NORTHWEST BIOTHERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements included with this report. In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words "believe," "expect," "intend," "anticipate," and similar expressions are used to identify forward-looking statements, but some forward-looking statements are expressed differently. Many factors could affect our actual results, including those factors described under "Risk Factors" in our Form 10-K for the year endedDecember 31, 2019 and in Part II Item 1A of this report. These factors, among others, could cause results to differ materially from those presently anticipated by us. You should not place undue reliance on these forward-looking statements. Overview The Company is focused on developing personalized immune therapies for cancer. We have developed a platform technology, DCVax®, which uses activated dendritic cells to mobilize a patient's own immune system to attack their cancer. Our lead product, DCVax®-L, is designed to treat solid tumor cancers that can be surgically removed. We recently completed our 331-patient international Phase III trial of DCVax-L for newly diagnosed Glioblastome multiforme (GBM). As previously reported, the data collection and confirmation process was completed by the independent contract research organization (CRO) who managed the trial and by other independent service firms, and we reached Data Lock for the Phase III trial onOctober 4, 2020 . As explained in our prior announcements, following Data Lock the independent statisticians conduct analyses of the raw data and Trial results for review by the Company, the Principal Investigator, theSteering Committee of the Trial , theScientific Advisory Board , and a panel of independent brain cancer experts, in preparation for scientific publication and for public announcement. During this process, any questions or comments from the experts will be addressed as part of the preparation of the results for publication and public reporting. As also previously reported, coronavirus-related difficulties have impacted most aspects of the process, especially with the resurgence of COVID cases in many areas. The independent service firms have had limited capacity, and restrictions on operations. Key experts at certain specialized service providers have been unavailable for periods of time due to illness in their family. Other experts have gone on extended leave due to restrictions on operations. Clinical trial site personnel have been unavailable due to being reassigned to COVID-19 patient treatments or otherwise, and the limited site personnel have had to work under restrictions. Committee processes such as Institutional Review Boards and Ethics Committees have been focused mainly on COVID-19 matters, with other matters significantly delayed. Regulatory processes have been similarly focused on COVID-19 matters and delayed on other matters. Firms such as the ones storing the Phase III trial tissue samples needed for certain final data, and the firms conducting the analytics for that final data (such as IDH mutation status), continue to have only limited operations. Even logistical matters such as the shipping of tissue slides have been, and continue to be, subjected to substantial restrictions and delays. The Company's primary focus at present is on its DCVax-L program and completion of the Phase III trial of DCVax-L for Glioblastoma brain cancer. Our second product, DCVax®-Direct, is designed to treat inoperable solid tumors. A 40-patient Phase I trial has been completed, and included treatment of a diverse range of cancers. As resources permit, the Company is working on preparations for Phase II trials of DCVax-Direct including discussions with key institutions in regard to trial design and trial preparations. The Company has stopped the DCVax-Direct contract manufacturing preparation activities at present, while the trial design activities and preparations with the trial sites continue. OnOctober 5, 2020 , the Company announced that it had reached Data Lock for the Phase III trial and that a series of steps and processes would follow. These processes included analyses of the data by independent statisticians, preparations by the statisticians of summaries of the Trial results for review by the Company, the Principal Investigator, theSteering Committee of the Trial , theScientific Advisory Board , and a panel of independent brain cancer experts, in preparation for 33 Table of Contents publication in a scientific journal and public announcement. This series of processes is under way. It is anticipated that public announcement will follow these processes. We are continuing to negotiate and enter into agreements with warrant and option holders to extend earlier suspensions, enter into additional new suspensions, and/or determine compensation for suspensions, to assist us in maintaining reasonable capacity for additional financings if needed prior to the next shareholders' meeting. Going forward, we may enter into further agreements, as appropriate, at least until the next shareholders' meeting, with our investors and/or officers and directors.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the year endedDecember 31, 2019 and Note 12 Leases to the condensed consolidated financial statements in this accompanying Form 10-Q. Other than the changes related to the accounting for goodwill and intangible assets, our critical accounting policies and significant estimates have not changed substantially from those previously disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Our critical accounting policy for goodwill and intangible asset is detailed in Note 3.
Revision of Previously Issued Unaudited Financial Statements
We have revised certain previously reported non-material financial information
for the three and nine months ended
See Note 13, Revision to Prior Period Financial Statements, in Item 1, Financial Statements, for additional information related to the revision, including descriptions of the misstatements and the non-material impact on our unaudited condensed consolidated financial statements.
