Business context and reporting period
The supplied filing is NantKwest, Inc.’s Form 10-K for the fiscal year ended December 31, 2015, filed March 30, 2016—not a filing identified as ImmunityBio, Inc. It reports annual results and unaudited quarterly data, including fourth-quarter 2015. NantKwest was a clinical-stage immunotherapy company developing natural-killer-cell therapies for cancer and other diseases; it had no approved products or product-sales revenue.
Financial performance and position
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $0.236 million | $0.641 million |
| Research and development expense | $11.434 million | $1.595 million |
| Selling, general and administrative expense | $227.678 million | $4.621 million |
| Operating loss | $238.876 million | $5.575 million |
| Net loss | $236.876 million | $6.185 million |
| Operating cash flow | $(25.305) million | $(5.418) million |
Revenue was immaterial relative to expenses; operating and net margins are not meaningful for this development-stage business. The 2015 net loss included $211.2 million of non-cash stock-based compensation, principally awards to the CEO and compensation associated with the Inex Bio acquisition. Fourth-quarter 2015 revenue was $15,000 and net loss was $26.822 million.
At year-end, cash and cash equivalents were $175.9 million, marketable securities were $173.4 million, working capital was $291.4 million, total assets were $366.8 million, and total liabilities were $10.9 million. Stockholders’ equity was $356.0 million. The company reported no interest expense in 2015 and had repaid its prior debt. Cash provided by financing was $317.3 million, mainly from equity offerings; investing activities used $175.2 million, chiefly for securities purchases. No material change in margins is meaningful given the company’s minimal revenue and large, unusual stock-compensation expense.
Material changes versus the prior period
- Net loss increased to $236.9 million from $6.2 million, while SG&A rose sharply, principally because of stock-based compensation. R&D also increased as the company expanded staffing, facilities and development activity.
- Revenue fell $0.405 million, reflecting a prior-year commercial license fee that did not recur and the June 2015 transfer of most non-clinical licensing business to Brink Biologics.
- The July 2015 IPO raised approximately $221.5 million net; additional private placements contributed to $316.5 million of net equity-offering proceeds reported for the year.
- The company changed its accounting for patent costs to expense them as incurred and retrospectively adjusted prior periods. The filing also restated 2015 interim results for stock-award and build-to-suit lease errors.
Outlook, risks and unusual items
- Management expected significant ongoing losses and increased R&D, manufacturing and public-company costs, with no product revenue expected for at least several years, if ever. It planned clinical development of aNK, haNK and taNK candidates; timelines and trial plans were expectations, not assured outcomes.
- Runway disclosures differ: MD&A said available proceeds and investments were expected to fund operations for at least 24 months, while the financial-statement liquidity note said existing cash and cash equivalents would fund at least 12 months and might not last through commercialization. Management cautioned that assumptions could prove incorrect and additional financing may be needed.
- Clinical evidence was early-stage: the company cited more than 40 aNK-treated patients and encouraging activity and tolerability, but trials were not designed to establish statistically significant efficacy. haNK and taNK candidates had not been tested in humans.
- A March 2016 restatement followed errors involving CEO stock awards and build-to-suit lease accounting. Management identified material weaknesses and concluded internal control over financial reporting and disclosure controls were not effective at December 31, 2015. The auditor did not express an opinion on internal-control effectiveness.
- A securities class action filed in March 2016 alleged misleading disclosures about the interim financial errors and controls; damages were unspecified and the company said the outcome could not be predicted. The company also appealed an adverse district-court ruling concerning certain patent claims.
- Other important risks include dependence on clinical and regulatory success, financing needs, manufacturing scale-up, competition, intellectual-property challenges, related-party arrangements and CEO influence. The CEO and affiliates held approximately 58.1% of common stock at year-end. A board-approved $50 million repurchase authorization had no purchases under that program as of year-end; the company separately repurchased employee shares for $4.8 million in June.
Important facts for investors to verify
- Confirm the issuer identity: this source is NantKwest, Inc., not ImmunityBio, Inc., and covers fiscal 2015 rather than a stand-alone Q4 filing.
- Review the restated interim statements and notes to understand the award-valuation and build-to-suit corrections, their non-cash effects, and any future control remediation.
- Reconcile the 12-month and 24-month liquidity statements, cash burn and investment portfolio composition against subsequent filings.
- Check subsequent clinical-trial progress, regulatory milestones, manufacturing capacity and whether the reported early aNK observations were replicated in controlled studies.
- Track the securities litigation, patent appeal, related-party obligations, dilution from outstanding awards and warrants, and actual use of the repurchase authorization.