S-1 1 v315727_s1.htm FORM S-1

 

As filed with the Securities and Exchange Commission on June 29, 2012

Registration No. 333-

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

 

 

NORTHWEST BIOTHERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   8731   94-3306718
(State or other jurisdiction
of incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

 

4800 Montgomery Lane, Suite 800

Bethesda, MD 20814

(240) 497-9024

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Linda F. Powers

Chief Executive Officer

4800 Montgomery Lane, Suite 800

Bethesda, MD 20814

(240) 497-9024

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Jeffrey J. Fessler, Esq.   Yvan-Claude Pierre, Esq.
Marcelle S. Balcombe, Esq.   Daniel I. Goldberg, Esq.
Sichenzia Ross Friedman Ference LLP   Reed Smith LLP
61 Broadway, 32nd Floor   599 Lexington Avenue
New York, New York 10006   New York, NY 10022
Telephone: (212) 930-9700   Telephone: (212) 521-5400
Facsimile: (212) 930-9725   Facsimile: (212) 521-5450

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer    ¨   Accelerated filer   ¨
Non-accelerated filer      ¨(Do not check if a smaller reporting company)   Smaller reporting company  x

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class
of Securities to be Registered
  Proposed
Maximum
Aggregate
Offering Price (1)
   Amount of
Registration Fee
 
Common Stock, $0.001 par value per share (2)(3)   $28,750,000    $3,294.75 
Representative’s Common Stock Purchase Warrant           —   (4)
Shares of Common Stock underlying Representative’s Common Stock Purchase Warrant (2)(5)   $1,562,500    $179.06 
Total Registration Fee   $30,312,500    $         3,473.81 

(1)     Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act.

(2)     Pursuant to Rule 416, the securities being registered hereunder include such indeterminate number of additional shares of common stock as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions

(3)     Includes shares the underwriters have the option to purchase to cover over-allotments, if any.

(4)     No registration fee required pursuant to Rule 457(g) under the Securities Act.

(5)     Estimated solely for purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act, based on an estimated proposed maximum aggregate offering price of $1,562,500, or 125% of $1,250,000 (5% of $25,000,000).

 

 

 The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

 

 

 
 

 

The information in this preliminary prospectus is not complete and may be changed.  We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective.  This preliminary prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

     
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION  DATED JUNE 29, 2012
     

 

Shares

 

Common Stock

   

 

  

We are offering       shares of our common stock pursuant to this prospectus. We expect to effect a 1-for-      reverse stock split of our outstanding common stock just prior to the date of this prospectus.

 

Our common stock is quoted on the OTC Bulletin Board under the symbol “NWBO.OB”. We intend to apply for listing of our common stock on The NASDAQ Capital Market under the symbol “NWBO”.  No assurance can be given that our application will be approved. On June 28, 2012, the last reported sale price for our common stock on the OTC Bulletin Board was $0.23 per share.  

 

Our business and an investment in our securities involves a high degree of risk. See “Risk Factors” beginning on page 10 of this prospectus for a discussion of information that you should consider before investing in our securities.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

    Per Share    Total 
           
Public offering price                
Underwriting discount (1)                
Proceeds, before expenses, to us                

 

(1) The underwriters will receive compensation in addition to the underwriting discount. See “Underwriting” beginning on page 68 of this prospectus for a description of the compensation payable to the underwriters.

 

The underwriters may also purchase up to an additional       shares of common stock from us at the public offering price, less the underwriting discount, within 45 days from the date of this prospectus to cover over-allotments, if any. 

 

The underwriters expect to deliver the shares against payment therefor on or about        , 2012.

 

Aegis Capital Corp

 

, 2012

 

 
 

 

TABLE OF CONTENTS

 

    Page
     
Prospectus Summary   1
     
Risk Factors   10
     
Cautionary Note Regarding Forward-Looking Statements and Industry Data   24
     
Use of Proceeds   25
     
Price Range of Common Stock    26
     
Dividend Policy    26
     
Dilution   27
     
Capitalization   28
     
Management’s Discussion and Analysis of Financial Condition and Results of Operations   29
     
Business   35
     
Management   50
     
Security Ownership of Certain Beneficial Owners and Management   59
     
Certain Relationships and Related Party Transactions   62
     
Description of Securities   65
     
Underwriting   68
     
Legal Matters   75
     
Experts   75
     
Where You Can Find More Information   76
     
Index to Consolidated Financial Statements   F-1

 

You should rely only on the information contained in this prospectus that we may specifically authorize to be delivered or made available to you. We have not, and the underwriters have not, authorized anyone to provide you with any information other than that contained in this prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may only be used where it is legal to offer and sell shares of our common stock. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted.

 

For investors outside the United States: We have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.

 

i
 

 

PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our securities, you should carefully read this entire prospectus, including our financial statements and the related notes and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each case included elsewhere in this prospectus.

 

Unless otherwise stated or the context requires otherwise, references in this prospectus to “Northwest Biotherapeutics”, “we”, “us”, or “our” refer to Northwest Biotherapeutics, Inc. DCVax® is a registered trademark of the Company.

 

NORTHWEST BIOTHERAPEUTICS, INC.

 

Business Overview

 

We are a development stage biotechnology company focused on developing immunotherapy products to treat cancers more effectively than current treatments, without toxicities of the kind associated with chemotherapies, and, through a proprietary batch manufacturing process, on a cost-effective affordable basis in both the United States and Europe (the two largest medical markets in the world).  We have developed a platform technology, DCVax, which uses activated dendritic cells to mobilize a patient’s own immune system to attack their cancer.  The DCVax technology is expected to be applicable to most cancers, and is embodied in several product lines.  The DCVax technology has reached late stage development for two different cancers (brain and prostate), with a Phase III clinical trial in glioblastoma multiforme, or GBM, brain cancer currently under way, and a Phase III clinical trial in prostate cancer which was previously cleared to proceed by the U.S. Food and Drug Administration, or FDA, which we anticipate will proceed when we secure a partner. We have also completed a small early stage trial in metastatic ovarian cancer, and have received clearance from the FDA for early stage trials in multiple other diverse cancers.  As of June 29, 2012, our Phase III clinical trial in GBM is being conducted at more than 40 sites in the United States, and is expected to begin enrollment by July or August 2012 in the United Kingdom and Germany.

 

Our DCVax immunotherapies are based on a platform technology involving dendritic cells, the master cells of the immune system, and are designed to reinvigorate and educate the immune system to attack cancers. We believe that the market potential of this technology is particularly large because the DCVax products are expected to be applicable to most cancers. We believe that the market potential is also enhanced by our two-continent strategy. By conducting our Phase III clinical trial in GBM on an international basis, with trial sites in both the United States and Europe, we believe we are positioned to potentially apply for product approval in both markets.

 

Dendritic cells are the master cells of the immune system, and are able to mobilize all parts of the immune system, including T cells, B cells and antibodies, natural killer cells and many others.  Mobilizing the entire immune system provides a broader attack on the cancer than mobilizing just a particular component, such as T cells alone, or a particular antibody alone.  Likewise, our DCVax technology is designed to attack the full set of biomarkers, or antigens on a patient’s cancer, rather than just a particular selected target or several targets.  Clinical experience indicates that when just one or a few biomarkers on a cancer are targeted by a drug or other treatment, sooner or later the cancer usually develops a way around that drug, and the drug stops working.  We believe that mobilizing all agents of the immune system, and targeting all biomarkers on the patient’s cancer, contribute to the effectiveness of DCVax.

 

Market Opportunity

 

DCVax is expected, ultimately, to be applicable to most types of cancers.  According to the American Cancer Society, 1 in 2 men, and 1 in 3 women in the United States will develop some form of cancer in their lifetime.  There are nearly 1.5 million new cases of cancer per year in the U.S., and nearly 600,000 deaths from cancer.  The statistics are similar in Europe and in much of the rest of the world.

 

1
 

 

Brain cancer

 

Brain cancer falls into two broad categories:  primary, in which the cancer originates in the brain and metastatic, where the cancer first appears elsewhere in the body, but subsequently metastasizes to the brain.  In the United States, on an annual basis, there are some 40,000 new cases of primary brain cancer, and 160,000 new cases of metastatic brain cancer.  

 

Within the category of primary brain cancer, Grade 4 (GBM), is the most aggressive and lethal type.  Among the 40,000 new cases of primary brain cancer per year in the U.S., at least 12,000 cases are GBM, with some estimates as high as 17,000, and the incidence is increasing.

 

In addition, brain cancer is a serious medical problem in children 18 years old and under.  It is the second most frequent type of childhood cancers (after leukemias) and, following progress in reducing death rates from leukemias, it is now the number one cause of childhood cancer deaths.

 

Very little has changed in the last 30 years in the treatment and clinical outcomes for GBM.   With all standard of care treatment today – surgery, radiation and chemotherapy – patients still die within about 14.6 months median from diagnosis.

 

Temodar, which has become the standard of care chemotherapy treatment for GBM achieved market saturation extremely rapidly, within two years of product launch for brain cancer.  Temodar added only 10 weeks of survival, extending survival from its historical median of 12 months to 14.6 months median today, and did so in a limited percentage of patients.  Other drugs approved by FDA for GBM, such as Avastin, did not extend survival at all.

 

We believe DCVax is well positioned for this target market.  Further, in the future we plan to conduct additional clinical trials and seek approval for other primary brain cancers and for metastatic brain cancers.

 

Prostate cancer

 

Prostate cancer is the most common cancer in men.  At least 217,000 new cases per year are diagnosed in the U.S. alone, according to the American Cancer Society, with similar numbers in Europe.  Among these, at least 100,000 new cases reach late stage prostate cancer each year in the U.S., with similar numbers in Europe.

 

Among these 100,000 new late-stage prostate cancer cases per year, 80-85% of the patients have no visible metastases, and only 15-20% already have visible metastases.   We intend to focus our Phase III clinical trial on patients without visible metastases, comprising 80-85% of the 100,000 new cases per year in the U.S.

 

Our Clinical Trials 

 

In clinical trials to date, our DCVax treatments have been achieving what we believe to be striking results.  In patients with newly diagnosed GBM, the most aggressive and lethal form of brain cancer, patients treated with full standard of care treatment today (surgery, radiation and chemotherapy), typically have recurrence of their cancer within a median of 6.9 months, and typically die within a median of 14.6 months.     In contrast, our early stage clinical trials showed that patients who received DCVax in addition to standard of care typically did not experience recurrence until approximately 2 years, rather than 6.9 months, and typically lived for approximately 3 years, rather than just 14.6 months.  This data, if reproducible in a larger study, would demonstrate that patients with GBM can derive significant clinical benefit from DCVax treatment. Moreover, long-term follow-up data on the GBM patients treated with DCVax in prior clinical trials show that, as of the most recent update, 33% of the patients have reached or exceeded 4 years’ survival, and 27% of the patients have reached or exceeded 6 years’ survival (as compared with the median survival of 14.6 months with standard of care treatment today).

 

Similar results (doubling survival time compared with standard of care treatment) have been obtained in patients with late stage prostate cancer, either with or without metastases, in our prostate cancer clinical trial. Encouraging early results – significantly delaying progression of the cancer — have also been seen in patients in the initial metastatic ovarian cancer clinical trial.

 

2
 

 

Nearly as important in clinical trials to date, there have been no serious adverse events related to the study drug.  The broad and rapidly growing body of scientific literature about dendritic cells is consistent with the DCVax clinical experience, and provides added support regarding the lack of toxicity.

 

We are working to position DCVax as a front line therapy that could potentially become standard of care.  Accordingly, we are highly sensitive to the cost and affordability of DCVax.  We have spent more than a decade pioneering a unique method of batch manufacturing which now results in costs and pricing of DCVax lower than most cancer drugs (especially the newer ones), even though DCVax is a personalized product.

 

We have also worked to make DCVax an extremely simple product for both physicians and patients.  DCVax is administered to patients as a simple intra-dermal injection, similar to a flu shot and does not involve any complex procedures for physicians or patients.  Unlike chemical or biologic drugs, however, DCVax must remain frozen throughout the distribution and delivery process, until the time of administration to the patient, and cannot be handled at room temperature. Thus, hospitals, pharmacies and physicians may need to adopt new requirements for handling, distribution and delivery of DCVax. 

 

As of June 29, 2012, our Phase III clinical trial in GBM patients is open at more than 40 sites across the United States, with additional sites expected to open before the end of the third quarter of 2012. Working in partnership with the Fraunhofer Institute (Fraunhofer), a multi-billion dollar organization with 18,000 scientists, engineers and business personnel, which is based in Germany and has operations worldwide. We are now in the process of adding up to 30 additional sites in Germany that will be part of the U.S. trial, with up to half of the clinical trial costs being covered by a $5.5 million German government grant to us (one of the largest grants ever awarded by the German government agency). After more than a year of training and preparation, we expect that Fraunhofer will be in a position to start manufacturing DCVax in Germany after a final inspection, which took place on June 12, and 13, 2012, and after development of few additional internal procedures which were requested by the inspection authority. We have also partnered with Kings College Hospital in London as the lead clinical trial site in the United Kingdom, and partnered with King's College London for the manufacture of DCVax in the United Kingdom. Each of these manufacturing locations, in Germany and the United Kingdom, can produce DCVax product for anywhere in Europe.

