Business context and reporting period
This is NantKwest, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2020 (ticker NK), not a filing in the name of ImmunityBio, Inc. NantKwest was a clinical-stage immunotherapy company developing natural-killer-cell therapies for cancer and viral diseases. The filing identifies ImmunityBio as an affiliate and related party, including in COVID-19 and oncology collaborations.
Financial performance and position
Amounts below are in millions of dollars, except per-share data.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0.001 | $0.017 | $0.022 | $0.022 |
| Research and development | $13.7 | $13.1 | $26.9 | $25.7 |
| Selling, general and administrative | $6.5 | $4.2 | $11.9 | $9.9 |
| Net loss | $(20.1) | $(16.7) | $(38.5) | $(34.6) |
| Basic and diluted loss per share | $(0.20) | $(0.17) | $(0.39) | $(0.38) |
Revenue was negligible and there were no product sales; margins are not meaningful. Operating expenses rose 17% year over year in Q2 and 9% for the six-month period. Six-month operating cash use was $29.1 million, versus $29.9 million in 2019. Investing activities provided $29.1 million, mainly from securities maturities and sales, while financing provided $87.2 million, principally from the June share offering.
At June 30, cash and cash equivalents were $102.7 million, restricted cash was $0.2 million, and marketable debt securities were $7.9 million. Total assets were $196.2 million, total liabilities $26.5 million, and stockholders’ equity $169.7 million. The filing reports no material financial debt; operating lease liabilities totaled $12.6 million, including current and noncurrent portions. The company reported an accumulated deficit of $700.7 million.
Material changes versus the prior comparable period
- Q2 net loss increased $3.4 million, or 20%, and six-month net loss increased $3.9 million, or 11%.
- Q2 R&D expense rose $0.6 million; six-month R&D rose $1.2 million. The company cited higher laboratory supplies, COVID-19 program spending and manufacturing-facility costs, partly offset by lower clinical activity and the absence of 2019 fixed-asset impairment.
- Q2 SG&A rose $2.3 million and six-month SG&A rose $2.0 million, reflecting legal, consulting, corporate advisory, compensation and insurance costs. Lower travel and stock compensation partly offset increases.
- Cash and cash equivalents increased from $15.5 million at year-end 2019, largely following the June 2020 equity offering. The company issued 8.52 million shares for approximately $90.7 million gross proceeds and recorded $86.8 million net offering proceeds in cash flows. Shares outstanding rose from 98.46 million at year-end to 107.76 million at June 30.
- Investment income declined year over year, primarily because average marketable-securities balances were lower.
Outlook, management commentary, risks and unusual items
- Management expected cash, cash equivalents and marketable securities to fund operating and capital requirements for at least 12 months after issuance of the financial statements, but cautioned that additional capital may be needed and may not be available on acceptable terms. The company did not expect product revenue for at least several years, if ever, and anticipated rising expenses and losses.
- A binding COVID-19 collaboration term sheet with related party ImmunityBio contemplated equal sharing of future development, manufacturing and marketing costs, with profit allocation depending on which party contributed the product. The definitive agreement was not yet completed at quarter-end. NantKwest had incurred $5.4 million in operating expenses, $2.3 million in related capital expenditures and committed $4.5 million of future operating and capital expenditures. If the definitive agreement was not executed, the company warned that some costs could remain unrecovered. The filing states both an August 21 termination trigger and an expectation of completion by late August; verify the agreement’s subsequent status.
- Management said COVID-19 had not materially affected the business through June 30, but expected slower trial enrollment, potential delays to clinical and regulatory timelines, and possible supply-chain disruption. It also warned that repurposing facilities and staff for COVID-19 work could affect oncology operations.
- Clinical-stage updates included an ongoing phase II haNK Merkel cell cancer study; a PD-L1.t-haNK phase I study with a dose-limiting toxicity at the highest dose and a planned full readout in Q4 2020; and FDA authorization for the QUILT 88 pancreatic cancer study. The BM-Allo-MSC COVID-19 phase Ib study was initiated, with first dosing anticipated in August 2020. These are company-reported development updates, not evidence of efficacy or approval.
- Related-party exposure is significant: the CEO and affiliates controlled approximately 64.9% of shares at June 30, and the CEO purchased 3.71 million shares in the offering. NantKwest also reported related-party services, leases, equipment purchases and clinical-trial arrangements.
- Fox Chase issued a license-termination notice in May over alleged breaches; NantKwest filed a declaratory judgment action in July 2020 disputing breach and termination rights. The company said it did not consider the license material; litigation outcome was uncertain. Earlier securities litigation had settled in 2019.
- Management reported disclosure controls effective at the reasonable-assurance level and no material change in internal control over financial reporting during Q2.
Important facts for investors to verify
- Confirm the issuer: this filing is for NantKwest, Inc., not ImmunityBio, Inc.; establish which entity and securities the investment analysis concerns.
- Check subsequent cash use, financing needs and actual runway against the company’s 12-month estimate, including spending on trials, manufacturing and the COVID-19 collaboration.
- Verify whether the definitive ImmunityBio collaboration agreement was executed, how pre-agreement costs were treated, and whether planned cost- and profit-sharing terms changed.
- Track clinical-trial enrollment, safety findings, regulatory milestones and any COVID-19-related delays; distinguish early or anecdotal observations from controlled trial evidence.
- Review dilution and governance implications of the share offering, the CEO’s substantial ownership and related-party transactions.
- Monitor the Fox Chase license dispute and any effects on intellectual-property rights, as well as the company’s reliance on related-party clinical, manufacturing and facility arrangements.