NantKwest, Inc. (as named in the filing) — Form 10-Q for Q2 2018
Entity note: The supplied filing is for NantKwest, Inc., not ImmunityBio, Inc. It covers the quarter and six months ended June 30, 2018; the financial statements are unaudited. The report was signed August 6, 2018.
Business context
NantKwest described itself as a clinical-stage immunotherapy company developing natural-killer-cell therapies for cancer and other diseases. It had no approved products and had generated no product-sales revenue; revenue was limited to nonclinical license agreements. The filing reports nine additional FDA INDs for haNK-based studies, bringing the disclosed total to ten.
Financial performance and position
Amounts below are in millions of dollars except per-share figures. No meaningful gross margin is reported because revenue was nominal and the company had no product sales.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $0.004 | $0.014 | $0.009 | $0.025 |
| Research and development expense | $14.7 | $9.7 | $28.7 | $19.0 |
| Selling, general and administrative expense | $13.6 | $14.1 | $27.9 | $30.4 |
| Total operating expenses | $28.3 | $23.8 | $56.6 | $49.3 |
| Net loss | $27.7 | $23.5 | $55.3 | $48.0 |
| Basic and diluted loss per share | $0.35 | $0.29 | $0.70 | $0.60 |
- Cash flow: Six-month operating cash use was $31.8 million, versus $25.0 million in 2017. Investing activities provided $24.3 million, mainly from security maturities; financing activities used $0.3 million. Cash, cash equivalents and restricted cash fell $7.8 million to $16.3 million.
- Liquidity: At June 30, cash and cash equivalents were $16.1 million and marketable debt securities were $101.4 million, for approximately $117.5 million combined. Current assets were $110.1 million and current liabilities $20.2 million.
- Debt and other obligations: Financing obligations totaled about $6.9 million, including $0.6 million current and $6.3 million long-term. Total liabilities were $29.8 million. The filing does not report conventional borrowings as a separate material debt balance.
- Equity and accumulated losses: Total assets were $211.4 million, stockholders’ equity $181.6 million, and accumulated deficit $553.8 million. Six-month stock-based compensation was $18.0 million.
Changes versus the prior comparable period
- Q2 net loss widened 18% to $27.7 million; six-month net loss widened 15% to $55.3 million. Revenue remained immaterial and declined year over year.
- R&D expense rose 51% in both the quarter and first half, attributed primarily to higher staffing and related-party service costs, laboratory and manufacturing facility costs, and increased research, preclinical and clinical activity. Management expected R&D spending to rise significantly as programs advanced.
- SG&A declined 4% in Q2 and 8% for the first half, primarily reflecting lower stock-based compensation and certain professional and shared-services costs.
- Cash and marketable securities together were approximately $117.5 million at June 30, 2018, compared with $137.4 million at December 31, 2017. Operating cash use increased year over year.
Outlook, risks and unusual items
- Management expected existing cash, cash equivalents and marketable securities to fund operating and capital needs for at least 12 months, but cautioned that this estimate depended on assumptions and might not fund the company through commercialization. It anticipated needing substantial additional capital; no committed external funding source was identified.
- The company expected continued significant operating losses and no substantial product revenue for at least several years, if ever. Financing could require equity dilution, debt with restrictive terms, or licensing and collaboration arrangements that surrender valuable rights.
- Clinical, regulatory and manufacturing outcomes remain uncertain. The filing highlights early-stage clinical evidence, possible trial delays or failures, FDA approval risk, competition, manufacturing scale-up and supply risks, and reliance on collaborators.
- Related-party arrangements are extensive, including services, facilities, clinical trials and supplies involving entities affiliated with the Chairman and CEO. The filing identifies potential conflicts and dependence on those relationships.
- A putative securities class action related to the company’s 2015 financial restatements remained pending, with a trial set for August 2019; management could not estimate a loss range. A related derivative action in Delaware had been dismissed, with the appeal deadline passed. The California derivative dismissal was affirmed, but plaintiffs petitioned the state supreme court.
- On July 27, 2018, the Federal Circuit sitting en banc affirmed the district court decision in the company’s USPTO patent appeal; the USPTO could seek further review. The company said it could not estimate loss beyond attorney and expert-witness fees.
- In June 2018, the company purchased a $0.4 million Viracta convertible note bearing 8% interest and maturing in one year. A July 2018 related-party clinical-trial agreement was estimated to cost $2.2 million.
- The company reported effective disclosure controls at June 30, 2018 and no material change in internal control over financial reporting during the quarter. It disclosed prior restatements of 2015 interim statements and related shareholder litigation.
Investor verification priorities
- Confirm the issuer identity: this filing is for NantKwest, Inc., despite the request metadata naming ImmunityBio, Inc.
- Assess the cash runway against the stated 12-month estimate, the $31.8 million six-month operating cash burn, and expected increases in development spending.
- Track clinical-trial enrollment, results, IND status, regulatory feedback and the company’s ability to manufacture clinical and future commercial supply.
- Review the securities litigation, patent proceedings and potential financial exposure, noting that the filing could not estimate a range of loss for the class action.
- Evaluate related-party transactions, governance and control concentration; the filing stated that the CEO and affiliates owned approximately 59.1% of common shares at June 30, 2018.
- Check the status and terms of any future financing, collaborations, and the remaining $19.1 million authorization under the share-repurchase program; no shares were repurchased in Q2 2018.