Results of Operations
Operating costs:
Operating costs and expenses consist primarily of research and development expenses, including clinical trial expenses, which increase when we are actively participating in clinical trials and especially when we are completing a large international trial, and undertaking substantial one-time expenses such as for final site visits, query resolutions, statistical work for the Statistical Analysis Plan, preparations for data analyses and other activities related to completion and assessment of the trial. The operating costs also include administrative expenses associated with trials, and increase as such operating activities grow. In addition to clinical trial related costs, our operating costs may include ongoing work relating to our DCVax products, including R&D, product characterization, and related matters. Going forward, we are also incurring large amounts of costs to carry out and complete statistical analyses, process validation work, final data collection and validation, and other work associated with the processes for locking, unblinding and analyzing the trial results. We are also incurring substantial expenses to develop our Sawston,U.K. facility, prepare for regulatory inspection and certification of the facility and prepare for manufacturing validation and scale-up. 34
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Following our acquisition of Flaskworks, our operating costs now include the costs for its ongoing operations and. its intellectual property filings.
Our operating costs also include the costs of preparations for the launch of new or expanded clinical trial programs, such as our planned Phase II clinical trials. The preparation costs include payments to regulatory consultants, lawyers, statisticians, sites and others, evaluation of potential investigators, the clinical trial sites and the CROs managing the trials and other service providers, and expenses related to institutional approvals, clinical trial agreements (business contracts with sites), training of medical and other site personnel, trial supplies and other. Additional substantial costs relate to the maintenance and substantial expansion of manufacturing capacity, for both the US andEurope .
Our operating costs also include significant legal and accounting costs in operating the Company.
Research and development:
Discovery and preclinical research and development expenses include costs for substantial external scientific personnel, technical and regulatory advisers, and others, costs of laboratory supplies used in our research and development projects, travel, regulatory compliance, and expenditures for preclinical and clinical trial operation and management when we are actively engaged in clinical trials. Because we are pre-revenue company, we do not allocate research and development costs on a project basis. We adopted this policy, in part, due to the unreasonable cost burden associated with accounting at such a level of detail and our limited number of financial and personnel resources. InDecember 2018 , recognizing the importance of manufacturing to the Company's future commercialization, the Company's Board approved an option pool for external manufacturing personnel with options exercisable for 5.5 million shares. The Company has worked with several manufacturing groups to date. As the Company has progressed towards Data Lock and unblinding of the Phase 3 trial results, the Company has reviewed its manufacturing arrangements and incentives, and contemplated the arrangements needed to start preparing for possible commercialization. As part of that process, the Company implemented the award of the 5.5 million options approved in 2018 to Advent BioServices as part of the option grants described in Note 6 above. The exercise price and exercise period determined by the Board inDecember 2018 for this manufacturing pool were$0.25 per share and ten years. The Company's option grants described in Note 6 above also included certain other key manufacturing personnel and consultants in
theU.K. andGermany . General and administrative: General and administrative expenses include personnel related salary and benefit expenses, cost of facilities, insurance, travel, legal services, property and equipment and amortization of stock options and warrants.
Three Months Ended
We recognized a net loss of
Research and Development Expense
For the three months endedSeptember 30, 2020 and 2019, research and development expense was$17.7 million and$3.5 million , respectively. The increase was mainly related to an increase of$14.2 million stock-based compensation that was recognized in research and development. 35
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The following table summarizes expenses incurred (i.e., amounts invoiced and accrued, which have only been partly paid) to related parties during the three months endedSeptember 30, 2020 and 2019 (amount in thousands): For the three months ended September 30, 2020 2019 (As Revised) Advent BioServices$ 1,435 $ 1,347
General and Administrative Expense
General and administrative expenses were$29.3 million and$2.8 million for three months endedSeptember 30, 2020 and 2019, respectively. The increase was mainly related to an increase of$24.4 million stock-based compensation that was recognized in general and administrative.
Legal Expenses
Legal costs were$1.1 million for the three months endedSeptember 30, 2020 versus$0.8 million for the three months endedSeptember 30, 2019 . The slight increase in legal costs is within a normal fluctuation range for our need for legal services.
Change in fair value of derivatives
During the three months endedSeptember 30, 2020 and 2019, we recognized a non-cash loss of$139 million and non-cash gain of$2.5 million , respectively. The loss was primarily due to the increase of our stock price as ofSeptember 30, 2020 ($0.77 per share) compared toJune 30, 2020 ($0.34 per share). The gain last year was primarily due to the decrease of our stock price as ofSeptember 30, 2019 ($0.25 per share) compared toJune 30, 2019 ($0.26 per share).
