Business context and reporting period
The supplied filing identifies the registrant as NantKwest, Inc. (NASDAQ: NK), a clinical-stage biotechnology company developing natural-killer-cell immunotherapies for cancer and other diseases. The request metadata names ImmunityBio, Inc.; verify the intended issuer. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2016. The 2015 comparative interim results are labeled restated.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $12,000 | $10,000 | $30,000 | $222,000 |
| Research and development expense | $8.4 million | $4.7 million | $19.7 million | $7.4 million |
| Selling, general and administrative expense | $24.4 million | $41.8 million | $79.7 million | $201.8 million |
| Net loss | $31.9 million | $46.3 million | $96.6 million | $210.1 million |
| Net loss per share, basic and diluted | $0.39 | $0.59 | $1.18 | $3.07 |
- At September 30, 2016, cash and cash equivalents were $31.4 million and marketable securities totaled $272.5 million, for $303.9 million in combined cash and investments. Total current assets were $214.5 million versus current liabilities of $10.2 million.
- Nine-month operating cash outflow was $27.8 million, compared with $14.4 million in the restated 2015 period. Investing cash outflow was $105.2 million, largely reflecting purchases of marketable securities; financing cash outflow was $11.5 million, including $11.9 million of share repurchases.
- Total liabilities were $21.5 million. These included a $2.4 million financing obligation and a $5.3 million noncurrent build-to-suit liability. The filing does not report material conventional borrowings.
- Gross margin is not meaningful: the company reported no product sales and only nominal licensing and royalty revenue. Accumulated deficit was $358.9 million.
Material changes versus prior comparable periods
- Q3 net loss narrowed by $14.4 million year over year; nine-month net loss narrowed by $113.5 million. The main driver was substantially lower stock-based compensation within SG&A, particularly compared with 2015 charges related to executive awards and the Inex Bio acquisition.
- R&D expense rose $3.7 million in Q3 and $12.3 million for the nine months, reflecting increased staffing and shared-service costs, clinical and preclinical work, and laboratory/manufacturing facilities.
- Nine-month revenue declined by $192,000, primarily because most nonclinical license agreements were transferred to Brink Biologics in 2015.
- Cash and cash equivalents fell from $175.9 million at year-end 2015 to $31.4 million, while the company held $272.5 million of marketable securities at quarter-end. Property and equipment increased to $16.5 million from $5.5 million.
Outlook, commentary, risks and unusual items
- Management said existing cash, cash equivalents and marketable securities were expected to fund operations and capital expenditures for the foreseeable future, but might not be sufficient to reach commercialization. It anticipates substantial expense growth, continued losses and likely need for additional capital; no specific financial guidance was provided.
- Clinical update: management reported that the first-stage efficacy criterion in the Phase II Merkel cell carcinoma study had been met. One patient had a partial response with more than 70% tumor regression maintained beyond 16 weeks; three treated patients had treatment-related adverse events of Grade II or milder, with no serious or dose-limiting events reported. The company planned to recruit 12 additional subjects. These are early results and do not establish efficacy or approval prospects.
- In August 2016, NantKwest entered an exclusive co-development agreement with Altor BioScience to explore combinations of its NK cells with ALT-801 and/or ALT-803. The CEO was also Altor’s chairman and held more than 20% of Altor; the company generally bears program costs unless otherwise agreed. No joint research activity or costs had occurred by quarter-end.
- The company entered a seven-year lease for an El Segundo R&D/GMP laboratory from an entity owned by its CEO. Rent is $0.1 million monthly, with annual increases; related-party arrangements and governance merit review. A separate completed laboratory build-out was accounted for as a financing obligation.
- The filing describes securities and shareholder derivative litigation arising from the restatement of 2015 interim statements. Management could not reasonably estimate potential losses; an adverse outcome could materially affect results. The company also disclosed material weaknesses in financial reporting controls, ongoing remediation, and that disclosure controls were not effective at the reasonable-assurance level as of December 31, 2015.
- Key risks include clinical and regulatory failure, manufacturing scale-up, competition, financing and dilution, dependence on collaborators and related parties, and intellectual-property challenges. The filing also notes an appeal involving certain NK-92 patent claims.
Important facts for investors to verify
- Confirm the issuer and security intended: the supplied 10-Q is for NantKwest, Inc., not an entity named ImmunityBio, Inc.
- Review the full restatement disclosures and current status of the material weaknesses, remediation, and any subsequent control assessments.
- Track cash burn, investment liquidity and maturities, spending on facilities and trials, and whether additional financing will be needed sooner than management expects.
- Verify subsequent clinical-trial enrollment, response durability, safety findings, and regulatory milestones; the reported Merkel cell carcinoma results are preliminary.
- Assess related-party transactions, including the CEO-owned facility lease, NantWorks shared services, and the Altor collaboration, as well as the unresolved litigation and potential exposure.