 

The manufacturing arrangements at Fraunhofer in Germany and Kings College London in the United Kingdom have been developed (including the training of personnel) and are being supervised by Cognate BioServices, Inc., our contract manufacturer in the United States, to ensure consistency. Adding these two manufacturing operations carries several important benefits for us: it increases capacity, it provides local operations to satisfy European regulators, and it provides important risk mitigation in case of any disruption in the U.S. manufacturing operation (In such case, DCVax product can be produced in Europe for the U.S. market). Importantly, both Fraunhofer in Germany and Kings College London in the United Kingdom had existing “cGMP” (clinical grade) manufacturing facilities for cell products, and both of them dedicated their facilities to our programs – which enabled us to utilize these two manufacturing facilities without any capital expenditure.

 

We believe that our approach of conducting a Phase III clinical trial of DCVax-L in GBM at 80 or more sites on both sides of the Atlantic, at some of the best medical research institutions in the US, UK and Germany, is unique in giving the Company two chances at product approval in the two largest medical markets in the world: the United States and Europe. We have worked for nearly one and a half years to establish these institutional relationships, and pursue the necessary regulatory and institutional approvals. We are now positioned to reap the benefits of this two-continent strategy.

 

In parallel with our clinical trial program, we are undertaking compassionate use programs in both the United Kingdom and Germany. In the United Kingdom, this program will proceed under the “Specials” category. In Germany, this program will proceed under the “Hospital Exemption” provided in §4b of the German Drug Act. Both Kings College London and Fraunhofer will manufacture product for these compassionate use cases. In these cases, patients who are not eligible for the clinical trial can obtain DCVax. Such cases are not covered by insurance: the patients pay for the product on a self-pay basis.

 

Recent Developments

 

Our Board of Directors intends to take action to adopt a shareholder rights plan and implement a staggered Board authorized under our Amended and Restated Certificate of Incorporation. In addition, our Board of Directors and shareholders holding a majority of our voting power intend to take action to implement a reverse stock split of our outstanding common stock, and increase the number of shares of authorized preferred stock.

 

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Risks

 

We are a development stage company and have generated minimal revenues to date. Since our inception, we have incurred substantial losses. Our business and our ability to execute our business strategy are subject to a number of risks of which you should be aware before you decide to buy our common stock. In particular, you should carefully consider the following risks, which are discussed more fully in “Risk Factors” beginning on page 10 of this prospectus.

 

·We will need to continue to raise substantial funds, on an ongoing basis, for general corporate purposes and operations, including our clinical trials.  Such funding may not be available or, if available, may not be available on attractive terms.

 

·We are likely to continue to incur substantial losses, and may never achieve profitability.

 

·Our auditors have issued a “going concern” audit opinion.

 

·As a development stage company with a novel technology and unproven business strategy, our limited history of operations makes an evaluation of our business and prospects difficult.

 

·We will need to expand our management and technical personnel as our operations progress, and we may not be able to recruit such additional personnel and/or retain existing personnel.

 

·We rely at present on third-party contract manufacturers.  As a result, we may be at risk for capacity limitations and/or supply disruptions.

 

·The manufacturing of our product candidates will have to be greatly scaled up for commercialization, and neither we nor other parties in the industry have experience with such scale-up.

 

·The necessary specialized facilities, equipment and personnel may not be available or obtainable for the scale-up of manufacturing of our product candidates.

 

·Our technology is novel, involves complex immune system elements, and may not prove to be effective.

 

·Clinical trials for our product candidates are expensive and time consuming, and their outcome is uncertain.

 

·We may be required to suspend or discontinue clinical trials due to unexpected side effects or other safety risks that could preclude approval of our product candidates.

 

·We have limited experience in conducting and managing clinical trials.

 

·Multiple late stage clinical trials of DCVax-L for brain cancer, our lead product, may be required before we can obtain regulatory approval.

 

·Changes in manufacturing methods for DCVax-L could require us to conduct equivalency studies and/or additional clinical trials.

 

·We may not receive regulatory approvals for our product candidates or there may be a delay in obtaining such approvals .

 

·We may fail to comply with regulatory requirements.

 

·Regulatory approval of our product candidates may be withdrawn at any time.

 

 

4
 

 

·Our product candidates will require a different distribution model than conventional therapeutic products, and this may impede commercialization of our product candidates.

 

·Our product candidates will require different marketing and sales methods and personnel than conventional therapeutic products.  Also, we lack sales and marketing experience.  These factors may result in significant difficulties in commercializing our product candidates.

 

·We may not obtain or maintain the benefits associated with orphan drug status, including market exclusivity.

 

·The availability and amount of potential reimbursement for our product candidates by government and private payers is uncertain and may be delayed and/or inadequate.

 

·Competition in the biotechnology and biopharmaceutical industry is intense and most of our competitors have substantially greater resources than we do.

 

·Competing generic medicinal products may be approved.

 

·We may be exposed to potential product liability claims, and insurance against these claims may not be available to us at a reasonable rate in the future, if at all.

 

·Our intellectual property rights may not provide sufficient commercial protection for our product candidates, or third parties may infringe upon our intellectual property.

 

·We may be exposed to claims or lawsuits – with or without merit – that our products infringe patents or other proprietary rights of other parties.

 

·DCVax is our only technology in clinical development.

 

·Collaborations play an important role in our business, and could be vulnerable to competition or termination.

 

·Our business could be adversely affected by new legislation.

 

·Our business could be adversely affected by animal rights activist.

 

·There may not be an active, liquid trading market for our common stock.

 

·The market for our common stock may be limited, because our common stock is subject to “penny stock” rules.

 

·Your ability to sell your shares in the secondary trading market may be limited, because our common stock is quoted on the OTC Bulletin Board.

 

·The price of our common stock may be highly volatile.

 

·Toucan Capital and its affiliates are the principal holders of our shares of common stock, and this concentration of ownership may have a negative effect on the market price of our common stock.

 

·The requirements of the Sarbanes-Oxley Act of 2002 and other U.S. securities laws impose substantial costs, and may drain our resources and distract our management.

 

 

5
 

 

·Our management has identified internal control deficiencies, which our management and our independent auditor believe constitute material weaknesses.

 

·We do not intend to pay any cash dividends in the foreseeable future and, therefore, any return on your investment in our common stock must come from increases in the market price of our common stock.

 

·Substantial amounts of our previously issued common stock are now and/or will soon be eligible for re-sale under Rule 144.  This may have a negative effect on the market price of our common stock.

 

·Our certificate of incorporation and bylaws, our shareholder rights plan and Delaware law have anti-takeover provisions that could discourage, delay or prevent a change in control, which may cause our stock price to decline.

 

·Our management will have broad discretion over the use of the net proceeds from this offering and we may use the net proceeds in way with which you disagree.

 

·You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.

 

·Our planned reverse stock split may not increase our stock price sufficiently to enable us to list our common stock on The NASDAQ Capital Market, in which case this offering will not be completed.

 

·Even if the reverse stock split achieves the requisite increase in the market price of our common stock, we cannot assure you that we will be able to continue to comply with the minimum bid price requirement of The NASDAQ Capital Market.

 

·Even if the reverse stock split achieves and maintains the requisite increase in the market price of our common stock, there can be no assurance that we will be able to comply with other continued listing standards of The NASDAQ Capital Market.

 

·The reverse stock split may decrease the liquidity of the shares of our common stock.

 

·Following the reverse stock split, the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.

 

Corporate Information

 

We were formed in 1996 and incorporated in Delaware in July 1998. Our principal executive offices are located in Bethesda, Maryland, and our telephone number is (240) 497-9024. Our website address is www.nwbio.com. The information on our website is not part of this prospectus.  We have included our website address as a factual reference and do not intend it to be an active link to our website. 

 

6
 

 

The Offering

 

Securities offered by us                 shares of common stock (            shares if the underwriters exercise their over-allotment option in full)
     
Common Stock to be outstanding after this offering                 shares
     
Use of Proceeds   We expect to use the net proceeds received from this offering to fund our research and development activities and working capital and general corporate purposes.   See “Use of Proceeds” on page 25.
     
Risk Factors   See “Risk Factors” beginning on page 10 and the other information included in this prospectus for a discussion of factors you should carefully consider before investing in our securities.
     
OTC Bulletin Board symbol for our common stock   NWBO.OB
     
Proposed NASDAQ Capital Market listing symbol for our common stock   We intend to apply for listing of our common stock on The NASDAQ Capital Market under the symbol “NWBO”.  There can be no assurance that our application will be approved.

 

Unless we indicate otherwise, all information in this prospectus:

 

·reflects a 1-for-    reverse stock split of our issued and outstanding shares of common stock, options and warrants to be effected just prior to the date of this prospectus and the corresponding adjustment of all common stock price per share and stock option and warrant exercise price per share;
·is based on 165,245,389 shares of common stock issued and outstanding as of June 29, 2012;
·assumes no exercise by the underwriters of their option to purchase up to an additional                shares of common stock to cover over-allotments, if any;
·excludes 24,821,412 shares of our common stock issuable upon exercise of outstanding stock options under our stock incentive plans at a weighted average exercise price of $0.66 per share as of June 29, 2012;
·excludes 71,436,774 shares of our common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $0.58 per share as of June 29, 2012;
·excludes 31,609,461 shares of our common stock issuable upon conversion of outstanding convertible notes at a weighted average exercise price of $0.36 per share as of June 29, 2012; and
·excludes                shares of common stock underlying the warrants to be issued to the underwriters in connection with this offering.

 

7
 

 

Summary Consolidated Financial Data

 

The following table sets forth our summary statement of operations data for the years ended December 31, 2011 and 2010 derived from our audited consolidated financial statements and related notes included elsewhere in this prospectus. The summary consolidated financial data for the three months ended March 31, 2012 and 2011, and as of March 31, 2012, are derived from our unaudited financial statements appearing elsewhere in this prospectus and are not indicative of results to be expected for the full year. Our financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States. The results indicated below are not necessarily indicative of our future performance. You should read this information together with the sections entitled “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. 

 

   Year Ended December 31,
(in thousands)
   Three Months Ended
March 31,
(in thousands)
 
   2010   2011   2011   2012 
Statement of Operations Data:                
Research material sales  $10   $10   $-   $- 
Total Revenues   10    10    -    - 
                     
Operating Cost and Expenses:                    
Research and development   9,899    13,452    4,440    3,580 
General and administration   5,463    13,335    2,316    2,183 
Depreciation and amortization   2    10    -    2 
                     
Total Operating Costs and Expenses   15,364    26,797    6,756    5,765 
Loss from Operations   (15,354)   (26,787)   (6,756)   (5,765)
Other Income (Expense):                    
Valuation of reclassified equity instruments   -    8,821    -    491 
Conversion inducement expense   (4,673)   (7,944)   -    - 
Derivative valuation gain   54    728    (161)   348 
Interest expense   (7,884)   (7,648)   (1,491)   (5,225)
Interest income and other   489    -    -    - 
Net Loss  $(27,368)  $(32,830)  $(8,408)  $(10,151)
Net Loss applicable to common stockholders  $(27,368)  $(32,830)  $(8,408)  $(10,151)
                     
Net loss per share applicable to common stockholders – basic  $(0.41)  $(0.35)  $(0.11)  $(0.07)
                     
Weighted average shares used in computing basic loss per share   67,063    94,197    77,087    153,584 

 

 

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   As of March 31, 2012
(in thousands)
 
   Actual   Pro Forma, as
Adjusted (1)
 
Balance Sheet Data:          
           
Total current assets  $116   $           
Total assets   226      
Total liabilities   25,045      
Total stockholders’  equity (deficit)   (24,819)     

 

(1) Pro forma, as adjusted amounts give effect to (i) the issuance of common stock and warrants from April 1, 2012 through and immediately prior to the date of this prospectus and (ii) the sale of the shares in this offering at the assumed public offering price of $        per share, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us.

 

 

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RISK FACTORS

 

Any investment in our common stock involves a high degree of risk. Investors should carefully consider the risks described below and all of the information contained in this prospectus before deciding whether to purchase our common stock. Our business, financial condition or results of operations could be materially adversely affected by these risks if any of them actually occur. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks we face as described below and elsewhere in this prospectus.

 

Risks Related to our Business 

 

We will need to raise substantial funds, on an ongoing basis, for general corporate purposes and operations, including our clinical trials.  Such funding may not be available or may not be available on attractive terms.

 

As of March 31, 2012, we had approximately $37,000 of cash on hand.  We will need substantial additional funding, on an ongoing basis, in order to continue execution of our clinical trials, to move our product candidates towards commercialization, to continue prosecution and maintenance of our large patent portfolio, to continue development and optimization of our manufacturing and distribution arrangements, and for other corporate purposes.  Any financing, if available, may include restrictive covenants and provisions that could limit our ability to take certain actions, preference provisions for the investors, and/or discounts, warrants or other incentives.  Any financing will involve issuance of equity and/or debt, and such issuances will be dilutive to existing shareholders.  There can be no assurance that we will be able to complete any of the financings, or that the terms for such financings will be attractive. If we are unable to obtain additional funds on a timely basis or on acceptable terms, we may be required to curtail or cease some or all of our operations at any time.

 

We are likely to continue to incur substantial losses, and may never achieve profitability.

 

We have incurred net losses every year since our formation in March 1996, and had a deficit accumulated during the development stage of approximately $251.8 million and $261.9 million as of December 31, 2011 and March 31, 2012, respectively, of which $117.2 million was cash expenditures and $134.6 million was non-cash accounting measures as of December 31, 2011 and $120.7 million was cash expenditures and $141.2 million was non-cash accounting measures as of March 31, 2012. We expect that these losses will continue, and we anticipate negative cash flows from operations for the foreseeable future. We may never achieve or sustain profitability.

