NantKwest, Inc. — Form 10-Q Summary
Period: Quarter and nine months ended September 30, 2015. The filing identifies the registrant as NantKwest, Inc.; it does not identify Immunitybio, Inc. as the reporting entity.
Business context
NantKwest was a clinical-stage biotechnology company developing natural killer (NK) cell immunotherapies for cancer and other diseases. It had no product sales and reported only minimal license-related revenue. In June 2015, it spun out its non-clinical testing and diagnostic business to Brink Biologics and its veterinary oncology business to Coneksis.
Financial performance and position
Amounts below are in millions of dollars, except per-share data.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $0.010 | $0.133 | $0.222 | $0.543 |
| Research and development | $3.950 | $0.328 | $6.328 | $0.691 |
| Selling, general and administrative | $38.854 | $0.702 | $152.847 | $2.815 |
| Operating loss | $(42.794) | $(0.897) | $(158.953) | $(2.963) |
| Net loss | $(42.649) | $(0.896) | $(160.055) | $(3.450) |
| Basic and diluted loss per share | $(0.55) | $(0.11) | $(2.34) | $(0.56) |
Revenue was immaterial; profit margins therefore were not meaningful. At September 30, cash and cash equivalents were $358.616 million, versus $59.104 million at December 31, 2014. Total current assets were $360.287 million and current liabilities $6.683 million. Total liabilities were $7.260 million, with no notes payable outstanding. Stockholders’ equity was $362.931 million; accumulated deficit was $172.723 million.
For the first nine months, operating cash use was $14.220 million, investing cash use $3.245 million, and financing cash inflow $317.027 million. Financing included $316.189 million of net equity-offering proceeds. The company reported 81,212,662 shares outstanding at quarter-end and 81,220,377 as of October 31, 2015.
Changes, unusual items, and outlook
- Revenue declined year over year, mainly because most non-clinical license agreements were transferred to Brink Biologics and a 2014 commercial license fee did not recur.
- Nine-month SG&A included $139.5 million of stock-based compensation, including $71.2 million related to a performance milestone for the CEO’s warrant and $22.7 million of warrants issued to the CEO and a director in connection with the Inex Bio acquisition. The company also recorded $5.4 million of cash compensation to those related parties for the transaction.
- The July 2015 IPO generated $221.2 million in net proceeds; private placements and other equity transactions also materially increased cash. Management said available cash was expected to fund operations and capital expenditures for at least 12 months, but warned that additional funding may be needed and could be unavailable or dilutive.
- Management expected R&D and operating losses to increase as programs advance. No significant product revenue was expected for several years, if ever; product candidates remained at early development stages.
- The Sorrento collaboration had not yet selected any joint projects as of the filing date. NantKwest also disclosed agreements and services involving affiliates of its CEO, including a $500,000 advance to NantCell and a five-year sequencing-services arrangement with NantOmics. Related-party terms and oversight merit attention.
- Subsequent to quarter-end, the board authorized a share repurchase program of up to $50 million. The company also entered into shared-services and facility agreements with NantWorks in November 2015.
- A federal court granted summary judgment to the USPTO in a patent dispute on September 2, 2015; the company filed notice of appeal. Management disclosed material weaknesses in financial reporting controls and concluded disclosure controls were not effective as of September 30. Remediation was underway, but completion and effectiveness had not been established.
Important facts for investors to verify
- Cash runway assumptions, expected spending, and whether additional capital will be required sooner than management’s at-least-12-month estimate.
- Stock-compensation and warrant terms, including milestone vesting, dilution potential, and related-party acquisition payments.
- Progress and results of clinical programs, regulatory milestones, manufacturing readiness, and the ability to scale cell production.
- Status and potential consequences of the patent appeal, and progress in remediating the disclosed internal-control material weaknesses.
- Terms, costs, and governance of related-party arrangements, and the implementation and funding of the $50 million repurchase authorization.