Business context and reporting period
This is NantKwest, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2017. The request identifies ImmunityBio, Inc., but the filing names NantKwest as the registrant. NantKwest was a clinical-stage immunotherapy company developing natural-killer-cell therapies for cancer and other diseases; it had no product-sales revenue.
Financial performance and position
- Revenue: $11,000, versus $6,000 in Q1 2016, primarily from license fees and royalties.
- Operating expenses: $25.5 million, down from $31.6 million. R&D rose to $9.2 million from $5.0 million; SG&A fell to $16.2 million from $26.7 million, largely because of lower stock-based compensation.
- Loss: Operating loss was $25.5 million; net loss was $24.5 million, or $0.30 per share, compared with a $30.7 million net loss, or $0.38 per share, a year earlier. No meaningful operating margin is indicated given negligible revenue.
- Cash flow: Cash used in operations was $10.1 million, versus $8.9 million. Investing activities provided $16.0 million, largely from marketable-security maturities; capital expenditures were $4.5 million. Cash increased by $5.5 million to $13.6 million.
- Liquidity: Marketable securities totaled $248.9 million, including $177.4 million classified as current. Cash plus marketable securities was approximately $262.5 million. Current assets were $195.9 million versus current liabilities of $14.2 million.
- Debt and obligations: The filing reports a $5.5 million noncurrent build-to-suit liability and a $2.0 million noncurrent financing obligation, plus current portions included in other current liabilities. It reports no defaults on senior securities.
- Equity: Stockholders’ equity was $278.4 million, down from $293.4 million at year-end 2016. Accumulated deficit was $412.6 million. The company repurchased 300,000 shares for $1.1 million during the quarter.
Material changes versus the prior comparable period
- Net loss narrowed by $6.2 million, principally as SG&A declined by $10.4 million, mainly due to lower stock-based compensation; this was partly offset by a $4.3 million increase in R&D.
- Operating cash use increased by $1.2 million. R&D spending rose with staffing, laboratory and manufacturing-facility costs, consultants, and clinical and preclinical activity.
- Marketable securities were $248.9 million at March 31, 2017, compared with $274.7 million at March 31, 2016.
Outlook, risks, contingencies, and unusual items
- Management expected existing cash and marketable securities to cover operations and capital expenditures for at least the next 12 months, while also stating that additional capital would likely be needed to advance development and pursue approvals. The company had no committed external funding source and warned that financing might be unavailable or dilutive.
- Management expected significant expenses and operating losses to continue; it did not expect product-sales revenue for at least several years, if ever. Clinical, regulatory, manufacturing, enrollment, and commercialization outcomes remain uncertain.
- The filing reports that the first-stage efficacy criterion in the Phase II Merkel cell carcinoma study had been met and describes a patient response; it also reports limited adverse events among the first three patients treated with single-agent aNK. These are early clinical observations, not evidence of established efficacy.
- The first patient was dosed with ALT-803 in the Phase II Merkel cell carcinoma trial; the company was preparing to dose a second patient. FDA clearance for a Phase Ib/II pancreatic-cancer trial was received in April 2017, with implementation preparations underway. These updates occurred after quarter-end.
- In March, the company invested $8.5 million in Viracta and had an option to invest up to a further $8.5 million by September 30, 2017. In May, it entered an exclusive worldwide license for a Viracta drug candidate, with royalties and milestone payments.
- In April 2017, the company agreed to purchase an El Segundo building, deposited $5 million into escrow, and described the transaction as contingent on specified conditions. The deposit was refundable in certain circumstances.
- Material disclosed risks include a securities class action related to prior financial-statement restatements; the filing says the potential loss could not be reasonably estimated. A related shareholder derivative action was dismissed in April 2017. In May 2017, the Federal Circuit affirmed the district court ruling in a patent appeal.
- Significant related-party arrangements involved entities affiliated with the chairman and CEO, including leases, shared services, research arrangements, and the Altor collaboration. The chairman and CEO also controlled a majority of voting shares, creating potential conflicts and governance considerations.
- The filing states disclosure controls were effective at the reasonable-assurance level as of March 31, 2017, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the entity and corporate-name relationship: this filing is for NantKwest, Inc., despite the request naming ImmunityBio, Inc.
- Assess cash runway using operating cash use, planned clinical and facility spending, the $5 million building deposit, and management’s stated expectation of additional financing.
- Review clinical-trial records and subsequent disclosures to assess the durability and significance of the reported Merkel cell carcinoma response, safety observations, and trial progress.
- Examine the terms, financial exposure, and governance oversight of Viracta, Altor, and other related-party transactions.
- Track the securities litigation, the patent ruling’s implications, and any later disclosures that quantify or resolve contingencies.