 

Our auditors have issued a “going concern” audit opinion.

 

Our independent auditors have indicated, in their report on our December 31, 2011 financial statements, that there is substantial doubt about our ability to continue as a going concern.  A “going concern” opinion indicates that the financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities, that may result if we do not continue as a going concern.  Therefore, you should not rely on our consolidated balance sheet as an indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be available for distribution to shareholders, in the event of liquidation.

 

As a development stage company with a novel technology and unproven business strategy, our limited history of operations makes an evaluation of our business and prospects difficult.

 

We have had a limited operating history and we are still in the process of developing our product candidates through clinical trials.   Our technology is novel and involves mobilizing the immune system to fight a patient’s cancer.  Immune therapies have been pursued by many parties for decades, and have experienced many failures.  In addition, our technology involves personalized treatment products, a new approach to medical products that involves new product economics and business strategies, which have not yet been shown to be commercially feasible or successful.  We have not yet gone through scale-up of our operations to commercial scale.  This limited operating history, along with the novelty of our technology, product economics, and business strategy, and the limited scale of our operations to date, makes it difficult to assess our prospects for generating revenues commercially in the future.

 

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We will need to expand our management and technical personnel as our operations progress, and we may not be able to recruit such additional personnel and/or retain existing personnel.

 

As of June 29, 2012, we employ eight (8) full-time employees.  The rest of our personnel are retained on a consulting or contractor basis.  Biotech companies would typically have a larger number of employees by the time they reach late stage clinical trials.  Such trials require extensive management activities and skill sets, including scientific, medical, regulatory (for FDA and foreign regulatory counterparts), manufacturing, distribution and logistics, site management, business, financial, legal, public relations outreach to both the patient community and physician community, intellectual property, administrative, regulatory (SEC), investor relations and other.

 

In order to fully perform all these diverse functions, with late stage trials under way at many sites across the U.S. and soon in Europe, we will need to expand our management and technical personnel.  However, the pool of such personnel with expertise and experience with living cell products, such as our DCVax immune cell product, is very limited.  In addition, we are a small company with limited resources, our business prospects are uncertain and our stock price is volatile.  For some or all of such reasons, we may not be able to recruit all the management and technical personnel we need, and/or we may not be able to retain all of our existing personnel.  In such event, we may have to continue our operations with a smaller than usual team of personnel, and our business and financial results may suffer.

 

We rely at present on third-party contract manufacturers.  As a result, we may be at risk for capacity limitations and/or supply disruptions.

 

We currently rely upon Cognate BioServices, Inc., or Cognate, to produce all of our DCVax product in the U.S., and to supervise the production of our DCVax product candidates outside the U.S.   The majority owner of Cognate is Toucan Capital, one of our major stockholders, and its affiliates.   We have an agreement in place with Cognate pursuant to which Cognate has agreed to provide manufacturing and other services for the next five years, in connection with our Phase III clinical trial of DCVax -L in brain cancer, and other programs. The agreement requires us to make certain minimum monthly payments to Cognate in order to have dedicated manufacturing capacity available for our products, irrespective of whether we actually order any DCVax products.  The agreement also specifies the amounts we must pay for Cognate's actual manufacturing of DCVax for patients.

 

We have entered into an agreement with King’s College London to manufacture DCVax for our clinical trial and our compassionate use cases. Cognate will manage and supervise the processing in London. In addition, we are currently awaiting authorization to begin manufacturing DCVax in Germany, with our partner Fraunhofer IZI, for our clinical trial and our compassionate use cases. The manufacturing facilities in the UK and Germany will be able to supply DCVax products for anywhere in Europe (and to the U.S., if needed).

 

Problems with the manufacturing facilities or processes of Cognate or our partners in the UK and/or Germany could result in a failure to produce, or a delay in production, of adequate supplies of our DCVax product candidates. A number of factors could cause interruptions or delays, including the inability of a supplier to provide raw materials, equipment malfunctions or failures, damage to a facility due to natural disasters or otherwise, changes in FDA regulatory requirements or standards that require modifications to our manufacturing processes, action by the FDA or by us that results in the halting or slowdown of production of components or finished products due to regulatory issues, our manufacturers going out of business or failing to produce product as contractually required, and/or other similar factors. Because manufacturing processes for our DCVax product candidates are highly complex, require specialized facilities and personnel that are not widely available in the industry, involve equipment and training with long lead times, and are subject to lengthy FDA approval processes, alternative qualified production capacity may not be available on a timely basis or at all. Difficulties, delays or interruptions in the manufacturing and supply of our DCVax product candidates could require us to stop enrolling additional new patients into our trial, and/or require us to stop the trial or other program, increase our costs, damage our reputation and, if our product candidates are approved for sale, cause us to lose revenue or market share if our manufacturers are unable to timely meet market demands.

 

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The manufacturing of our product candidates will have to be greatly scaled up for commercialization, and neither we nor other parties in the industry have experience with such scale-up.

 

As is the case with any clinical trial, our Phase III clinical trial of DCVax -L for GBM involves a number of patients that is a small fraction of the number of potential patients for whom DCVax -L may be applicable in the commercial market.  The same will be true of our other clinical programs with our other DCVax product candidates. If our DCVax –L, and/or other DCVax product candidates, are approved for commercial sale, it will be necessary to greatly scale up the volume of manufacturing, far above its level for the trials.  Neither we nor our contract manufacturers have experience with such scale-up.  In addition, there are virtually no consultants or advisors in the industry who have such experience and can provide guidance or assistance, because active immune therapies such as DCVax are a fundamentally new category of product in two major ways:  these active immune therapy products consist of living cells, not chemical or biologic compounds, and the products are personalized.  To our knowledge, no such products have successfully completed the necessary scale-up for commercialization without material difficulties.  For example, Dendreon has encountered substantial difficulties trying to scale up the manufacturing of its Provenge product for commercialization.

 

The necessary specialized facilities, equipment and personnel may not be available or obtainable for the scale-up of manufacturing of our product candidates.

 

The manufacture of living cells requires specialized facilities, equipment and personnel which are entirely different than what is required for manufacturing of chemical or biologic compounds.  Scaling up the manufacturing of living cell products to volume levels required for commercialization will require enormous amounts of these specialized facilities, equipment and personnel – especially where, as in the case of our DCVax product candidates, the product is personalized and must be made for each patient individually.  Since living cell products are so new, and have barely begun to reach commercialization, the supply of the specialized facilities, equipment and personnel needed for them has not yet developed.  It may not be possible for us or our manufacturers to obtain all of the specialized facilities, equipment and personnel needed for commercialization of our DCVax product candidates.  This could delay or halt our commercialization.

 

Our technology is novel, involves complex immune system elements, and may not prove to be effective.

 

Data already obtained, or in the future obtained, from pre-clinical studies and clinical trials do not necessarily predict the results that will be obtained from later pre-clinical studies and clinical trials. Over the course of several decades, there have been many different immune therapy product designs – and many product failures and company failures. To our knowledge, to date, only one active immune therapy, Provenge, has been approved by the FDA.  The human immune system is complex, with many diverse elements, and the state of scientific understanding of the immune system is still limited.  Some immune therapies previously developed by other parties showed surprising and unexpected toxicity in clinical trials.  Other immune therapies developed by other parties delivered promising results in early clinical trials, but failed in later stage clinical trials.  To date, we have only completed early stage trials in limited numbers of patients.  Although the results of those trials were quite positive, those results may not be achieved in our later stage clinical trials, such as the 300-patient Phase III trial we are now conducting for GBM, and our product candidates may not ultimately be found to be effective.

 

Clinical trials for our product candidates are expensive and time consuming, and their outcome is uncertain.

 

The process of obtaining and maintaining regulatory approvals for new therapeutic products is expensive, lengthy and uncertain. Costs and timing of clinical trials may vary significantly over the life of a project owing to the following non-exclusive reasons:

 

  · the duration of the clinical trial;
  · the number of sites included in the trials;
  · the countries in which the trial is conducted;
  · the length of time required and ability to enroll eligible patients;
  · the number of patients that participate in the trials;
  · the number of doses that patients receive;
  · the drop-out or discontinuation rates of patients;
  · per patient trial costs;
  · third party contractors failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner;
  · our final product candidates having different properties in humans than in lab testing;
  · the need to suspect or terminate our clinical trials;

 

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  · insufficient or inadequate supply of quality of necessary materials to conduct our trials;
  · potential additional safety monitoring, or other conditions required by FDA or comparable foreign regulatory authorities regarding the scope or design of our clinical trials, or other studies requested by regulatory agencies;
  · problems engaging IRBs to oversee trials or in obtaining and maintaining IRB approval of studies;
  · the duration of patient follow-up;
  · the efficacy and safety profile of a product candidate;
  · the costs and timing of obtaining regualtory approvals; and
  · the costs involved in enforcing or defending patent claims or other intellectual property rights.

 

Late stage clinical trials, such as our Phase III clinical trial for GBM patients, are especially expensive, typically requiring tens of millions of dollars, and take years to reach their outcomes.  Such outcomes often fail to reproduce the results of earlier trials.  It is often necessary to conduct multiple late stage trials (including multiple Phase III trials) in order to obtain sufficient results to support product approval, which further increases the expense.  Sometimes trials are further complicated by changes in requirements while the trials are under way (for example, when the standard of care changes for the disease that is being studied in the trial).  Accordingly, any of our current or future product candidates could take a significantly longer time to gain regulatory approval than we expect, or may never gain approval, either of which could delay or stop the commercialization of our DCVax product candidates.

 

We may be required to suspend or discontinue clinical trials due to unexpected side effects or other safety risks that could preclude approval of our product candidates.

 

Our clinical trials may be suspended at any time for a number of reasons. For example, we may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to the clinical trial patients. In addition, the FDA or other regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the clinical trial patients.

 

Administering any product candidate to humans may produce undesirable side effects. These side effects could interrupt, delay or halt clinical trials of our product candidates and could result in the FDA or other regulatory authorities denying further development or approval of our product candidates for any or all targeted indications. Ultimately, some or all of our product candidates may prove to be unsafe for human use. Moreover, we could be subject to significant liability if any volunteer or patient suffers, or appears to suffer, adverse health effects as a result of participating in our clinical trials.

 

We have limited experience in conducting and managing clinical trials.

 

We rely on third parties to assist us, on a contract services basis, in managing and monitoring all of our clinical trials.  We do not have experience conducting late stage clinical trials ourselves without third party service firms, other than our current Phase III trial, nor do we have experience in supervising such third parties in managing late stage, multi-hundred patient clinical trials, other than our current Phase III trial.  Our lack of experience and/or our reliance on these third party service firms may result in delays or failure to complete these trials successfully and on time.  If the third parties fail to perform, we may not be able to find sufficient alternative suppliers of those services in a reasonable time period, or on commercially reasonable terms, if at all. If we were unable to obtain alternative suppliers of such services, we might be forced to delay, suspend or stop our 300-patient Phase III clinical trial  of DCVax -L for GBM.

 

Multiple late stage clinical trials of DCVax-L for GBM, our lead product, may be required before we can obtain regulatory approval.

 

Typically, companies conduct multiple late stage clinical trials of their product candidates before seeking product approval.  Our current Phase III 300-patient clinical trial of DCVax -L for GBM is our first late stage trial.  We may be required to conduct additional late stage trials with DCVax-L for GBM before we can obtain product approval.  This would substantially delay our commercialization. There is also some possibility that changes requested by the FDA could complicate the application process for product approval.  In addition, a number of products are under development for brain cancer and at least one has recently been approved in the US.  It is possible that the standard of care for brain cancer could change while our Phase III trial is still under way.  This could necessitate further clinical trials with our DCVax -L product candidate for brain cancer.

 

Changes in manufacturing methods for DCVax-L could require us to conduct equivalency studies and/or additional clinical trials.

 

With biologics products, “the process is the product”: i.e., the manufacturing process is considered to be as integral to the product as is the composition of the product itself.  If any changes are made in the manufacturing process, and such changes are considered material by the regulatory authorities, the company sponsor may be required to conduct equivalency studies to show that the product is equivalent under the changed manufacturing processes as under the original manufacturing processes, and/or the company sponsor may be required to conduct additional clinical trials.  Our manufacturing processes have undergone some changes during the early clinical trials.  Accordingly, we may be required to conduct equivalency studies, and/or additional clinical trials, before we can obtain product approval, unless the regulatory authorities are satisfied that the changes in processes do not affect the quality, efficacy or safety of the product.

 

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We may not receive regulatory approvals for our product candidates or there may be a delay in obtaining such approvals.

 

Our products and our ongoing development activities are subject to regulation by regulatory authorities in the countries in which we or our collaborators and distributors wish to test, manufacture or market our products. For instance, the FDA will regulate the product in the U.S. and equivalent authorities, such as the European Medicines Agency, or EMA, will regulate in Europe. Regulatory approval by these authorities will be subject to the evaluation of data relating to the quality, efficacy and safety of the product for its proposed use, and there can be no assurance that the regulatory authorities will find our data sufficient to support product approval of DCVax-L .

 

The time required to obtain regulatory approval varies between countries. In the U.S., for products without "Fast Track" status, it can take up to eighteen (18) months after submission of an application for product approval to receive the FDA's decision.  Even with Fast Track status, FDA review and decision can take up to twelve (12) months.  At present, we do not have Fast Track status for our lead product, DCVax-L for GBM. We plan to apply for Fast Track status, but there can be no assurance that FDA will grant us such status for DCVax-L.

