

Recent Accounting Standards

 

Income Taxes

 

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

 

Adoption of Recent Accounting Standards

 

Accounting for Certain Financial Instruments with Down Round Features

 

In July 2017, the FASB has issued a two-part ASU No. 2017-11, (i). Accounting for Certain Financial Instruments with Down Round Features and (ii) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception which simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings. It is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company adopted this standard on its consolidated financial statements and disclosures as of January 1, 2019, and given its sequencing policy in effect as of October 13, 2016, the impact of this standard was not material.

 

Improvements to Non-employee Share-Based Payment Accounting

 

In June 2018, the FASB issued ASU 2018-07 “Improvements to Nonemployee Share-Based Payment Accounting”, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company adopted this standard on its consolidated financial statements as of January 1, 2019, and the adoption did not have a material impact on its consolidated financial statements.

  

Leases

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described above. Based on the analysis, on January 1, 2019, the Company recorded right of use assets and lease liabilities of approximately $4.3 million, which represented operating lease entered prior to January 1, 2019. Additionally, the Company recorded an adjustment to opening accumulated deficit of $4.8 million related to the derecognition of deferred profit related to the U.K facility sales leaseback transaction.

 

F-13

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

Notes to the Consolidated Financial Statements

 

4. Fair Value Measurements

  

In accordance with ASC 820 (Fair Value Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants and certain embedded conversion feature associated with convertible debt on a recurring basis to determine the fair value of the liability.

 

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of December 31, 2019 and 2018 (in thousands):

 

    Fair value measured at December 31, 2019  
    Fair value at     Quoted prices in active
markets
    Significant other
observable inputs
    Significant
unobservable inputs
 
    December 31, 2019     (Level 1)     (Level 2)     (Level 3)  
Warrant liability   $ 20,213     $ -     $ -     $ 20,213  
Contingent payable derivative liability     7,261       -       -       7,261  
Total fair value   $ 27,474     $ -     $ -     $ 27,474  

 

    Fair value measured at December 31, 2018  
    Fair value at     Quoted prices in active
markets
    Significant other
observable inputs
    Significant
unobservable inputs
 
    December 31, 2019     (Level 1)     (Level 2)     (Level 3)  
Warrant liability   $ 29,995     $ -     $ -     $ 29,995  
Embedded conversion feature     357       -       -       357  
Total fair value   $ 30,352     $ -     $ -     $ 30,352  

 

There were no transfers between Level 1, 2 or 3 during the years ended December 31, 2019 and 2018.

 

The following table presents changes in Level 3 liabilities measured at fair value for the years ended December 31, 2019 and 2018. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (in thousands).

 

    Warrant
Liability
    Contingent Payable
Derivative Liability
    Embedded
Conversion
Feature
    Total  
Balance – January 1, 2019   $ 29,995     $ -     $ 357     $ 30,352  
Additional contingent liability in connection with a settlement agreement     -       6,602       -       6,602  
Additional warrant liability     4,110       -       -       4,110  
Extinguishment of derivative liabilities     -       -       (3 )     (3 )
Extinguishment of warrant liabilities related to warrants exercised for cash     (1,759 )     -       -       (1,759 )
Change in fair value     (12,133 )     659       (354 )     (11,828 )
Balance – December 31, 2019   $ 20,213     $ 7,261     $ -     $ 27,474  

 

    Warrant
Liability
    Embedded
Conversion
Feature
   

Share-
settled Debt
(in Default)

    Total  
Balance – January 1, 2018     40,171       2,608       3,308       46,087  
Warrants granted     10,066       -       -       10,066  
Bifurcated embedded derivative liability     -       351               351  
Extinguishment of warrant liabilities related to warrants exercised for cash     (2,492 )     -       -       (2,492 )
Conversion of share-settled debt     -       -       (3,308 )     (3,308 )
Extinguishment of derivative liabilities related to repayment of debt     -       (2,049 )     -       (2,049 )
Change in fair value     (17,750 )     (553 )             (18,303 )
Balance – December 31, 2018   $ 29,995     $ 357     $ -     $ 30,352  

 

F-14

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

Notes to the Consolidated Financial Statements

 

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Company’s warrant liabilities and embedded conversion feature that are categorized within Level 3 of the fair value hierarchy as of December 31, 2019 and 2018 is as follows:

 

    As of December 31, 2019     As of December 31, 2018  
    Warrant
Liability
    Contingent Payable
Derivative Liability
    Warrant
Liability
    Embedded
Conversion Feature
 
