NantKwest, Inc. — Q1 2018 Form 10-Q
Filing identity: The supplied filing identifies the registrant as NantKwest, Inc., not ImmunityBio, Inc. The financial statements are unaudited and cover the three months ended March 31, 2018; comparisons are with Q1 2017 unless stated otherwise. Amounts below are in U.S. dollars.
Business context
NantKwest was a clinical-stage immunotherapy biotechnology company developing natural killer (NK) cell therapies for cancer, infectious diseases and inflammatory diseases. It reported nominal licensing revenue and no product sales. Its programs included aNK, haNK and taNK cell platforms and the NANT Cancer Vaccine regimen.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Revenue | $5,000 | $11,000 |
| Research and development expense | $14.0 million | $9.2 million |
| Selling, general and administrative expense | $14.3 million | $16.2 million |
| Operating loss | $28.3 million | $25.5 million |
| Net loss | $27.5 million | $24.5 million |
| Basic and diluted loss per share | $0.35 | $0.30 |
| Cash used in operating activities | $15.5 million | $10.1 million |
| Cash, cash equivalents and restricted cash | $11.4 million | $24.1 million at Dec. 31, 2017 |
| Marketable debt securities | $125.7 million | $133.9 million at Dec. 31, 2017 |
| Total assets / total liabilities | $229.8 million / $29.5 million | $250.4 million / $31.6 million at Dec. 31, 2017 |
Operating expenses totaled $28.3 million, up $2.8 million year over year. R&D rose $4.7 million, reflecting increased laboratory, preclinical and clinical work, cGMP manufacturing activity, staffing and facility costs; lower consultant costs partly offset the increase. SG&A fell $1.9 million, primarily due to lower stock compensation and NantWorks shared-service charges. The company reported no operating margin information that is meaningful given minimal revenue and substantial losses.
Investing activities provided $2.9 million, principally from marketable-security maturities and sales, offset by purchases of property and equipment. Capital expenditures were $4.9 million. Financing activities used $0.1 million. At quarter-end, current assets were $126.8 million and current liabilities were $19.4 million. Balance-sheet obligations included a $4.8 million noncurrent build-to-suit liability and a $1.7 million noncurrent financing obligation; the filing does not identify conventional borrowings as a material funding source. Accumulated deficit was $526.0 million.
Changes, outlook and key risks
- Net loss increased $3.0 million year over year, while operating cash use increased $5.5 million. Management attributed lower investment income partly to use of investments to fund operations.
- Management expected cash and marketable securities on hand to fund operating and capital requirements for at least 12 months, but said additional capital would likely be needed and existing resources might not be sufficient to reach commercialization. The company had no committed external funding source.
- The company expected R&D and overall losses to increase as it advanced clinical programs, expanded manufacturing and pursued regulatory approvals. It did not expect product revenue for at least several years, if ever; no numerical earnings or revenue guidance was provided.
- The filing reported FDA clearance of multiple haNK-based investigational programs, including 12 additional INDs, while also describing several studies as newly opened and not yet recruiting. Clinical outcomes, enrollment and regulatory approval remained uncertain.
- Material development and execution risks included clinical failure or delay, regulatory hurdles, scaling and validating cell manufacturing, supplier dependence, and the need for further financing, which could dilute shareholders or require program reductions.
- Related-party arrangements are extensive, including services, leases and clinical-trial work involving entities affiliated with the chairman and CEO. The company disclosed approximately 59.2% ownership by the CEO and affiliates as of March 31, 2018, as well as potential conflicts and dependence on those relationships.
- Pending securities and derivative litigation related to prior financial-statement restatements had losses that management said could not be reasonably estimated; an August 2019 trial date was set for the consolidated securities class action. A separate USPTO matter had $0.1 million in fees accrued, with no additional loss range estimated.
- The company reported effective disclosure controls at March 31, 2018 and no material change in internal control over financial reporting during the quarter. It also disclosed prior restatements involving stock-based awards and build-to-suit lease accounting.
Most important facts for investors to verify
- Confirm the issuer and filing identity: the source document is NantKwest, Inc.’s 2018 Q1 10-Q, despite the ImmunityBio metadata.
- Assess cash runway using both cash and marketable securities, operating cash burn, capital spending and management’s 12-month funding assumption.
- Track trial enrollment, clinical results, IND status and manufacturing readiness; IND clearance is not marketing approval.
- Review financing needs, potential dilution and any changes to the securities portfolio or share-repurchase authorization.
- Monitor litigation developments, related-party transactions and the materiality of any subsequent changes to these disclosures.