 

Different regulators may impose their own requirements and may refuse to grant, or may require additional data before granting, an approval, notwithstanding that regulatory approval may have been granted by other regulators. Regulatory approval may be delayed, limited or denied for a number of reasons, including insufficient clinical data, the product not meeting safety or efficacy requirements or any relevant manufacturing processes or facilities not meeting applicable requirements as well as case load at the regulatory agency at the time.

 

We may fail to comply with regulatory requirements.

 

Our success will be dependent upon our ability, and our collaborative partners’ abilities, to maintain compliance with regulatory requirements, including current good manufacturing practices, or cGMP, and safety reporting obligations. The failure to comply with applicable regulatory requirements can result in, among other things, fines, injunctions, civil penalties, total or partial suspension of regulatory approvals, refusal to approve pending applications, recalls or seizures of products, operating and production restrictions and criminal prosecutions.

 

Regulatory approval of our product candidates may be withdrawn at any time.

 

After regulatory approval has been obtained for medicinal products, the product and the manufacturer are subject to continual review, including the review of adverse experiences and clinical results that are reported after our products are made available to patients, and there can be no assurance that such approval will not be withdrawn or restricted. Regulators may also subject approvals to restrictions or conditions, or impose post-approval obligations on the holders of these approvals, and the regulatory status of such products may be jeopardized if such obligations are not fulfilled. If post-approval studies are required, such studies may involve significant time and expense.

 

The manufacturer and manufacturing facilities we use to make any of our products will also be subject to periodic review and inspection by the FDA or EMA, as applicable. The discovery of any new or previously unknown problems with the product, manufacturer or facility may result in restrictions on the product or manufacturer or facility, including withdrawal of the product from the market. We will continue to be subject to the FDA or EMA requirements, as applicable, governing the labeling, packaging, storage, advertising, promotion, recordkeeping, and submission of safety and other post-market information for all of our product candidates, even those that the FDA or EMA, as applicable, had approved. If we fail to comply with applicable continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approval, product recalls and seizures, operating restrictions and other adverse consequences.

 

Our product candidates will require a different distribution model than conventional therapeutic products, and this may impede commercialization of our product candidates.

 

Our DCVax product candidates consist of living human immune cells.  Such products are entirely different from chemical or biologic drugs, and require different handling, distribution and delivery than chemical or biologic drugs.  One crucial difference is that our DCVax products must remain frozen throughout the distribution and delivery process, until the time of administration to the patient, and cannot be handled at room temperature.  In addition, our DCVax product candidates are personalized and they involve ongoing treatment cycles over several years for each patient.  Each product shipment for each patient must be tracked and managed individually.  For all of these reasons, among others, we will not be able to simply use the distribution networks and processes that already exist for conventional drugs. It may take time for shipping companies, hospitals, pharmacies and physicians to adapt to the requirements for handling, distribution and delivery of these products, which may adversely affect our commercialization.

 

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Our product candidates will require different marketing and sales methods and personnel than conventional therapeutic products.  Also, we lack sales and marketing experience.  These factors may result in significant difficulties in commercializing our product candidates.

 

The commercial success of any of our product candidates will depend upon the strength of our sales and marketing efforts. We do not have a marketing or sales force and have no experience in marketing or sales of products like our lead product, DCVax -L for GBM. To fully commercialize our product candidates, we will need to recruit and train marketing staff and a sales force with technical expertise and ability to manage the distribution of our DCVax -L for GBM. As an alternative, we could seek assistance from a corporate partner or a third party services firm with a large distribution system and a large direct sales force. However, since our DCVax living cell, immune therapy products are a fundamentally new and different type of product than are on the market today, we would still have to train such partner’s or such services firms’ personnel about our products, and would have to make changes in their distribution processes and systems to handle our products. We may be unable to recruit and train effective sales and marketing forces or our own, or of a partner or a services firm, and/or doing so may be more costly and difficult than anticipated.  Such factors may result in significant difficulties in commercializing our product candidates, and we may be unable to generate significant revenues.

 

We may not obtain or maintain the benefits associated with orphan drug status, including market exclusivity.

 

Although our lead product, DCVax -L for GBM, has been granted orphan drug status in both the United States and the European Union, or EU, we may not receive the benefits associated with orphan drug designation (including the benefit providing for market exclusivity for a number of years). This may result from a failure to maintain orphan drug status, or result from a competing product reaching the market that has an orphan designation for the same disease indication.  Under U.S. and EU rules for orphan drugs, if such a competing product reaches the market before ours does, the competing product could potentially obtain a scope of market exclusivity that limits or precludes our product from being sold in the U.S. for seven years or from being sold in the EU for ten years. Also, in the EU, even after orphan status has been granted, that status is re-examined shortly prior to the product receiving any regulatory approval. The EMA must be satisfied that there is evidence that the product offers a significant benefit relative to existing therapies, in order for the therapeutic product to maintain its orphan drug status.  Accordingly, our product candidates will have to re-qualify for orphan drug status prior to any potential product approval in the EU.  

 

The availability and amount of potential reimbursement for our product candidates by government and private payers is uncertain and may be delayed and/or inadequate.

 

 The availability and extent of reimbursement by governmental and/or private payers is essential for most patients to be able to afford expensive treatments, such as cancer treatments.  In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare.  Private payers tend to follow CMS to a substantial degree.  It is difficult to predict what CMS will decide with respect to reimbursement for fundamentally novel products such as ours, as there is no body of established practices and precedents for these new products.  To date, we are aware of only one active immune therapy that has reached the stage of a reimbursement decision (Provenge).  Although CMS approved coverage and reimbursement for Provenge, and private payers followed suit, there remain substantial questions and concerns about reimbursement for Provenge, and such questions and concerns appear to be impeding sales.

 

Various factors could increase the difficulties for our DCVax products to obtain reimbursement.  Costs and/or difficulties associated with the reimbursement of Provenge could create an adverse environment for reimbursement of other immune therapies, such as our DCVax products.  Approval of other competing products (drugs and/or devices) for the same disease indications could make the need for our products and the cost-benefit balance seem less compelling.  The cost structure of our product is not a typical cost structure for medical products, as the majority of our costs are incurred up front, when the manufacturing of the personalized product is done.  Our atypical cost structure may not be accommodated in any reimbursement for our products. If we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell our product candidates will be adversely affected.

 

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The manner and level at which reimbursement is provided for services related to our product candidates (e.g., for administration of our product to patients) is also important.  If the reimbursement for such services is inadequate, that may lead to physician resistance and adversely affect our ability to market or sell our products. 

 

 The methodology under which CMS makes coverage and reimbursement determinations is subject to change, particularly because of budgetary pressures facing the Medicare program. For example, the Medicare Prescription Drug, Improvement, and Modernization Act, or Medicare Modernization Act, enacted in 2003, provided for a change in reimbursement methodology that has reduced the Medicare reimbursement rates for many drugs, including oncology therapeutics.

 

In markets outside the U.S., where we plan to operate in the future, the prices of medical products are subject to direct price controls and/or to reimbursement with varying price control mechanisms, as part of national health systems.  In general, the prices of medicines under such systems are substantially lower than in the U.S. Some jurisdictions operate positive and/or negative list systems under which products may only be marketed once a reimbursement price has been agreed. Other countries allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.   Accordingly, in markets outside the U.S., the reimbursement for our products may be reduced compared with the U.S. and may be insufficient to generate commercially reasonable revenues and profits.

 

Competition in the biotechnology and biopharmaceutical industry is intense and most of our competitors have substantially greater resources than we do.

 

The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products.  Several companies, such as Dendreon, Celldex Therapeutics, Inc., Ark Therapeutics plc, Oxford Biomedica plc, Argos Therapeutics, Inc., Agenus, Inc., Prima Biomed, Ltd., Avax Technologies, Inc., Immunocellular Therapeutics, Ltd., Bavarian Nordic, Bellicum Pharmaceuticals, and others are actively involved in the research and development of immune therapies or cell-based therapies for cancer.  In addition, other novel technologies for cancer are under development, such as the electro-therapy device of NovoCure.  Of these companies, only one has obtained approval of such an immune therapy:  Dendreon (for its Provenge treatment of prostate cancer).  Additionally, several companies, such as Medarex, Inc., Amgen, Inc., Agensys, Inc., and Genentech, Inc., are actively involved in the research and development of monoclonal antibody-based cancer therapies.  Currently, at least seven antibody-based products are approved for commercial sale for cancer therapy, and a large number of additional ones are under development.  Genentech is also engaged in several Phase III clinical trials for additional antibody-based therapeutics for a variety of cancers, and several other companies are in early stage clinical trials for such products. Many other third parties compete with us in developing alternative therapies to treat cancer, including: biopharmaceutical companies; biotechnology companies; pharmaceutical companies; academic institutions; and other research organizations, as well as some medical device companies (e.g., NovoCure and MagForce Nano Technologies AG).

 

We face extensive competition from companies developing new treatments for brain cancer. These include a variety of immune therapies, as mentioned above, as well as a variety of small molecule drugs and biologics drugs. There are also a number of existing drugs used for the treatment of brain cancer that may compete with our product, including, Avastin® (Roche Holding AG), Gliadel® (Eisai Co. Ltd.), and Temodar® (Merck & Co., Inc.), as well as Novocure’s electrotherapy device.

 

Most of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals and marketing and sales than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly if they enter into collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring technologies complementary to our programs, and in obtaining sites for our clinical trials and enrolling patients.

 

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Our competitors may develop more effective or affordable products, or achieve earlier patent protection or earlier product marketing and sales.  Any products developed by us may be rendered obsolete and non-competitive.

 

Competing generic medicinal products may be approved.

 

In the EU, there exists a process for approval of generic biological medicinal products once patent protection and other forms of data and market exclusivity have expired.  Arrangements for approval of generic biologics products exist and are under consideration in the U.S., as well.  Other jurisdictions are considering adopting legislation that would allow the approval of generic biological medicinal products.  If generic medicinal products are approved, competition from such products may substantially reduce sales of our products.

 

We may be exposed to potential product liability claims, and insurance against these claims may not be available to us at a reasonable rate in the future, if at all.

 

Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing, marketing and sale of therapeutic products.  Insurance coverage may not be available to us on commercially reasonable terms (including acceptable cost), if at all.  Insurance that we obtain may not be adequate to cover claims against us.  Regardless of whether they have any merit or not, and regardless of their eventual outcome, product liability claims may result in substantially decreased demand for our product candidates, injury to our reputation, withdrawal of clinical trial participants or physicians, and/or loss of revenues. Thus, whether or not we are insured, a product liability claim or product recall may result in losses that could be material.

 

We store, handle, use and dispose of controlled hazardous, radioactive and biological materials in our business. Our current use of these materials generally is below thresholds giving rise to burdensome regulatory requirements. Our development efforts, however, may result in our becoming subject to additional requirements, and if we fail to comply with applicable requirements we could be subject to substantial fines and other sanctions, delays in research and production, and increased operating costs. In addition, if regulated materials were improperly released at our current or former facilities or at locations to which we send materials for disposal, we could be liable for substantial damages and costs, including cleanup costs and personal injury or property damages, and we could incur delays in research and production and increased operating costs.  

 

Insurance covering certain types of claims of environmental damage or injury resulting from the use of these materials is available but can be expensive and is limited in its coverage. We have no insurance specifically covering environmental risks or personal injury from the use of these materials and if such use results in liability, our business may be seriously harmed.

 

Our intellectual property rights may not provide sufficient commercial protection for our product candidates, or third parties may infringe upon our intellectual property.

 

Patent laws afford only limited protection and may not protect our rights to the extent necessary to sustain any competitive advantage we may have.  In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in those countries.  Moreover patents and patent applications relating to living cell products are relatively new, involve complex factual and legal issues, and are largely untested in litigation – and as a result, are uncertain.

 

As of June 29, 2012, we have over 100 issued patents (7 in the U.S.) and more than 90 pending patent applications related to our product candidates, and related processes such as manufacturing processes.  The issued patents expire at various dates from 2015 to 2026.  Our issued patents may be challenged, and such challenges may result in reductions in scope or invalidations.  Our pending patent applications may not result in issued patents. Moreover, our patents and patent applications may not be sufficiently broad to prevent others from using substantially similar technologies or from developing competing products. We also face the risk that others may independently develop similar or alternative technologies, or design around our patented technologies.

 

We have taken security measures (including execution of confidentiality agreements) to protect our proprietary information, especially proprietary information that is not covered by patents or patent applications. These measures, however, may not provide adequate protection for our trade secrets or other proprietary information. In addition, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to our trade secrets.

 

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We may be exposed to claims or lawsuits – with or without merit – that our products infringe patents or other proprietary rights of other parties.

 

There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally.  The patent landscape is especially uncertain in regard to cell therapy products, as it involves complex legal and factual questions for which important legal principles remain unresolved.  Infringement and other intellectual property claims — with or without merit — can be expensive and time-consuming to litigate and can divert management’s attention.  We have already been exposed to one frivolous patent lawsuit by a large company, which we vigorously defended and forced the large company to withdraw all of the claims made.  We have also been exposed to frivolous claims (without a lawsuit) by a competitor asserting or implying inaccurately that a recent patent issued to them somehow covers our products (which it does not).  In the future, we may again be exposed to claims by third parties – with or without merit — that our products infringe their intellectual property rights.  Such claims or lawsuits may involve substantial costs and diversion of management attention to defend.

 

In addition, because patents can take many years to issue, and patent applications are not published until up to eighteen months after they are filed, there may be currently pending applications, unknown to us, which may later result in issued patents that our products may inadvertently infringe. There could also be existing patents of which we are not aware that one or more of our products may inadvertently infringe.

