Business context and reporting period
This is NantKwest, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019—not a filing under the name ImmunityBio, Inc. NantKwest described itself as a clinical-stage immunotherapy company developing natural-killer-cell treatments for cancer and viral infections. Its common stock traded on Nasdaq under NK.
Financial performance and position
Unless otherwise stated, figures are in U.S. dollars; financial statement amounts below are in millions.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $0.017 | $0.004 | $0.022 | $0.009 |
| Research and development | $13.131 | $14.688 | $25.729 | $28.679 |
| Selling, general and administrative | $4.182 | $13.594 | $9.924 | $27.892 |
| Operating loss | $17.296 | $28.278 | $35.631 | $56.562 |
| Net loss | $16.682 | $27.732 | $34.567 | $55.251 |
| Basic and diluted loss per share | $0.17 | $0.35 | $0.38 | $0.70 |
- Revenue remained nominal and came primarily from non-clinical licensing; the company had no approved products or product-sales revenue.
- At June 30, cash and cash equivalents were $17.279 million and marketable debt securities totaled $68.256 million. Restricted cash was $0.429 million across current and other assets. Current assets were $87.048 million and current liabilities $12.430 million.
- Six-month operating cash use was $29.905 million; investing cash use was $8.081 million; financing provided $38.694 million. Cash, cash equivalents and restricted cash increased $0.708 million to $17.708 million.
- Total liabilities were $24.427 million. The balance sheet included operating lease liabilities of $14.997 million in total, including $3.000 million current and $11.997 million long-term. No financing obligation remained at June 30; the filing does not identify conventional borrowings outstanding.
- Stockholders’ equity was $151.269 million; accumulated deficit was $630.969 million. The company reported a $0.869 million impairment charge on laboratory equipment.
Material changes versus comparable periods
- Six-month net loss narrowed by $20.684 million year over year, while operating expenses fell 37% to $35.653 million. SG&A declined primarily because stock-based compensation was lower after vesting of prior CEO awards; R&D also decreased due to lower staffing, shared-service and trial costs.
- The company said R&D spending is expected to rise as clinical programs advance, so the lower period expense should not be assumed to continue.
- Cash generation from financing was driven by the Chairman and CEO’s warrant and option exercises, yielding $39.2 million. Warrants outstanding fell from 17.6 million at year-end to none at June 30; common shares outstanding increased from 79.1 million to 98.3 million.
- Adoption of the lease accounting standard on January 1, 2019 added right-of-use assets and lease liabilities to the balance sheet and resulted in a $0.920 million cumulative adjustment to accumulated deficit. Management said adoption did not materially affect operating results or cash flows.
Outlook, risks, contingencies and unusual items
- Management expected available cash, cash equivalents and marketable securities, together with the ability to borrow from affiliates, to fund operations and capital requirements for at least 12 months after the financial statements’ issuance. This expectation depends in part on the Chairman and CEO’s stated intent and ability to support operations; there was no committed external funding source. Additional capital may be needed, and could dilute shareholders or require reduced, delayed or terminated programs.
- The company expected significant expenses and operating losses for the foreseeable future and did not expect product sales for at least several years, if ever. Clinical, regulatory, manufacturing, financing and commercialization outcomes remain uncertain.
- In June 2019, the FDA authorized INDs for first-in-human Phase I trials of PD-L1.t-haNK and CD19.t-haNK. Authorization permits trials to proceed; it is not marketing approval.
- A securities class-action settlement received final court approval in May 2019. The $12.0 million settlement was funded $1.2 million by the company and $10.8 million by insurers. A separate stockholder settlement involving governance changes remained subject to final court approval; the company’s share of the $0.5 million attorney fee was $0.25 million.
- In July 2019, the company entered a new agreement with the related-party Immuno-Oncology Clinic, with estimated costs of $7.5 million in prepaid installments. A Phase I PD-L1.t-haNK study was estimated to cost $1.2 million under that agreement. Related-party dependence and potential conflicts are material considerations.
- Management identified a clinical-stage business model, limited revenue, possible need for additional financing, clinical and regulatory failure risk, manufacturing scale-up challenges, competition, and reliance on affiliated companies as important risks. Prior securities litigation related to earlier financial-statement restatements was settled; investors should also note the company’s disclosure of prior restatements and its control-related risk discussion.
Important facts for investors to verify
- Confirm the filing entity: the supplied 10-Q is for NantKwest, Inc., not ImmunityBio, Inc.
- Review the assumptions behind the stated 12-month liquidity outlook, including affiliate borrowing or support, and the company’s cash burn and financing needs.
- Track trial initiation, enrollment, safety and results for the two newly authorized IND programs, as well as manufacturing readiness and regulatory milestones.
- Assess the effect of the 2019 warrant and option exercises on share count, ownership concentration and future dilution; the CEO and affiliates collectively held about 67.4% of common stock at June 30.
- Review related-party agreements and transactions, including the Clinic’s $7.5 million agreement, affiliate facility leases and shared services, and the status of the stockholder settlement.