Strike price   $ 0.21     $ 0.21 *   $ 0.29     $ 0.44  
Contractual term (years)     1.4       1.0       2.2       1.5  
Volatility (annual)     74 %     62 %     85 %     85 %
Risk-free rate     2 %     2 %     3 %     3 %
Dividend yield (per share)     0 %     0 %     0 %     0 %

 

* contingent based on current stock price as of December 31, 2019                                

  

5.  Stock-based Compensation

 

Stock Options

 

The following table summarizes stock option activity for the Company’s option plans during the years ended December 31, 2019 and 2018 (amount in thousands, except per share number):

 

    Number of Shares     Weighted Average
Exercise Price
    Weighted Average
Remaining
Contractual Life (in years)
    Total Intrinsic Value  
Outstanding as of January 1, 2018     12,656     $ 1.32       4.1     $ -  
Granted     100,090       0.23       9.3       -  
Forfeited/expired     (12,587 )     1.27       -       -  
Outstanding as of December 31, 2018     100,159       0.24       9.3       -  
Granted     4,500       0.22       10.4       -  
Outstanding as of December 31, 2019     104,659     $ 0.24       8.4     $ -  
Options vested and exercisable     95,500     $ 0.24       8.3     $ -  

 

2019 Grants

 

During the year ended December 31, 2019, the Company issued 4.5 million stock options to certain employees with grant date fair value of approximately $741,000. Approximately 3.3 million stock options will vest on a pro rata monthly basis over the first 36 months, and the remaining 1.2 million stock options will vest based on performance condition. The exercise price of the options is between $0.21 and $0.22, and the exercise period will be 10 years.

 

The Company also agreed to issue another 2.0 million stock options which will vest on certain performance criteria, which remain to be determined by the parties as of December 31, 2019. The Company does not consider such performance options to be granted until such performance criteria are determined in accordance with ASC 718. There is no financial impact as of December 31, 2019.

 

2018 Grants

 

During the year ended December 31, 2018, the Company issued options to certain directors, officers and consultants (collectively, the “Options”) based upon services over a number of years.

 

The Options are subject to vesting requirements. 50% of the Options were vested on the grant date, and the remaining 50% of the Options are vesting monthly over a period of 24 months following the Board approvals of the Options, subject to acceleration upon the occurrence of certain achievement milestones. A performance milestone was achieved and the Company accelerated vesting on 25% of these outstanding Options.

 

On November 18, 2018, the disinterested members of the Company’s Board of Directors (the “Board”) approved an increase of the equity compensation option pool to reflect increases in the numbers of issued and outstanding shares since the prior equity awards were made. This incremental increase added approximately 3.1 million options to the pool. The incremental options are being issued in individual awards which are in the process of being implemented in individual agreements, including with respect to certain conditions such as vesting over 4 years, subject to potential acceleration events. In the case of the independent directors, the awards were approved by the shareholders. The exercise price of the options will be $0.25, in accordance with the prior trading day’s closing price at the time of approval, and the exercise period will be 10 years.

 

F-15

 

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

Notes to the Consolidated Financial Statements

 

Modification of Stock Options

 

In January 2018, the Board approved extension of the exercise period for options that were granted to Dr. Alton Boyton and Dr. Marnix Bosch on June 13, 2017, from 5 years to 10 years to conform to the exercise period of other employee options. The Company accounted for the modification as a Type I (probable-to-probable) modification and the incremental cost was approximately $0.3 million based on the following assumptions:

 

Exercise price   $ 0.25  
Expected term (years)     5.0  
Expected stock price volatility     93 %
Risk-free rate of interest     2 %

 

The following assumptions were used to compute the fair value of stock options granted during the years ended December 31, 2019 and 2018: 

 

    For the years ended  
    December 31,  
    2019     2018  
Exercise price   $ 0.20     $ 0.23  
Expected term (years)     5.6       5.2  
Expected stock price volatility     86 %     96 %
Risk-free rate of interest     1 %     3 %

 

The following table summarizes stock-based compensation expense related to stock options for the years ended December 31, 2019 and 2018 (in thousands): 

 

    For the years ended  
    December 31,  
    2019     2018  
Research and development   $ 471     $ 1,777  
General and administrative     1,350       12,509  
Total stock-based compensation expense   $ 1,821     $ 14,286  

 

As of December 31, 2019, there was approximately $657,000 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the employee stock option program. That cost is expected to be recognized over a weighted average period of 3 years.