 

DCVax is our only technology in clinical development.

 

Unlike many pharmaceutical companies that have a number of products in development and which utilize many different technologies, we are dependent on the success of our DCVax platform technology. While the DCVax technology has a wide scope of potential use, and is embodied in several different product lines for different clinical situations, if the core DCVax technology is not effective or is not commercially viable, our business could fail.  We do not currently have other technologies that could provide alternative support for our Company.

 

Collaborations play an important role in our business, and could be vulnerable to competition or termination.

 

We work with scientists and medical professionals at academic and other institutions, including UCLA, among others, some of whom have conducted research for us or have assisted in developing our research and development strategy.  These scientists and medical professionals are collaborators, not our employees. They may have commitments to, or contracts with, other businesses or institutions that limit the amount of time they have available to work with us. We have little control over these individuals. We can only expect that they devote time to us and our programs as required by any license, consulting or sponsored research agreements we may have with them. In addition, these individuals may have arrangements with other companies to assist in developing technologies that may compete with our products. If these individuals do not devote sufficient time and resources to our programs, or if they provide substantial assistance to our competitors, our business could be seriously harmed.

 

The success of our business strategy may partially depend upon our ability to develop and maintain our collaborations and to manage them effectively. Due to concerns regarding our ability to continue our operations or the commercial feasibility of our personalized DCVax product candidates, these third parties may decide not to conduct business with us or may conduct business with us on terms that are less favorable than those customarily extended by them. If either of these events occurs, our business could suffer significantly.

 

We may have disputes with our collaborators, which could be costly and time consuming. Failure to successfully defend our rights could seriously harm our business, financial condition and operating results. We intend to continue to enter into collaborations in the future. However, we may be unable to successfully negotiate any additional collaboration and any of these relationships, if established, may not be scientifically or commercially successful.

 

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Our business could be adversely affected by new legislation and/or product related issues.

 

Changes in applicable legislation and/or regulatory policies or discovery of problems with the product, production process, site or manufacturer may result in delays in bringing products to market, the imposition of restrictions on the product’s sale or manufacture, including the possible withdrawal of the product from the market, or may otherwise have an adverse effect on our business.

 

Our business could be adversely affected by animal rights activists.

 

Our business activities have involved animal testing, as such testing is required before new medical products can be tested in clinical trials in patients.  Animal testing has been the subject of controversy and adverse publicity.  Some organizations and individuals have attempted to stop animal testing by pressing for legislation and regulation in these areas. To the extent that the activities of such groups are successful, our business could be adversely affected.  Negative publicity about us, our pre-clinical trials and our product candidates could also adversely affect our business.

 

Risks Related to our Common Stock and this Offering 

 

There may not be an active, liquid trading market for our Common Stock.

 

Our common stock is currently listed on the Over-The-Counter Bulletin Board, or OTCBB, which is generally recognized as being a less active market than NASDAQ.  The pool of potential investors who may buy and sell on the OTCBB is limited.  Many institutional investors have policies which preclude them from doing so.  You may not be able to sell your shares at the time desired or at the price desired. There may be significant consequences associated with our stock trading on the OTCBB rather than a national exchange. The effects of not being able to list our securities on a national exchange include:

 

·limited dissemination of the market price of our securities;
·limited news coverage;
·limited interest by investors in our securities;
·volatility of our stock price due to low trading volume;
·increased difficulty in selling our securities in certain states due to “blue sky” restrictions; and
·limited ability to issue additional securities or to secure additional financing.

 

The market for our common stock may be limited, because our common stock is subject to “penny stock” rules.

 

Our common stock is subject to the SEC’s “penny stock” rules.  As a result, broker-dealers may experience difficulty in completing customer transactions, and trading activity in our securities may be adversely affected. Under the “penny stock” rules promulgated under the Securities Exchange Act of 1934, as amended, or Exchange Act, broker-dealers who recommend such securities to persons other than institutional accredited investors must:

 

·make a special written suitability determination for the purchaser;
·receive the purchaser’s written agreement to a transaction prior to sale;
·provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny stocks” and which describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and
·obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a “penny stock” can be completed.

 

As a result of these rules, broker-dealers may find it difficult to effectuate customer transactions, and trading activity in our common stock may be adversely affected. As a result, the market price of our common stock may be depressed, and stockholders may find it more difficult to sell our common stock.

 

Your ability to sell your shares in the secondary trading market may be limited, because our common stock is quoted on the OTCBB.

 

Our common stock is currently quoted on the over-the-counter market on the OTCBB, as described above. Consequently, the liquidity of our common stock is quite limited, not only in regard to the number of shares that are bought and sold, but also through delays in the timing of transactions, and lack of coverage by security analysts and the news media of our Company. As a result, prices for shares of our common stock may be lower than might otherwise be the case if our common stock were quoted and traded on NASDAQ or a national securities exchange.

 

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The price of our common stock may be highly volatile.

 

The share prices of publicly traded biotechnology and emerging pharmaceutical companies, particularly companies without consistent product revenues and earnings, can be highly volatile and are likely to remain highly volatile in the future. The price which investors may realize in sales of their shares of our common stock may be materially different than the price at which our common stock is quoted, and will be influenced by a large number of factors, some specific to us and our operations, and some unrelated to our operations.  Such factors may cause the price of our stock to fluctuate frequently and substantially.  Such factors may include large purchases or sales of our common stock, positive or negative events relating to other companies developing immune therapies for cancer, positive or negative events relating to healthcare and the overall pharmaceutical and biotech sector, currency fluctuations, legislative or regulatory changes, and/or general economic conditions.  In the past, shareholder class action litigation has been brought against other companies that experienced volatility in the market price of their shares. Whether or not meritorious, litigation brought against a company following fluctuations in the trading price of its common stock can result in substantial costs, divert management’s attention and resources, and harm the company’s financial condition and results of operations.

 

Toucan Capital and its affiliates are the principal holders of our shares of common stock, and this concentration of ownership may have a negative effect on the market price of our common stock.

 

As of June 29, 2012, Toucan Capital and its affiliates (including Cognate BioServices, Toucan Partners and Linda Powers, who also serves as our Chief Executive Officer and Chairperson of the Board of Directors), collectively, beneficially owned an aggregate of 71,202,148 shares of our common stock, representing approximately 44.7 percent of our issued and outstanding common stock. In addition, as of June 29, 2012, Toucan Capital and its affiliates hold warrants that are exercisable for an aggregate of approximately 36,221,401 shares of our common stock and notes convertible into 6,530,000 shares of our common stock.  This concentration of ownership may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning stock of companies with controlling stockholders.  Toucan Capital and its affiliates have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. This influence could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to investors.

 

The requirements of the Sarbanes-Oxley Act of 2002 and other U.S. securities laws impose substantial costs, and may drain our resources and distract our management.

 

We are subject to certain of the requirements of the Sarbanes-Oxley Act of 2002 in the U.S., as well as the reporting requirements under the Exchange Act.  The Exchange Act requires, among other things, filing of annual reports on Form 10-K, quarterly reports on Form 10-Q and periodic reports on Form 8-K following the happening of certain material events, with respect to our business and financial condition.  The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting.  Our existing controls have some weaknesses, as described below.  Meeting the requirements of the Exchange Act and the Sarbanes-Oxley Act may strain our resources and may divert management's attention from other business concerns, both of which may have a material adverse effect on our business.

 

Our management and our independent auditor have identified internal control deficiencies, which our management and our independent auditor believe constitute material weaknesses.

 

In connection with the preparation of our financial statements for the year ended December 31, 2011, and prior years, our management and our independent auditor identified certain internal control deficiencies that, in the aggregate, represent material weaknesses, including:

 

·lack of a sufficient number of independent directors on our audit committee;
·lack of a financial expert on our audit committee;
·insufficient segregation of duties in our finance and accounting function due to limited personnel;
·lack of controls in place to ensure that all material developments impacting the financial statements are reflected;

 

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·lack of oversight and review of financial reporting;
·lack of internal accounting technical expertise;
·lack of preparation and review and verification of internally developed documentation; and
·lack of executed agreements for significant contracts.

 

As part of our independent auditors’ communications with our audit committee with respect to audit procedures for the year ended December 31, 2011, our independent auditors informed the audit committee that these deficiencies constituted material weaknesses, as defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board, or PCAOB.  We intend to take appropriate and reasonable steps, in due course, to make the necessary improvements to address these deficiencies, but the timing of such steps is uncertain and the availability of funding and resources for such steps are also uncertain.  Our ability to attract qualified individuals to serve on our Board and to take on key management roles within the Company is also uncertain.  Our failure to successfully remedy the existing weaknesses could lead to heightened risk for financial reporting mistakes and irregularities, and/or lead to a loss of public confidence in our internal controls that could have a negative effect on the market price of our common stock.

 

We do not intend to pay any cash dividends in the foreseeable future and, therefore, any return on your investment in our common stock must come from increases in the market price of our common stock.

 

We have not paid any cash dividends on our common stock to date in our history, and we do not intend to pay cash dividends on our common stock in the foreseeable future.  We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business.  Also, any credit agreements which we may enter into with institutional lenders may restrict our ability to pay dividends. Therefore, any return on your investment in our capital stock must come from increases in the fair market value and trading price of our common stock. Such increases in the trading price of our stock may not occur.

 

Substantial amounts of our previously issued common stock are now and/or will soon be eligible for re-sale under Rule 144.  This may have a negative effect on the market price of our common stock.

 

In general, under Rule 144, a person (or persons whose shares are aggregated) who has satisfied a six- month holding period may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of common stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale.   In addition, under certain circumstances Rule 144 also permits the sale of securities, without any limitation, by a person who is not an affiliate of the Company (as such term is defined in Rule 144(a)(1)), and who has satisfied a one-year holding period.

 

As of June 29, 2012, 149,345,623 shares of our common stock were previously issued as restricted securities under Rule 144 of the Securities Act of 1933, as amended. All of such restricted stock has been outstanding for more than six months and all of these shares may be resold without restriction pursuant to Rule 144. If substantial amounts of such shares are sold pursuant to Rule 144, this may have a negative effect on the market price of our common stock.

 

Our certificate of incorporation and bylaws, our shareholder rights plan and Delaware law have anti-takeover provisions that could discourage, delay or prevent a change in control, which may cause our stock price to decline.

 

Our certificate of incorporation and bylaws and Delaware law contain provisions which could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. We are authorized to issue up to 20,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board of directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. No preferred stock is currently outstanding. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management.

 

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Provisions of our certificate of incorporation and bylaws and Delaware law also could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, the certificate of incorporation and bylaws and Delaware law, as applicable, among other things:

 

·provide the board of directors with the ability to alter the bylaws without stockholder approval;
·place limitations on the removal of directors; and
·provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum.

 

We expect to adopt a shareholder rights plan and declare a dividend distribution of one right for each outstanding share of common stock as fixed by our Board of Directors. Each right, when exercisable, will entitle the registered holder to purchase from us               of a share of a new series of preferred stock on the terms stated in the rights plan. The rights will generally separate from the common stock and become exercisable if any person or group acquires or announces a tender offer to acquire 15% or more of our outstanding common stock without the consent of our board of directors. Because the rights may substantially dilute the stock ownership of a person or group attempting to take us over without the approval of our board of directors, our stockholder rights plan could make it more difficult for a third party to acquire us (or a significant percentage of our outstanding capital stock) without first negotiating with our board of directors.

 

We are also subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits “business combinations” between a publicly-held Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that such stockholder became an interested stockholder.

 

These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to first negotiate with its board. These provisions may delay or prevent someone from acquiring or merging with us, which may cause the market price of our common stock to decline.

  

Our management will have broad discretion over the use of the net proceeds from this offering and we may use the net proceeds in ways with which you disagree.

 

We currently intend to use the net proceeds from this offering to fund our research and development activities and working capital and general corporate purposes. We have not allocated specific amounts of the net proceeds from this offering for any of the foregoing purposes. Accordingly, our management will have significant discretion and flexibility in applying the net proceeds of this offering. You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the net proceeds will be invested in a way that does not yield a favorable, or any, return for us or our stockholders. The failure of our management to use such funds effectively could have a material adverse effect on our business, prospects, financial condition, and results of operation.

 

Risks Related to Our Reverse Stock Split

 

You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.

 

You will incur immediate and substantial dilution as a result of this offering. After giving effect to the sale by us of up to   shares offered in this offering at an assumed public offering price of $           per share, and after deducting the underwriter’s discount and estimated offering expenses payable by us, investors in this offering can expect an immediate dilution of $           per share. In addition, in the past, we issued options and warrants to acquire shares of common stock and will issued warrants in this offering. To the extent these options or warrants are ultimately exercised, you will sustain future dilution.

 

Our planned reverse stock split may not increase our stock price sufficiently to enable us to list our common stock on The NASDAQ Capital Market, in which case this offering will not be completed.

 

We expect that the 1-for-       reverse stock split of our outstanding common stock will increase the market price of our common stock so that we will be able to meet the minimum bid price requirement of the Listing Rules of The NASDAQ Capital Market. However, the effect of a reverse stock split upon the market price of our common stock cannot be predicted with certainty, and the results of reverse stock splits by companies in similar circumstances have been varied. It is possible that the market price of our common stock following the reverse stock split will not increase sufficiently for us to be in compliance with the minimum bid price requirement. If we are unable meet the minimum bid price requirement, we may be unable to list our shares on The NASDAQ Capital Market, in which case this offering will not be completed.