Loss from extinguishment of debt
During the three months endedSeptember 30, 2020 , we converted debt of approximately$4.9 million principal and$0.5 million accrued interest into approximately 20.1 million shares of common stock and 5.3 million warrants at fair value of$11.4 million . We also extinguished$3.8 million embedded derivative liabilities, wrote off$0.9 million unamortized debt discount and made some debt amendment upon the conversion. We recorded an approximate$3.0 million debt extinguishment loss from the conversion.
During the three months ended
Interest Expense
During the three months ended
Foreign currency transaction gain (loss)
During the three months endedSeptember 30, 2020 and 2019, we recognized foreign currency transaction loss of$1.2 million and gain of$0.9 million , respectively. The gain was due to the less strengthening of theU.S. dollar relative to the British pound sterling. The loss was due to the strengthening of theU.S. dollar relative to the British pound sterling.
Nine Months Ended
We recognized a net loss of
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Research and Development Expense
For the nine months endedSeptember 30, 2020 and 2019, research and development expense was$24.7 million and$10.1 million , respectively. The increase is due to an increase in activities and involvement of external consultants as the Phase 3 trial moved through final data collection and query resolution, independent data validation, and other preparations for Data Lock and analyses. Additionally, we recognized approximately$14.2 million stock-based compensation under research and development during the nine months endedSeptember 30, 2020 . As described in Note 10 above, we accrued an additional$0.2 million research and development expense related to Advent compassionate use program. The following table summarizes expenses incurred (i.e., amounts invoiced and accrued, which have only been partly paid) to related parties during the nine months endedSeptember 30, 2020 and 2019 (amount in thousands): For the nine months ended September 30, 2020 2019 (As Revised) Advent BioServices$ 4,186 $ 4,319
General and Administrative Expense
The Company's general and administrative expenses were$36.8 million and$9.4 million for nine months endedSeptember 30, 2020 and 2019, respectively. The increase was mainly related to an increase of$24 million stock-based compensation that was recognized in general and administrative.
Legal Expenses
Legal costs were
Change in fair value of derivatives
During the nine months endedSeptember 30, 2020 and 2019, we recognized a non-cash loss of$175.2 million and$2.4 million , respectively. The loss was primarily due to the increase of our stock price as ofSeptember 30, 2020 ($0.77 per share) compared toDecember 31, 2019 ($0.21 per share).
Loss from extinguishment of debt
During the nine months endedSeptember 30, 2020 , we converted debt of approximately$7.9 million principal and$1.1 million accrued interest into approximately 42.8 million shares of common stock and 5.3 million warrants at fair value of$16 million . We also extinguished$3.8 million embedded derivative liabilities, wrote off$0.9 million unamortized debt discount and made some debt amendment upon the conversion. We recorded an approximate$4.3 million debt extinguishment loss from the conversion. During the nine months endedSeptember 30, 2019 , the Company converted debt of approximately$5.2 million principal and$0.4 million accrued interest into approximately 26.2 million shares of common stock at fair value of$7 million . The Company recorded an approximate$1.5 million debt extinguishment loss from the conversion. During the nine months endedSeptember 30, 2019 , we entered into a settlement agreement with Cognate BioServices to settle certain outstanding invoices. We recorded approximately$1.0 million gain from this settlement.
Interest Expense
During the nine months ended
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Foreign currency transaction gain (loss)
During the nine months endedSeptember 30, 2020 and 2019, we recognized foreign currency transaction loss of$0.5 million and foreign currency transaction gain of$1.0 million , respectively. The loss was due to the strengthening of theU.S. dollar relative to the British pound sterling. The gain was due to the less strengthening of theU.S. dollar relative to the British pound sterling.
Liquidity and Capital Resources
We have experienced recurring losses from operations since inception. We have not yet established an ongoing source of revenues and must cover our operating expenses through debt and equity financings to allow us to continue as a going concern. Our ability to continue as a going concern depends on the ability to obtain adequate capital to fund operating losses until we generate adequate cash flows from operations to fund our operating costs and obligations. If we are unable to obtain adequate capital, we could be forced to cease operations. We depend upon our ability, and will continue to attempt, to secure equity and/or debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Our management determined that there was substantial doubt about our ability to continue as a going concern within one year after the condensed consolidated financial statements were issued, and management's concerns about our ability to continue as a going concern within the year following this report persist.
