NantKwest, Inc. — Form 10-Q Summary
Entity note: The supplied filing is for NantKwest, Inc., not ImmunityBio, Inc. It covers the quarter and nine months ended September 30, 2017; the interim financial statements are unaudited.
Business context and reporting period
NantKwest was a clinical-stage immunotherapy company developing natural killer cell therapies for cancer, infectious diseases and inflammatory diseases. It had no product sales and reported only nominal licensing revenue. The company described its aNK, haNK and taNK programs as being in early clinical or preclinical development.
Financial performance and liquidity
Amounts below are in USD millions unless stated otherwise.
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0.008 | $0.012 | $0.033 | $0.030 |
| Research and development | $11.069 | $8.364 | $30.023 | $19.708 |
| Selling, general and administrative | $13.381 | $24.423 | $43.736 | $79.678 |
| Operating loss | $(24.442) | $(32.775) | $(73.726) | $(99.356) |
| Net loss | $(23.969) | $(31.897) | $(71.936) | $(96.571) |
| Basic and diluted loss per share | $(0.30) | $(0.39) | $(0.89) | $(1.18) |
At September 30, cash and cash equivalents were $20.9 million and marketable securities totaled $165.5 million, including $131.3 million classified as current. Total assets were $277.7 million; total liabilities were $40.0 million and stockholders’ equity was $237.7 million. Accumulated deficit was $471.5 million. The filing reports lease-related financing and build-to-suit obligations, but no conventional borrowing facility or total debt figure is clearly stated. Gross margin is not meaningful given negligible revenue and no product sales.
For the nine months, operating cash use was $35.1 million, investing activities provided $79.8 million (primarily marketable-security maturities), and financing activities used $31.8 million. Capital expenditures were $23.4 million; the company also invested $8.5 million in Viracta and spent $12.5 million on share repurchases. Cash increased $12.8 million from year-end 2016.
Material changes versus prior comparable periods
- Nine-month net loss narrowed by $24.6 million year over year, while R&D expense rose $10.3 million as laboratory, clinical, manufacturing and staffing activity expanded.
- SG&A fell $35.9 million over nine months, primarily because stock-based compensation declined $33.8 million. Total stock-based compensation was $28.1 million versus $62.6 million in the prior-year period.
- Operating cash use increased to $35.1 million from $27.8 million. Property and equipment rose to $74.5 million from $18.9 million at December 31, 2016, reflecting facility construction and purchases.
- Current and noncurrent marketable securities declined to $165.5 million from $278.4 million at year-end 2016, while cash rose to $20.9 million from $8.1 million.
Outlook, risks, contingencies and unusual items
- Management expected existing cash and marketable securities to fund operations and capital expenditures for at least the next 12 months, but warned that additional capital would likely be needed and might not be available on acceptable terms. It did not provide quantified earnings or revenue guidance.
- The company expected significant R&D and other expenses to continue increasing; it did not expect product revenue for at least several years, if ever. Clinical, regulatory, manufacturing-scale-up and financing outcomes remain uncertain.
- In October 2017, the FDA allowed an IND for a haNK-based NANT Cancer Vaccine study to proceed. GSH received IRB approval for a Phase I glioblastoma study, triggering a $0.9 million milestone expense in Q3.
- A May 2017 Viracta license covers VRx-3996 for combination use and includes mid-single-digit royalties and milestone payments ranging from $10 million to $25 million. The company also recorded an $8.5 million cost-method investment in Viracta.
- Several shareholder and securities matters remained pending. A securities class action survived a motion to dismiss; the company said it could not reasonably estimate potential losses. A shareholder derivative case was filed in Delaware on October 30, 2017. The USPTO patent-fee appeal was set for en banc review.
- Significant related-party arrangements involve entities affiliated with the CEO, including shared services, facilities, research and clinical work. Management reported disclosure controls were effective and no material change in internal control during the period. The filing also describes prior restatements of 2015 interim financial statements and related litigation.
- After quarter-end, the company entered into a related-party Phase Ib pancreatic cancer trial agreement with estimated costs of $7.1 million. The filing disclosed no off-balance-sheet arrangements.
Investor verification points
- Confirm the reporting entity: this document identifies NantKwest, Inc., despite the request metadata naming ImmunityBio, Inc.
- Assess cash runway against operating cash use, construction commitments, planned trials and management’s expectation of additional financing.
- Track clinical-trial progress, FDA interactions, manufacturing capacity and whether expanded programs translate into measurable clinical results.
- Review the nature and potential financial impact of pending litigation, the patent appeal and the company’s prior financial-statement restatements.
- Examine related-party transactions, the Viracta investment and license obligations, and the effects of stock-based compensation and repurchases on dilution and liquidity.