 

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Even if the reverse stock split achieves the requisite increase in the market price of our common stock, we cannot assure you that we will be able to continue to comply with the minimum bid price requirement of The NASDAQ Capital Market.

 

Even if the reverse stock split achieves the requisite increase in the market price of our common stock to be in compliance with the minimum bid price of The NASDAQ Capital Market, there can be no assurance that the market price of our common stock following the reverse stock split will remain at the level required for continuing compliance with that requirement. It is not uncommon for the market price of a company’s common stock to decline in the period following a reverse stock split. If the market price of our common stock declines following the effectuation of a reverse stock split, the percentage decline may be greater than would occur in the absence of a reverse stock split. In any event, other factors unrelated to the number of shares of our common stock outstanding, such as negative financial or operational results, could adversely affect the market price of our common stock and jeopardize our ability to meet or maintain The NASDAQ Capital Market’s minimum bid price requirement. In addition to specific listing and maintenance standards, The NASDAQ Capital Market has broad discretionary authority over the initial and continued listing of securities, which it could exercise with respect to the listing of our common stock.

 

Even if the reverse stock split increases the market price of our common stock, there can be no assurance that we will be able to comply with other continued listing standards of The NASDAQ Capital Market.

 

Even if the market price of our common stock increases sufficiently so that we comply with the minimum bid price requirement, there can be no assurance that we will be able to comply with the other standards that we are required to meet in order to maintain a listing of our common stock on The NASDAQ Capital Market. Our failure to meet these requirements may result in our common stock being delisted from The NASDAQ Capital Market, irrespective of our compliance with the minimum bid price requirement.

 

The reverse stock split may decrease the liquidity of the shares of our common stock.

 

The liquidity of the shares of our common stock may be affected adversely by the reverse stock split given the reduced number of shares that will be outstanding following the reverse stock split, especially if the market price of our common stock does not increase following the reverse stock split. In addition, the reverse stock split may increase the number of stockholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.

 

Following the reverse stock split, the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.

 

Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily improve.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

 

This prospectus contains forward-looking statements.  Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events, and they are subject to risks and uncertainties (known and unknown) that could cause actual results and developments to differ materially from those expressed or implied in such statements, including the following:

 

·our ability to raise funds for general corporate purposes and operations, including our clinical trials;
·the commercial feasibility and success of our technology;
·our ability to recruit qualified management and technical personnel;
·our ability to scale up the manufacturing of our product candidates for commercialization;
·the success of our clinical trials;
·our ability to obtain and maintain required regulatory approvals for our products; and
·the other factors discussed in the “Risk Factors” section and elsewhere in this prospectus.

 

In some cases, you can identify forward-looking statements by terminology, such as  “expects,” “anticipates,” “intends,” “estimates,” “plans,” “believes,” “seeks,” “may,” “should”, “could” or the negative of such terms or other similar expressions.  Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them.  Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus.

 

You should read this prospectus and the documents that we reference herein and therein and have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect.  You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only.  Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements.  Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.  New factors emerge from time to time, and it is not possible for us to predict which factors will arise.  In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.  We qualify all of the information presented in this prospectus and any accompanying prospectus supplement, and particularly our forward-looking statements, by these cautionary statements.

 

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USE OF PROCEEDS

  

We estimate that the net proceeds from the sale of the common stock offered pursuant to this prospectus will be approximately $            million, or approximately $            million if the underwriters exercise in full their option to purchase    additional shares, based upon an assumed public offering price of $  per share, and after deducting the underwriting discount and the estimated offering expenses that are payable by us.

 

A $1.00 increase (decrease) in the assumed public offering price of $           per share would increase (decrease) the net proceeds to us from this offering by approximately $            million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

We currently intend to use the net proceeds from this offering to fund our research and development activities and for working capital and general corporate purposes.

 

We have not yet determined the amount of net proceeds to be used specifically for any of the foregoing purposes. Accordingly, our management will have significant discretion and flexibility in applying the net proceeds from this offering. Pending any use as described above, we intend to invest the net proceeds in high-quality, short-term, interest-bearing securities.

 

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PRICE RANGE OF COMMON STOCK

 

Our common stock was traded on NASDAQ under the symbol NWBO from December 14, 2001 to December 23, 2002.  Since December 23, 2002, our common stock has been quoted on the Over The Counter Bulletin Board.  The table below sets forth the high and low prices for our common stock for the last two recent fiscal years. Quotations reflect inter-dealer prices, without retail mark-up, mark-down commission, and may not represent actual transactions. 

 

   High   Low 
         
Year ending December 31, 2012          
First Quarter   0.95    0.72 
Second Quarter (through June 28, 2012)   0.34    0.19 
           
Year ended December 31, 2011          
Fourth Quarter  $0.57   $0.34 
Third Quarter   0.70    0.38 
Second Quarter   0.88    0.38 
First Quarter   0.77    0.34 
           
Year ended December 31, 2010          
Fourth Quarter  $0.85   $0.65 
Third Quarter   1.35    0.67 
Second Quarter   1.60    0.70 
First Quarter   0.95    0.72 

 

The closing price of our common stock on the OTCBB on June 28, 2012 was $0.23 per share.  As of June 28, 2012, we had 212 stockholders of record of our common stock.

 

DIVIDEND POLICY

 

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all future earnings, if any, to fund the ongoing development and growth of our business.  We do not currently anticipate paying any cash dividends in the foreseeable future.

 

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DILUTION

 

If you invest in our common stock, your interest will be immediately and substantially diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after giving effect to this offering.

 

Our pro forma net tangible book value as of March 31, 2012 was $           or $           per share of common stock, based upon           shares outstanding, after giving effect to issuances of convertible debt and warrants from April 1, 2012 through and immediately prior to the date of this offering. After giving effect to the sale of the shares in this offering at the assumed public offering price of $    per share, at March 31, 2012, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us, our pro forma as adjusted net tangible book value at March 31, 2012 would have been approximately    , or $   per share. This represents an immediate increase in pro forma net tangible book value of approximately $   per share to our existing stockholders, and an immediate dilution of $    per share to investors purchasing shares in the offering.

 

Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by purchasers of our common stock in this offering and the pro forma net tangible book value per share of our common stock immediately after this offering.

 

The following table illustrates the per share dilution to investors purchasing shares in the offering:

 

Assumed public offering price per share      $ 
Pro forma net tangible book value per share as of March 31, 2012  $      
Increase  in net tangible book value per share attributable to this offering  $      
Pro forma as adjusted net tangible book value per share after this offering       $ 
Amount of dilution in net tangible book value per share to new investors in this offering       $ 

 

The information above assumes that the underwriters do not exercise their over-allotment option. If the underwriters exercise their over-allotment option in full, the pro forma as adjusted net tangible book value will increase to $          per share, representing an immediate increase to existing stockholders of $          per share and an immediate dilution of $          per share to new investors. If any shares are issued upon exercise of outstanding options or warrants, new investors will experience further dilution.

 

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CAPITALIZATION

 

The following table sets forth our capitalization, as of March 31, 2012:

 

·on an actual basis;

 

·on a pro forma basis to give effect to the issuance of convertible debt and warrants from April 1, 2012 through and immediately prior to the date of this prospectus; and;

 

·on a pro forma, as adjusted basis to give effect to (i) the issuance of convertible debt and warrants from April 1, 2012 through and immediately prior to the date of this prospectus and (ii) the sale of the shares in this offering at the assumed public offering price of $    per share, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us..

 

You should consider this table in conjunction with our financial statements and the notes to those financial statements included elsewhere in this prospectus.

 

   As of March 31, 2012  
   Actual    Pro forma    Pro forma,
as adjusted
 
Stockholders’ equity (deficiency):                
Preferred stock, $0.001 par value, 20,000,000 shares authorized; 0  shares issued and outstanding, actual, pro forma and pro forma, as adjusted  $-    $    $ 
                    
Common stock, $0.001 par value, 450,000,000 shares authorized, 159,278,036 shares issued and outstanding, actual;        and      shares issued and outstanding, pro forma and pro forma, as adjusted, respectively.    160           
                 
Additional paid-in capital   237,140           
Deficit accumulated during the development stage   (261,929)           
Cumulative translation adjustment   (190)           
Total stockholders’ equity(deficiency)   (24,819)           

 

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

 

The following discussion and analysis should be read together with our financial statements and the related notes appearing elsewhere in this prospectus. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.

 

Overview

 

We are a development stage biotechnology company focused on discovering, developing and commercializing immunotherapy products to generate and enhance immune system responses to treat cancer. Data from our clinical trials suggest that our cancer therapies significantly extend both the time to tumor recurrence and patient survival time, while providing a superior quality of life with no debilitating side effects when compared with current therapies.

 

Going Concern

 

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. We have experienced recurring losses from operations and have a deficit accumulated during the development stage, through December 31, 2011 and March 31, 2012 of $251.8 million and $261.9 million, respectively of which $117.2 million was cash expenditures and $134.6 million was non-cash accounting measures as of December 31, 2011 and $120.7 million was cash expenditures and $141.2 million was non-cash accounting measures as of March 31, 2012. Our auditors have issued an opinion, for the year ended December 31, 2011, which states that there is substantial doubt about our ability to continue as a going concern.

 

If we are unable to continue as a going concern, we would consider all opportunities for creating value in the Company, including investigating alternative ways to advance our dendritic cell-based product, such as potential corporate partnerships and/or the possible sale of some or all of our assets.

 

Expenses

 

From our inception through March 31, 2012, we incurred costs of approximately $93.8 million associated with our research and development activities.   We are unable to estimate with any certainty the costs we will incur in the continued development of our product candidates for commercialization, because our technologies are unproven, the outcome of our ongoing clinical trials is uncertain, the regulatory pathway is not yet established for personalized, living cell products like DCVax, and we have no experience yet with the scale-up required for commercialization.

 

Critical Accounting Policies and Estimates

 

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America.  In preparing these financial statements, we make assumptions, judgments and estimates that can have a significant impact on amounts reported in our financial statements.  We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances.  Actual results could differ materially from these estimates under different assumptions or conditions.  On a regular basis we evaluate our assumptions, judgments and estimates and make changes accordingly.  We believe that, of the significant accounting policies discussed in Note 3 to our consolidated financial statements, the following accounting policies require our most difficult, subjective and/or complex judgments:

 

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Policy for Reclassified Equity Contracts

 

We account for potential shares that can be converted to common stock and if converted, will be in excess of authorized shares, as a liability that is recorded on the balance sheet (at fair value) only until the authorized number of shares is increased (at which time the whole liability will be re-measured, with changes in value included in other income/(expense), and then reclassified to additional paid-in capital).

 

Embedded Derivative Liability

 

We evaluate financial instruments for freestanding or embedded derivatives.  Derivative instruments that have been separated from the host contract and do not qualify for hedge accounting are recorded at fair value with changes in value recognized as other income (expense) in the consolidated statements of operations in the period of change.

 

Fair Value Measurements

 

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date.  U.S. GAAP establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  These tiers include:

 

·Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

 

·Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

 

·Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

Stock-Based Compensation

 

Compensation expense for all stock-based awards is measured at the grant date based on the fair value of the award and is recognized as an expense, on a straight-line basis, over the employee's requisite service period (generally the vesting period of the equity award).  The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model.  Stock-based compensation expense is recognized only for those awards that are expected to vest using an estimated forfeiture rate.  Estimates of pre-vesting forfeiture are periodically revised in subsequent periods if actual forfeitures differ from those estimates.  To the extent that actual results differ from our estimates, such amounts will be recorded as cumulative adjustments in the period the estimates are revised.

 

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 (especially in large, multi-center, late stage trials), and general and administrative expenses.

 

Research and development:

 

These expenses include predominantly scientific personnel salaries and benefits, costs of laboratory operations and supplies, travel, regulatory compliance, and expenditures for preclinical and clinical trial operation and management.

 

Because we are a development stage 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.

 

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General and administrative:

 

General and administrative expenses include administrative personnel salaries and benefits, cost of facilities, insurance, travel, legal expenses, and other operating costs, as well as property and equipment depreciation, amortization of stock options and warrants.

 

Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31, 2011

 

We recognized a net loss of $10.2 million for the three months ended March 31, 2012 compared to a net loss of $8.4 million for the three months ended March 31, 2011. The increased loss was primarily attributable to the Company’s increased borrowing costs during the three months ended March 31, 2012.

 

Research and Development Expense. Research and development expense decreased from $4.4 million for the three months ended March 31, 2011 to $3.6 million for the three months ended March 31, 2012. The decrease was primarily attributable to the declining costs associated with the resumption of enrollment in the brain cancer clinical trials.

 

General and Administrative Expense. General and administrative expense was $2.1 million for the three months ended March 31, 2012 compared to $2.3 million for the three months ended March 31, 2011. The decrease was primarily due to a reduction in travel and related consultant expenses.

 

Valuation of reclassified equity contracts. During the three months ended March 31, 2012, the Company recognized a non-cash gain amounting to $491,000 from the decrease in value of reclassified equity contracts. There was no gain or loss for reclassified equity contracts during the same period a year ago, since there were no contracts required to be accounted for as liabilities during the period in 2011.

 

Derivative valuation gain and loss. During the three months ended March 31, 2012 the Company recognized a gain on derivative liabilities of $348,000 due to the change in value of the financial instruments.

 

Interest (Expense). Interest expense increased to $5.2 million for the three months ended March 31, 2012 from $1.5 million for the three months ended March 31, 2011. Interest expense increased for the three-month period ended March 31, 2012 primarily related to the increased borrowing costs and terms of the convertible notes payable that were initiated during the three month period ended March 31, 2012.