Contingent Contractual Obligations
The following table summarizes our contractual obligations as ofSeptember 30, 2020 (amount in thousands): Payment Due by Period Less than 1 to 2 3 to 5 Total 1 Year Years Years Short term convertible notes payable (1) 6% unsecured$ 224 $ 224 $ - $ - 8% unsecured 569 569 - - 10% unsecured 3,128 3,128 - - Short term convertible notes payable to related party (2) 10% unsecured 333 333 - - Short term notes payable (3) 8% unsecured 3,013 3,013 - - 10% unsecured 329 329 - 12% unsecured 611 611 - - Long term notes payable (4) 8% unsecured 7,266 - 7,266 - 6% secured 2,076 - 247 1,829 1% unsecured 403 403 - - Operating leases (5) 13,416 5,758 5,561 2,097 Purchase obligation (6) Total$ 31,368 $
14,368
The obligations related to short term convertible notes were approximately
(1)
unpaid interest of
The obligations related to short-term convertible notes to related party was
(2) approximately
contractual unpaid interest of
(3) The obligations related to short-term notes were approximately
of September 30, 2020 , which included unpaid interest of $0.3 million .
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The obligations related to long-term notes were approximately
approximately $0.4 million .
The operating lease obligations during the next year included $167,000 ,
$4,000 and $34,000 for our offices in Maryland , Germany and London ,
respectively. Approximately £1 million (
during the next 2 years and approximately £1.5 million (
back in
anticipated payments to Advent BioServices, which represents the next 2.3
years' obligation. The remaining contract term as of
approximately 2.3 years under the Manufacturing Services Agreement with
Advent.
We have possible contingent obligations to pay certain fees to contractmanufacturers if we shut down or suspend programs. For Cognate BioServices (6) (in addition to any other remedies) if we shut down or suspend its DCVax-L
program or DCVax-Direct program, the following obligations exist, which are
not reflected in the accompanying balance sheets.
For a shut down or suspension of the DCVax-Direct program at Cognate, the Company must give 3 months' advance notice.
For a shut down or suspension of the DCVax-L program at Cognate, the fee will be as follows:
The fee shall be
of the last patient enrolled in the Phase III clinical trial for DCVax®-L but ? before any submission for product approval in any jurisdiction; or after the
submission of any application for market authorization but prior to receiving a
marketing authorization approval.
? At any time after receiving product approval for DCVax®-L in any jurisdiction,
the fee shall be
While our DCVax programs are ongoing, under our agreements with Cognate we are required to pay certain fees for dedicated production suites or capacity reserved exclusively for DCVax production, and pay for a certain minimum number of patients, whether or not we fully utilize the dedicated capacity and number of patients. The same is the case under our agreement with Advent. OnMay 21, 2019 , we settled certain disputed amounts that had been invoiced to us by Cognate. For a shut down or suspension of the DCVax-L program at Advent, the Company must give 12 months' advance notice. During the notice period services would still be performed, to provide a transition period. Minimum required payments for this notice period total approximately £3.8 million ($4.9 million ).
As of
Cash Flow
Operating Activities
During the nine months endedSeptember 30, 2020 and 2019, net cash outflows from operations were$21.9 million and$25.9 million , respectively. The decrease in cash used in operating activities was primarily attributable to a decrease in clinical trial related expenditures.
Financing Activities
During the nine months endedSeptember 30, 2020 , we received approximately$16.9 million cash from issuance of 85.8 million shares of common stock. During the nine months endedSeptember 30, 2019 , we received$2.2 million of cash proceeds from the issuance of our common stock and warrants in a registered direct offering.
We received
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We received approximately
We received approximately
We made an aggregate debt payment of approximately$1.7 million during the nine months endedSeptember 30, 2020 , including$64,000 to related parties. Our financial statements indicate there is substantial doubt about our ability to continue as a going concern as we are dependent on our ability to obtain ongoing financing and ultimately to generate sufficient cash flow to meet our obligations on a timely basis. We can give no assurance that our plans and efforts to achieve the above steps will be successful. Other factors affecting our ongoing funding requirements include the number of staff we employ, the number of sites, number of patients and amount of activity in our clinical trial programs, the costs of further product and process development work relating to our DCVax products, the costs of preparations for Phase II trials, the costs of expansion of manufacturing and of development and regulatory certification of manufacturing facilities, and unanticipated developments. The extent of resources available to us will determine which programs can move forward and at what pace.
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements,
as defined in the rules and regulations of the
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