Filing summary
Issuer and period: The supplied filing is NantKwest, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2017. This does not match the request metadata identifying ImmunityBio, Inc.; verify the issuer before relying on this summary.
Business context and reporting period
NantKwest was a clinical-stage immunotherapy biotechnology company developing natural killer (NK) cell therapies for cancer and other diseases. It reported only nominal licensing revenue and no product sales. The filing describes a Phase II Merkel cell carcinoma (MCC) program and other early-stage development efforts.
Financial performance and position
| Metric | Three months ended June 30, 2017 | Six months ended June 30, 2017 |
|---|---|---|
| Revenue | $14,000 | $25,000 |
| Research and development expense | $9.7 million | $19.0 million |
| Selling, general and administrative expense | $14.1 million | $30.4 million |
| Operating loss | $23.8 million | $49.3 million |
| Net loss | $23.5 million | $48.0 million |
| Basic and diluted loss per share | $0.29 | $0.60 |
Revenue was immaterial relative to expenses, so revenue-based margins are not meaningful. Six-month net cash used in operations was $25.0 million, versus $17.2 million in the prior-year period. Cash and cash equivalents were $39.0 million at June 30, 2017; marketable securities were approximately $183.5 million, according to management. Current assets were $181.6 million and current liabilities $36.9 million. Total liabilities were $48.7 million, including a $14.6 million current capital-lease obligation; the filing does not identify conventional bank borrowings.
Stockholders’ equity was $252.9 million, down from $293.4 million at December 31, 2016. Accumulated deficit was $447.5 million. The company repurchased 3.07 million shares for about $12.4 million before commissions in the first half. It reported a $8.5 million Viracta investment and substantial facility-related capital spending and lease obligations.
Material changes versus prior comparable periods
- Second-quarter net loss narrowed to $23.5 million from $34.0 million; first-half net loss narrowed to $48.0 million from $64.7 million.
- R&D expense increased 52% in the quarter and 67% in the first half, primarily from laboratory, clinical, manufacturing, staffing, facility and depreciation costs.
- SG&A expense declined 51% in the quarter and 45% in the first half, chiefly because prior-year stock-based compensation included awards that had since vested and lower recognized warrant expense.
- Operating cash use increased to $25.0 million from $17.2 million for the first half. Investing cash inflow mainly reflected marketable-security maturities, not operating cash generation.
Outlook, risks and unusual items
- Management said existing cash and marketable securities were expected to fund operations and capital expenditures for at least the next 12 months, but also anticipated needing additional capital and said funding may not be available on acceptable terms. The company expected continued significant losses and no meaningful product-sales revenue for years, if ever.
- The company reported that the first-stage efficacy criterion in its Phase II MCC study had been met; one patient had more than 70% tumor regression maintained beyond 16 weeks. Early safety observations were limited to mild or moderate events in the first three single-agent patients. These are early, limited observations, not established evidence of clinical benefit.
- The FDA cleared a Phase Ib/II pancreatic cancer study in April 2017, combining aNK cells and ALT-803 with a multi-agent regimen; recruitment was open. Several patients had also received ALT-803 in the MCC trial.
- A May 2017 Viracta license covers VRx-3996 for combination use with NK-cell therapies and carries mid-single-digit royalties plus milestone payments of $10 million to $25 million. NantKwest had also invested $8.5 million in Viracta and held an option for up to another $8.5 million.
- Related-party arrangements involve entities affiliated with the chairman and CEO, including leases, shared services, research and development, and collaboration agreements. The CEO and affiliates controlled approximately 58.9% of common shares at June 30, 2017, according to the filing.
- A securities class action related to the 2015 interim financial-statement restatements remained pending; management could not estimate a loss range. A shareholder derivative action had been dismissed, with an appeal filed. The patent-related litigation resulted in an approximately $0.1 million award to the USPTO.
- The filing cites clinical, regulatory, manufacturing-scale-up, financing, intellectual-property, competition and related-party governance risks. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the first half.
Important facts for investors to verify
- Confirm that NantKwest—not ImmunityBio—is the intended issuer and that this 2017 filing is the intended reporting period.
- Check subsequent clinical-trial results, enrollment, safety findings and regulatory developments; do not extrapolate from the limited MCC observations.
- Reconcile cash runway assumptions with operating cash use, planned clinical and facility spending, lease payments, repurchases and potential financing needs.
- Review the related-party terms, Viracta milestone and royalty obligations, and the status and potential exposure of the securities litigation and derivative appeal.
- Assess share dilution and governance implications, including outstanding options, warrants and restricted stock units and the controlling shareholder’s influence.