 

Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010

 

We recognized a net loss of $32.8 million for the year ended December 31, 2011, of which $14.7 million was cash and $18.1 million was non-cash. This compares to a net loss of $27.4 million for the year ended December 31, 2010, of which $6.4 million was cash and $21 million was non-cash.

 

Research and Development Expense

 

Research and development expense increased to $13.5 million for the year ended December 31, 2011 from $9.9 million for the year ended December 31, 2010. This increase was due to increased clinical trial site and compassionate use activity in the United States and Europe.

 

General and Administrative Expense.

 

General and administrative expense increased to $13.4 million for the year ended December 31, 2011 from $5.5 million for the year ended December 31, 2010. This increase was primarily due to increased clinical trial site costs and financing activities.

 

Depreciation and Amortization

 

Depreciation and amortization increased to $10,000 during the year ended December 31, 2011 from $2,000 for the year ended December 31, 2010 as a result of new assets placed in service.

 

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Conversion inducement

 

Conversion inducement expense increased from $4.7 million in the year ended December 31, 2010 to $7.9 million in the year ended December 31, 2011. These were non-cash accounting charges.

 

The conversion inducement expense relates to the conversion of accounts payable to a related party. During 2011, the Company converted over $9 million of accounts payable into shares of the Company's common stock, which resulted in a non-cash charge of $7.8 million to operations.

 

Derivative valuation gain (loss)

 

On December 31, 2011 the derivative liability associated with the Whitebox loans and warrants issued in connection with certain loans made to other parties in September and October 2011 was revalued resulting in a net change in the fair value of the derivative liability during the twelve months ended December 31, 2011 of $728,000.

 

Valuation of reclassified equity contracts

 

 In 2011, during the course of our financing activities, convertible debt and warrants were issued that provided for the possibility of conversions into a number of common shares that would exceed our authorized and allowed number of common stock. As a result, we recognized a liability for reclassified equity transactions. On February 23, 2012, we amended our articles of incorporation to increase the authorized number of shares of common stock, which resulted in de-recognition (removal) of this liability. We recorded an $8.8 million non-cash gain to operations to record the decrease of this potential liability for 2011. This gain was largely due to the effect of the declining market price of our common stock in reducing the valuations of warrants and convertible debt that had been in excess of the authorized number of shares of common stock.

 

Interest Expense, Net

 

Interest expense decreased from $7.9 million for the year ended December 31, 2010 to $7.6 million for the year ended December 31, 2011. Interest expense includes interest payable on notes payable, debt discount amortization, warrant amortization and other financing costs. Interest expense for the year ended December 31, 2010 and December 31, 2011 was $3.0 million and $1.9 million, respectively, and debt discount amortization and other costs for the year ended December 31, 2010 and December 31, 2011 was $4.9 million and $5.7 million respectively.  The decrease was primarily due to a decrease in the average balance of notes payable outstanding during 2011 compared to 2010 and lower debt discount amortization during 2011 compared to 2010.

 

Liquidity and Capital Resources

 

At March 31, 2012, cash totaled $37,000, compared to $24,000 at December 31, 2011. Working capital was a deficit of $23.7 million at March 31, 2012, compared to a deficit of $50.6 million at December 31, 2011. The working capital deficit decreased as of March 31, 2012 as compared to March 31, 2011 primarily due to the decrease in the liability for reclassified equity contracts in 2012. Cash balances increased during the quarter ended March 31, 2012 as compared to the quarter ended March 31, 2011 due primarily to the financing transactions discussed below that were executed in 2012.

 

The change in cash for the three months ended March 31, 2011 and 2012 was comprised of the following (in thousands):

 

   March 31,   March  31,     
   2011   2012   Change 
Net cash provided by (used in);               
                
Operating activities  $(1,501)  $(3,541)  $(2,040)
Investing activities   -    -    - 
Financing activities   2,436    3,594    1,158 
Effect of exchange rates on cash   (20)   (40)   20 
Increase (decrease) in cash  $915   $13   $(862)

 

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Operating Activities

 

We used $3.5 million in cash for operating activities during the three months ended March 31, 2012 as compared to $1.5 million during the three months ended March 31, 2011. The increase in cash used in operating activities during 2012 was a result of costs associated with the expansion of our ongoing brain cancer clinical trial in the United States, as well as preparation for trials and manufacturing facilities in Europe.

 

Financing Activities

 

During the three months ended March 31, 2012, our financing activities consisted of net proceeds from notes payable amounting to $3.5 million and proceeds from the issuance of common stock amounting to $0.1 million. The increase in the Company's debt financing activities was largely due to the need to raise funding for costs associated with the ongoing Phase III clinical trials in the United States and Europe.

 

We estimate that our current funding is sufficient to enable us to proceed with our current activities under our DCVax -L program. Our ongoing funding requirements will depend on many factors, including the number of staff we employ, the pace of patient enrollment in our brain cancer trial, the cost of establishing clinical studies and compassionate use/named patient programs in other countries, and unanticipated developments. Without additional capital, we will not be able to proceed with significant enrollment in our DCVax -L clinical trial or move forward with compassionate use/named patients programs or with any of our other product candidates for which investigational new drug applications have been cleared by the FDA. We will also be constrained in developing our second generation manufacturing processes, which offer the potential for significant reduction in product costs.

 

 Additional funding will be required in the near future and there can be no assurance that our efforts to seek such funding will be successful. External sources of funding may not be available at time or on terms acceptable to us. If our capital raising efforts are unsuccessful, our inability to obtain additional cash as needed on reasonable terms could have a material adverse effect on our financial position, results of operations and our ability to continue our existence. We may seek additional funds through the issuance of additional common stock or other securities (equity or debt) convertible into shares of common stock, which could dilute the ownership interest of our existing stockholders.

 

Contractual Obligations

 

As of March 31, 2012, we had no contractual commitments, other than contracts entered into in the normal course of its business, which involve material financial obligations.

 

Recent Accounting Pronouncements

 

In June 2011, the Financial Accounting Standards Board issued ASU No. 2011-05, Comprehensive Income or ASU 2011-05. The guidance in ASU 2011-05 revises the manner in which entities present comprehensive income in their financial statements. An entity is required to report the components of comprehensive income in either one or two consecutive financial statements:

 

  A single, continuous statement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income.

 

  In a two-statement approach, an entity must present the components of net income and total net income in the first statement. That statement must be immediately followed by a financial statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.

 

ASU 2011-05 does not change the items that must be reported in other comprehensive income. The amendments in ASU 2011-05 are effective for fiscal years beginning after December 15, 2011 and we adopted this guidance during the three months ended March 31, 2012, and implemented the two-statement approach.

 

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Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.

 

Inflation

 

It is our opinion that inflation has not had a material effect on our operations.

 

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BUSINESS

 

We are a development stage biotechnology company, focused on developing immunotherapy products to treat cancers more effectively than current treatments, without toxicities of the kind associated with chemotherapies, using a proprietary single-batch manufacturing process, on a cost-effective affordable basis, in both the United States and Europe.  We have developed a platform technology, DCVax, which is designed to use activated dendritic cells to mobilize a patient’s own immune system to attack their cancer.  The DCVax technology is expected to be applicable to most cancers, and is embodied in several product lines designed for different cancers.   The DCVax technology has reached late stage development for two different cancers (brain and prostate), with a Phase III clinical trial in glioblastoma multiforme, or GBM, brain cancer patients currently underway, and a Phase III clinical trial in prostate cancer which has been cleared by the U.S. Food and Drug Administration, or FDA, which we anticipate will proceed when we secure a partner. We have also completed a small early stage trial in metastatic ovarian cancer, and have received clearance from the FDA for early stage trials in multiple other diverse cancers.  As of June 29, 2012, our Phase III clinical trial in brain cancer is being conducted at more than 40 sites in the United States, and is expected to begin enrollment in July or August 2012 in the United Kingdom and Germany.

 

Our DCVax immunotherapies are based on a platform technology involving dendritic cells, the master cells of the immune system, and are designed to reinvigorate and educate the immune system to attack cancers. We believe that the market potential of this technology is particularly large because the DCVax products are expected to be applicable to most cancers. We believe that the market potential is also enhanced by our two-continent strategy. By conducting our Phase III clinical trial in GBM patients on an international basis, with trial sites in both the United States and Europe, we believe we are positioned to potentially apply for product approval in both markets.

 

Dendritic cells are the master cells of the immune system, and are able to mobilize all parts of the immune system, including T cells, B cells and antibodies, natural killer cells and many others.  Mobilizing the entire immune system provides a broader attack on the cancer than mobilizing just a particular component, such as T cells alone, or a particular antibody alone.  Likewise, our DCVax technology is designed to attack the full set of biomarkers, or antigens on a patient’s cancer, rather than just a particular selected target or several targets.  Clinical experience indicates that when just one or a few biomarkers on a cancer are targeted by a drug or other treatment, sooner or later the cancer usually develops a way around that drug, and the drug stops working.  We believe that mobilizing all agents of the immune system, and targeting all biomarkers on the patient’s cancer, may contribute to the effectiveness of DCVax.

 

In clinical trials to date, our DCVax treatments have been achieving what we believe to be striking results.  In patients with newly diagnosed GBM, the most aggressive and lethal form of brain cancer, patients treated with full standard of care treatment today (surgery, radiation and chemotherapy), typically have recurrence of their cancer within a median of 6.9 months, and typically die within a median of 14.6 months.     In contrast, our early stage clinical trials showed that patients who received DCVax in addition to standard of care typically did not experience recurrence until approximately 2 years, rather than 6.9 months, and typically lived for approximately 3 years, rather than just 14.6 months.  This data, if reproducible in a larger study, would demonstrate that patients with GBM can derive significant clinical benefit from DCVax treatment. Moreover, long-term follow-up data on the GBM patients treated with DCVax in prior clinical trials show that, as of the most recent update, 33% of the patients have reached or exceeded 4 years’ survival, and 27% of the patients have reached or exceeded 6 years’ survival (as compared with the median survival of 14.6 months with standard of care treatment today).

 

Similar results (i.e., doubling of survival time) have been obtained in patients with late stage prostate cancer, either with or without metastases, in our prostate cancer clinical trial.  Encouraging early results, significantly delaying progression of the cancer, have also been seen in patients in the initial metastatic ovarian cancer clinical trial.

 

Nearly as important in clinical trials to date, there have been no serious adverse events related to study drug. The broad and rapidly growing body of scientific literature about dendritic cells is consistent with the DCVax clinical experience, and provides added support regarding the lack of toxicity.

 

We are developing and positioning DCVax as a front line therapy that could potentially become standard of care.  Accordingly, we are highly sensitive to the cost and affordability of DCVax.  We have spent more than a decade pioneering a unique method of single-batch manufacturing which now results in costs and pricing of DCVax lower than most cancer drugs, even though DCVax is a personalized product.

 

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We have also worked to make DCVax an extremely simple product for both physicians and patients.   DCVax is administered to patients as a simple intra-dermal injection, similar to a flu shot and does not involve any complex procedures for physicians or patients. Unlike chemical or biologic drugs, however, DCVax must remain frozen throughout the distribution and delivery process, until the time of administration to the patient, and cannot be handled at room temperature. Hospitals, pharmacies and physicians may need to adopt new requirements for handling, distribution and delivery of DCVax. 

 

As of June 29, 2012, our Phase III clinical trial in GBM patients is open at more than 40 sites across the United States, with additional sites expected to open before the third quarter of 2012. Based on a partnership with the Fraunhofer IZI Institute, or Fraunhofer, for applied research in Germany, we are now in the process of adding up to 30 additional sites in Germany that will be part of the U.S. trial, with up to half the clinical trial costs being covered by a $5.5 million German government grant to us. After more than a year of training and preparation, Fraunhofer will be in a position to start manufacturing DCVax in Germany, after a final inspection, which took place on June 12, and 13, 2012, and after development of few additional internal procedures which were requested by the inspection authority. We have also partnered with Kings College Hospital in London as the lead clinical trial site in the United Kingdom, and King's College London for the manufacture of DCVax.

 

The manufacturing arrangements at Fraunhofer in Germany and Kings College London in the United Kingdom have been developed (including the training of all personnel) and are being supervised by Cognate BioServices, Inc., our contract manufacturer in the United States, to ensure consistency. Adding these two manufacturing operations carries several important benefits for us: it increases capacity, it provides local operations to satisfy European regulators, and it provides important risk mitigation in case of any disruption in the U.S. manufacturing operation (In such case, we believe our DCVax product could be produced in Europe for the U.S. market). Importantly, both Fraunhofer in Germany and Kings College London in the United Kingdom had existing “cGMP” (clinical grade) manufacturing facilities for cell products, and both of them dedicated their facilities to our programs – which enabled us to engage these two manufacturing facilities without any capital expenditure.

 

We believe that our approach of conducting a Phase III clinical trial of DCVax-L on GBM patients at 80 or more sites in both the United States and Europe gives us the opportunity to potentially obtain product approval in the two largest medical markets in the world.

 

In parallel to our clinical trial program, we are undertaking compassionate use programs in both the United Kingdom and Germany. In the United Kingdom, this program is proceeding under the “Specials” category. In Germany, this program will proceed under the “Hospital Exemption” provided in §4b of the German Drug Act. Both Kings College London and Fraunhofer will manufacture product for these compassionate use cases. In these compassionate use cases, patients who are not eligible for the clinical trial can obtain DCVax. Such cases are not covered by insurance and must be paid for by patients on a self-pay basis.

