Business context and reporting period
This is NantKwest, Inc.’s Form 10-K for the fiscal year ended December 31, 2020, filed March 4, 2021. The company was a clinical-stage immunotherapy business developing natural-killer-cell therapies for cancer and viral diseases; it had no approved products and generated no product-sales revenue. The filing’s company name differs from the requested “ImmunityBio, Inc.”: NantKwest had agreed to merge with related party ImmunityBio, with closing expected in Q1 2021 subject to approvals and other conditions. The filing describes the proposed combined company as ImmunityBio, Inc.
Financial results and liquidity
Amounts below are U.S. dollars; annual figures are for full fiscal years, not Q4 alone.
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $0.111 million | $0.043 million |
| Research and development expense | $64.5 million | $49.8 million |
| Selling, general and administrative expense | $27.3 million | $18.1 million |
| Operating loss | $91.6 million | $67.8 million |
| Net loss | $92.4 million | $65.8 million |
| Basic and diluted loss per share | $0.89 | $0.70 |
| Net cash used in operating activities | $70.5 million | $61.4 million |
| Cash and cash equivalents at year-end | $11.4 million | $15.5 million |
| Marketable debt securities at year-end | $54.8 million | $37.6 million |
| Working capital at year-end | $50.8 million | $44.2 million |
| Total liabilities / stockholders’ equity | $34.5 million / $117.4 million | $22.4 million / $120.7 million |
Revenue remained minimal and came primarily from non-clinical licenses. Gross margin is not meaningful for this development-stage business; no product-sales margin was reported. The company reported no material funded debt; year-end liabilities included $15.3 million of operating lease liabilities. Cash, cash equivalents and marketable securities totaled approximately $66.2 million, excluding restricted cash.
For Q4 2020, unaudited revenue was $21,000, operating expenses were $30.9 million, operating loss was $30.9 million, and net loss was $32.1 million, or $0.30 per share. Q4 net loss increased from $21.8 million in Q3 2020.
Changes versus the prior comparable period
- Annual net loss rose $26.6 million from 2019 as total operating expenses increased $23.9 million. R&D rose $14.7 million, mainly from COVID-19 collaboration activity, manufacturing and facility costs; SG&A rose $9.2 million, largely from merger-related and other professional fees.
- Operating cash use increased $9.1 million to $70.5 million. Financing provided $87.0 million, chiefly from the June 2020 stock offering, while investing used $20.6 million.
- The June offering raised $90.7 million gross and $86.3 million net after offering costs, issuing 8.52 million shares; 3.71 million shares were sold to Executive Chairman Patrick Soon-Shiong.
- Investment income declined to $0.4 million from $1.6 million. Other expense included a $1.4 million reduction in the carrying value of the Viracta investment.
Outlook, risks, contingencies and unusual items
- Management expected R&D and SG&A expenses to increase, including from clinical development, manufacturing, COVID-19 programs and the proposed merger. The company expected no significant product revenue for at least several years, if ever, and anticipated needing additional funding.
- The filing states that substantial doubt existed about continuing as a going concern without additional funding or support. Management believed available cash and investments, plus the ability and intent of the Executive Chairman to provide affiliate loans as needed, would fund operations for at least 12 months after issuance; this depends on assumptions and related-party support and does not establish funding through commercialization.
- The ImmunityBio merger was pending. Under the proposed terms, ImmunityBio holders would own about 72% and NantKwest holders about 28% of the combined company on a fully diluted basis; Soon-Shiong and affiliates were expected to own about 82%. NantKwest recorded $6.2 million of merger costs in 2020. Completion, integration, financing needs and dilution remained uncertain.
- COVID-19 could slow patient enrollment, trial timelines and regulatory submissions, disrupt suppliers, and add costs. The company also shifted facilities and personnel toward collaborative COVID-19 development and reported $8.4 million of 2020 joint collaboration R&D activity, including $5.0 million of equipment costs expensed because they had no alternative use.
- Clinical evidence cited for cancer programs included early, small or uncontrolled studies; it does not establish efficacy or predict results in confirmatory trials. The filing highlighted trial execution, manufacturing scale-up and regulatory approval as significant uncertainties.
- Related-party reliance is substantial, including services, clinical sites, facilities, supplies and collaboration with entities controlled by Soon-Shiong. The auditor identified related-party transactions and disclosures as a critical audit matter.
- NantKwest disputed Fox Chase’s alleged license breaches and co-ownership/inventorship claims concerning a patent; it said the licensed rights were not material and intended to defend the litigation. Seven merger-related lawsuits filed in February 2021 challenged proxy disclosures and sought, among other relief, to delay the vote; the company said it believed the claims lacked merit. Outcomes were uncertain.
- Ernst & Young issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal control effectiveness.
Important facts for investors to verify
- Whether the merger closed, the final exchange and ownership terms, and the resulting share count and ticker.
- Subsequent cash use, available liquidity, and whether promised affiliate support was provided on documented terms.
- Clinical trial enrollment, complete and independently reviewed results, safety data, and regulatory feedback for the lead programs.
- Manufacturing capacity, facility qualification, product yields and costs, and whether COVID-19 work affected oncology supply or timelines.
- Current status and potential financial or operational impact of the Fox Chase and merger-related litigation.
- Related-party balances, transactions and governance safeguards, including any effects of the merger on control and minority shareholders.