 

6. Sale and Leaseback Transactions in the U.K.

 

On December 14, 2018, the Company completed certain transactions involving the Company’s U.K. property: the sale of most of the property for approximately $47.2 million in gross proceeds, the retention of the Company’s ownership of 17 acres of the property, and the lease-back of the 87,000 square foot manufacturing facility which the Company has been developing on the property, together with adjacent areas, for 20 years with a renewal option for another 20 years on favorable terms.

 

Total gain from the sale was approximately $8.0 million, of which the Company recognized approximately $3.3 million upfront gain on the closing date in December 2018, and approximately $4.7 million of the gain has been deferred.

 

The Company recorded the following amounts on December 14, 2018, resulting in a gain of $3.3 million on the sale of the U.K. property calculated as the difference between the consideration amount for the assets and the net carrying amount of the assets and liabilities extinguished. The following sets forth the calculation of the gain on sale as of the closing (in thousands):

 

F-16

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

Notes to the Consolidated Financial Statements

 

Cash consideration received, net of fees   $ 45,595  
Extinguishment of environmental liability     6,200  
Land and buildings – carrying value     (45,168 )
Accumulated depreciation costs written off     1,397  
Deferred profit on sale-leaseback transaction*     (4,748 )
Gain from sale of property in the United Kingdom   $ 3,276  

 

* On January 1, 2019, the Company adopted the new lease standard and recorded an adjustment to opening accumulated deficit of $4.8 million (adjusted based on currency rate on January 1, 2019) related to the de-recognition of deferred profit related to the U.K facility sales leaseback transaction.

 

7. Property, Plant and Equipment

 

Property, plant and equipment consist of the following at December 31, 2019 and 2018 (in thousands):

 

    December 31,     December 31,     Estimated
    2019     2018     Useful Life
Leasehold improvements   $ 186     $ 81      Lesser of lease term or estimated useful life
Office furniture and equipment     59       25     3 years
Computer equipment and software     611       599     3 years
Land in the United Kingdom     90       86     NA
      946       791      
Less: accumulated depreciation     (665 )     (683 )    
Total property, plant and equipment, net   $ 281     $ 108      
                     
Construction in progress   $ 171      $      

 

Depreciation expense was approximately $21,000 and $1.3 million for the years ended December 31, 2019 and 2018, respectively.

 

During the year ended December 31, 2019, the Company purchased $171,000 laboratory equipment which has not yet been placed in service as of December 31, 2019.

 

8. Notes Payable

 

The following two tables summarize outstanding debt as of December 31, 2019 and 2018, respectively (amount in thousands):

 

        Stated                          
        Interest     Conversion           Remaining     Carrying  
    Maturity Date   Rate     Price     Face Value     Debt Discount     Value  
Short term convertible notes payable                                            
6% unsecured (1)   Due     6 %   $ 3.09     $ 135     $ -     $ 135  
10% unsecured (2)   4/18/2020     10 %   $ 0.22       500       (67 )     433  
                          635       (67 )     568  
Short term notes payable                                            
8% unsecured (5)   Various     8 %      N/A       555       (43 )     512  
10% unsecured (6)   Various     10 %      N/A       3,551       (73 )     3,478  
12% unsecured (7)   On Demand     12 %      N/A       440       -       440  
0% unsecured (8)   8/1/2020     0 %      N/A       1,156       (85 )     1,071  
                          5,702       (201 )     5,501  
Short term notes payable - related parties                                            
10% unsecured - Related Parties (9)   On Demand     10 %      N/A       66       -       66  
                          66       -       66  
Long term notes payable                                            
8% unsecured (10)   Various     8 %      N/A       7,008       (420 )     6,588  
                          7,008       (420 )     6,588  
                                             
Ending balance as of December 31, 2019                       $ 13,411     $ (688 )   $ 12,723  

 

F-17

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

Notes to the Consolidated Financial Statements

 

        Stated                       Fair Value of        
        Interest     Conversion           Remaining     Embedded     Carrying  
    Maturity Date   Rate     Price     Face Value     Debt Discount     Conversion Option     Value  
Short term convertible notes payable                                                    
6% unsecured (1)   Due     6 %   $ 3.09     $ 135     $ -     $ -     $ 135  
10% unsecured (2)   10/18/2019     10 %   $ 0.22       500       (43 )     -       457  
18% unsecured (3)   In Default     18 %   $ 0.21       914       -       357       1,271  
                          1,549       (43 )     357       1,863  
Short term convertible notes payable - related party                                                    
10% unsecured (4)   On Demand     10 %   $ 0.23       5,400       -       -       5,400