NantKwest, Inc. (now associated with ImmunityBio) 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2016; filed August 15, 2016. The filing is in NantKwest’s name. Interim financial statements are unaudited. 2015 comparative interim figures are labeled restated.
Business context
Clinical-stage biotechnology company developing natural killer cell immunotherapies for cancer and other conditions. It reported no product sales and only nominal licensing and service revenue. Its lead aNK candidate was in a Phase II Merkel cell carcinoma study. Management reported that the first-stage efficacy criterion had been met after a patient showed a partial response with more than 70% tumor regression; the filing said the study would recruit 12 additional subjects after the initial 12. Three patients had been treated on-protocol at the time of the update, with treatment-related adverse events no worse than Grade II and no serious or dose-limiting events reported.
Financial results and position
| Metric | Q2 2016 | Q2 2015, restated | H1 2016 | H1 2015, restated |
|---|---|---|---|---|
| Revenue | $0.012 million | $0.091 million | $0.018 million | $0.211 million |
| Research and development | $6.389 million | $2.074 million | $11.344 million | $2.677 million |
| Selling, general and administrative | $28.588 million | $128.412 million | $55.255 million | $160.030 million |
| Operating loss | $34.965 million | $130.395 million | $66.581 million | $162.496 million |
| Net loss | $33.997 million | $130.893 million | $64.674 million | $163.742 million |
| Net loss per share, basic and diluted | $0.41 | $1.99 | $0.79 | $2.58 |
At June 30, 2016, cash and cash equivalents were $38.2 million, with marketable securities of $283.5 million ($175.5 million current); combined cash and securities totaled approximately $321.7 million. Total current assets were $218.0 million and current liabilities $10.0 million. Total liabilities were $15.6 million, including a $2.4 million noncurrent build-to-suit liability; the filing reports no conventional borrowings in the presented balance sheet. Stockholders’ equity was $327.4 million and accumulated deficit $324.4 million.
For the six months, operating cash use was $17.2 million, investing cash use $112.1 million, and financing cash use $8.5 million. Investing cash use mainly reflected net purchases of marketable securities. Cash declined $137.7 million from year-end 2015. Stock-based compensation was $43.9 million in H1 2016 versus $150.8 million in restated H1 2015. Revenue was too small for meaningful operating-margin analysis; the filing presents no gross profit measure.
Changes and unusual items
- H1 revenue fell by $0.2 million year over year, primarily because most nonclinical licensing agreements had been transferred to Brink Biologics in a 2015 spinout.
- H1 R&D expense rose $8.7 million, reflecting increased staffing and related costs, laboratory/preclinical/clinical activity, and laboratory and manufacturing facilities.
- SG&A declined $104.8 million year over year, chiefly because 2015 included large, noncash stock-compensation charges related to executive warrants and the Inex Bio acquisition. The lower reported loss therefore does not, by itself, indicate a comparable improvement in underlying operations.
- The company repurchased and retired 1,228,600 shares for $9.3 million during H1, at an average $7.57 per share; $40.7 million remained authorized under the $50 million program.
- The company adopted ASU 2016-09 on stock compensation in Q2; it reported no material financial-statement impact. Marketable securities were available-for-sale, with maturities scheduled within four years.
Outlook, risks and contingencies
Management said existing cash and marketable securities were expected to fund operating and capital requirements for the foreseeable future, while cautioning that the funds might not last through commercialization. It expects significant expenses and losses to continue, does not expect product revenue for at least several years, and anticipates needing substantial additional funding. No quantified earnings or revenue guidance was provided. Additional financing is not committed and may be unavailable or dilutive; development, regulatory approval, manufacturing scale-up, trial results and market acceptance remain uncertain.
Material risks include securities litigation following the restatement of 2015 interim statements, an appeal concerning certain patent claims, and disclosed material weaknesses in internal control over financial reporting. Management reported remediation efforts underway but had not concluded that the weaknesses were fully remediated. The securities cases seek unspecified damages, and the company said it could not reasonably estimate potential loss. Related-party arrangements with NantWorks include shared services, facility arrangements and research support; the CEO controls NantWorks. The filing identifies potential conflicts and governance concerns, as well as clinical, regulatory, intellectual-property, manufacturing, financing and competition risks.
Important facts for investors to verify
- Whether the reported Merkel cell carcinoma response is sustained and reproduced in additional patients, and how the expanded study progresses.
- Actual cash and marketable-security consumption, liquidity runway, and the timing and terms of any financing needs.
- Progress in remediating material weaknesses and the reliability of subsequent financial reporting.
- Developments and potential exposure in securities litigation and the patent appeal.
- Terms, costs and oversight of related-party arrangements, and the rationale for continuing share repurchases while the company reports substantial losses and future funding needs.