 

Product Information

 

Immune therapies for cancer

 

Development of effective immune therapies for cancer has long been a goal of the medical and scientific communities.  The human immune system is very powerful, and also very complex:  an “army” with many divisions and many different kinds of weapons.  A diagram of some key agents and weapons of the immune system is set forth below:

 

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Diagram 1:   The immune system “army” includes many diverse agents.  Dendritic cells are the “General” of the army.

 

It has taken decades of research to identify the many different types of agents and weapons, to determine the relationships among them, and to determine how they work together to attack and defeat invaders such as bacteria, viruses and cancers.  While the research was in process, early versions of immune therapies against cancers were tried, with mixed results and a number of failures.  Over the course of the 1990s and 2000s, the first commercially successful category of immune agents to treat cancers emerged:  drugs that consisted of individual antibodies, such as Avastin, Herceptin and Erbitux.

 

Antibodies are just one category of weapon in the overall immune “army,” and there are many, many kinds of individual antibodies within this category.  Each antibody drug, such as Avastin, consists of just a single one of the many kinds of antibodies within this one category of immune weapon.  These drugs do not involve the numerous other important agents in the immune army, such as T cells, NK cells, and so on.

 

Antibody drugs have been moderate medical successes and huge commercial successes.  These drugs have delivered moderate extensions of patient survival compared with traditional chemotherapy drugs, with somewhat lesser (though still significant) toxicity.  On this basis, these antibody drugs are achieving multi-billion dollars per year in sales.

 

Now, more broad based immune therapies are starting to come of age:  “therapeutic vaccines” designed to mobilize the entire immune “army,” rather than just a single agent or single category of agents.   Therapeutic vaccines are similar to preventive vaccines in that they work by mobilizing the immune system.  However, therapeutic vaccines are administered to patients who already have a given disease, for the purpose of preventing or delaying recurrence or progression of the existing disease.

 

Several of the therapeutic vaccines that are now coming of age are focusing on dendritic cells in various ways, or on T cells.  The vaccines focusing on dendritic cells offer a broader potential immune response because dendritic cells are the master cells of the immune system — the “General” of the “army.”  When dendritic cells are activated against a particular pathogen (or cancer) they, in turn, mobilize all of the other agents (including T cells as well as B cells, NK cells and others) to attack that pathogen (or cancer).  The process by which dendritic cells mobilize other agents takes place to a large extent in the lymph nodes. 

 

A major challenge faced by immune therapies for cancer has been that, unlike in a healthy patient with an infectious disease, in cancer patients the dendritic cells fail to do their job, and the other immune agents also fail to do their job.  Pathologists analyzing tumor tissue removed from cancer patients have long observed that there are often substantial numbers of immune cells in the surrounding tissue, but they are not infiltrating and attacking the tumor – as though the immune cells have made it to the doorstep of the tumor and then stopped.

 

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The mechanisms by which cancer cells selectively suppress or block the immune system are still the subject of much research.  It is known that cancer cells have many such mechanisms, including secretion of biochemical signals that jam normal immune signaling, that make tumor cells invisible to immune detection and/or that convey false messages to the immune system.  Different therapeutic vaccines are taking different approaches to trying to overcome these cancer mechanisms and put the immune system back in action.

 

Many of the therapeutic vaccines for cancer (e.g., Cell Genesys, CancerVax) have targeted existing dendritic cells in situ in a patient’s body, by administering various compounds or factors that are designed to attract dendritic cells to the tumor or enhance the tumor signals to the dendritic cells (in essence, making the tumor signals “louder”).

 

We and a few others (e.g., Dendreon) are taking a different approach, based on the belief that existing dendritic cells in situ in a patient’s body are impaired and their ability to receive and process the necessary signals is blocked.  Under this view, if the signaling is blocked, then no matter how “loud” the signal may be, it will not get through and will not achieve the activation needed.

 

The DCVax Technology

 

Our platform technology, DCVax, is a personalized immune therapy which consists of a therapeutic vaccine that uses a patient's own dendritic cells, or DCs, the master cells of the immune system, as the therapeutic agent.  The patient’s DCs are obtained through a blood draw, or leukapheresis.  The DCs are then activated and loaded with biomarkers (“antigens”) from the patient’s own tumor.  The activation shifts the DCs into “attack mode.”  The loading of biomarkers into the DCs  “educates” the DCs about what to attack.  The activated, educated DCs are then isolated with very high purity and constitute the DCVax personalized vaccine.

 

Injection of DCVax,the activated, educated dendritic cells of the patient), back into the patient, through a simple intra-dermal injection, similar to a flu shot, in the upper arm or other location near lymph nodes, initiates a potent immune response against cancer cells, mobilizing the overall immune system and doing so in the natural way, with the numerous immune agents acting in their normal roles and in combination with each other.  In short, DCVax is designed to restore the potent natural functioning of the immune system which has otherwise been impaired or blocked by the cancer.

 

Importantly, each activated, educated dendritic cell has a large multiplier effect, mobilizing hundreds of T cells and other immune cells.  As a result, small doses of such dendritic cells can mobilize large and sustained immune responses.

 

 

Diagram 2:  One Educated Dendritic Cell Activates Hundreds of Anti-Cancer Cells

 

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We believe that at least three key aspects of the DCVax technology contribute to the positive results (described more fully below) seen in clinical trials to date:

 

(1) DCVax is personalized, and targets the particular biomarkers expressed on that patient’s tumor.  Extensive scientific evidence has shown that there is substantial variation in tumor profiles and characteristics among patients with the “same” cancer. The degree of variation is particularly enormous in some of the most aggressive cancers, such as GBM brain cancer and pancreatic cancer.  Cancer drugs are typically keyed to a single target which is believed to be found on the cancer cells’ surface or in one of the cancer cells’ signaling pathways in a substantial percentage of patients with a given type of cancer.  Such drugs can be of no use in patients whose cancers do not happen to express that particular target, or cease expressing that target as the disease progresses.  Most cancer drugs only achieve clinical benefits in a limited percentage of the patients with the type of cancer being targeted (e.g., 25-30% of the patients).  In contrast, DCVax has achieved clinical benefits (i.e., longer delay in disease progression and longer extension of survival than with standard of care treatment) in over 80% of the patients who have received DCVax in clinical trials to date.  Since DCVax is made with biomarkers from the patient’s own tumor, it is tailored to targets that are present on that patient’s cancer.

 

(2) DCVax is designed to target not just one but the full set of biomarkers on the patient’s tumor.  As mentioned above, cancer drugs are typically rifle shots aimed at just one target on a patient’s cancer.  However, cancer is a complex and variable disease.  Tumor profiles vary among patients with the “same” cancer and also vary as the disease progresses. Further, when rifle shot drugs hit individual targets on cancers, the cancers find ways around them (called “escape variants”) – and the rifle shot treatments then usually stop working.  DCVax takes the opposite approach:  instead of aiming at a single target, DCVax is designed to aim at the full set of biomarkers on a patient’s cancer.  Such a treatment approach is expected to make it more difficult for tumors to develop escape variants.

 

(3) DCVax is designed to mobilize the entire immune system, not just one among the many different categories of immune agents in that overall system.  As described above, DCVax is comprised of activated, educated dendritic cells, and dendritic cells are the master cells of the immune system, that mobilize or help the entire immune system.  Some of the prominent cancer drugs today are composed of just one type of antibody – and antibodies themselves are just one type of agent in the overall immune “army” (see Diagram 1 above).  In contrast, the full immune system involves many types of antibodies, and also many other kinds of agents besides antibodies.  Similarly, there have been a variety of early immune therapies that failed in the past.  These, too, typically involved single agents, such as a single one among the many, many types of immune signaling molecules (e.g., a particular interferon or interleukin), or a single type of agent such as T cells alone, etc.  In contrast, dendritic cells mobilize all of these different categories of agents, comprising the whole immune “army,” in combination with each other and in their natural relationships to each other.

 

DCVax Product Lines

 

We have developed several different product lines based on the DCVax technology, to address multiple different cancers and different patient situations.  There are two main components to each DCVax product:  the immune cells, dendritic cells and the cancer biomarkers, antigens.

 

Our DCVax product lines are made from the patient’s own dendritic cells.  Furthermore, the dendritic cells are freshly isolated, newly matured and activated.  We believe that the existing dendritic cells in a cancer patient have already been compromised by the cancer which we believe is the reason other vaccines aimed at the existing dendritic cells in patients have largely failed.  However, the patient’s body continues to produce new precursors of dendritic cells, and these precursors (monocytes) circulate in the patient’s blood stream.  For all DCVax products, these precursors are obtained through a blood draw, and then, through our proprietary manufacturing processes), the precursors are matured into a fresh, uncompromised batch of new dendritic cells.

 

The antigen component, which is combined with the fresh, personalized dendritic cells, varies among the DCVax product lines.

 

DCVax-L – is made with cancer antigens from tumor lysate (a protein extract from processed tumor cells) from the patient’s own tumor tissue.  As such, DCVax-L incorporates the full set of tumor antigens, making it difficult for tumors to find ways around it (“escape variants”), as described above.  This is the DCVax product that has been used in our brain cancer and ovarian cancer clinical trials, and is expected to be used for most other cancers in situations in which the patient has their tumor surgically removed as part of standard of care.

 

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DCVax-Direct, – is designed for situations in which it is not feasible or not desirable for patients to have their tumors surgically removed.  This includes situations in which patients have multiple metastases, or for other reasons cannot have their tumors removed.   Like DCVax-L, this DCVax product also incorporates the full set of tumor antigens – but it does so in situ in the patient’s body rather than at the manufacturing facility.  With DCVax Direct, the fresh, new dendritic cells are partially matured in a special way so as to be ready to pick up antigens directly from tumor tissue in the patient’s body, and are then injected directly into the patient’s tumor(s).  There, the dendritic cells pick up the antigens in situ rather than picking up the antigens from lysate in a lab dish at the manufacturing facility, as is done with DCVax-L.

 

DCVax-Prostate – is designed specifically for late stage, hormone independent prostate cancer.  Such cancer involves the spread of micro-metastases beyond the prostate tissue.  In most patients, there is no focal tumor which can be surgically removed and used to make lysate, or into which dendritic cells can be directly injected instead, the cancer cells are diffuse.  We have developed a DCVax product line using a particular proprietary antigen – PSMA (Prostate Specific Membrane Antigen) – which is found on essentially all late stage (hormone independent) prostate cancer.  The PSMA is produced through recombinant manufacturing methods, and is then combined with the fresh, personalized dendritic cells to make DCVax-Prostate.

 

Simplicity of DCVax for Physicians and Patients

 

All of the DCVax product lines are designed to be very simple for both physicians and patients, to fit within existing medical practices and procedures, and to be deliverable in virtually any clinic or doctor’s office.   A number of complex, sophisticated and proprietary technologies are required for the production and frozen storage of DCVax, but these technologies are mostly deployed at the manufacturing facility and do not entail any effort or involvement by physicians or patients.

 

Front-end simplicity

 

For all DCVax product lines, the precursors (monocytes) for the fresh, new dendritic cells are obtained through a blood draw.  This blood draw can be done not only at the hospital or cancer center where the patient is being treated, but at any blood center such as the Red Cross.

 

For DCVax-L, the collection of the patient’s tumor tissue, which is to be used to make lysate and provide the antigen component of the vaccine, involves a simple kit.  The kit consists of a box with a vial which has a grinder top and is pre-loaded with a proprietary mix of enzymes.  Such kits can be kept on hand like any inventory item at medical centers.  In the operating room, after the tumor has been surgically removed, instead of disposing of the tissue in the medical waste, the nurse or technician chops the tissue coarsely and drops it into the vial, puts the vial back into the box, and hands the box to a courier pick-up service such as FedEx’s or UPS’ life science division, or a specialized courier such as World Courier.

 

For DCVax-Direct and DCVax-Prostate, there is no tumor tissue collection involved.

 

Back-end simplicity

 

For all DCVax products, administration to the patient involves a simple injection.  All DCVax products are stored frozen in single doses.  Such doses are tiny, and require less than 5 minutes to thaw.   DCVax must remain frozen throughout the distribution and delivery process, until the time of administration to the patient, and cannot be handled at room temperature. Hospitals, pharmacies and physicians may need to adopt new requirements for handling, distribution and delivery of DCVax.

 

There are no handling steps at the point of care except thawing the frozen DCVax product to room temperature.   There are also no lengthy intravenous infusions.  DCVax-L and DCVax-Prostate are administered through a simple intra-dermal injection, similar to a flu shot, and are just a few drops in size.   With the absence of handling steps at the point of care, and the simple intra-dermal injection, these DCVax products can be delivered to patients in any clinic or doctor’s office.

 

The simplicity for patients also lies in the fact that DCVax appears to be non-toxic.  Patients may not have to take a second set of drugs to manage side effects of DCVax.  

 

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Clinical Programs and Clinical Trial Results

 

Overall Clinical Pipeline

 

Over the last ten years, we have built a robust clinical pipeline with DCVax products for multiple cancers, which we believe provides us with multiple opportunities for success.  Our lead products, DCVax-L for GBM brain cancer and DCVax-Prostate for late stage prostate cancer, have reached late stage clinical trials.    In addition to these, our DCVax-L has also been applied in an early stage trial for metastatic ovarian cancer, and other DCVax products have been cleared by the FDA to begin early stage trials in multiple other cancers. 

  

The results seen in patients who received DCVax treatments in our early stage clinical trials have been quite consistent.  More than 80% of patients who received DCVax in trials to date have shown clinical benefits (longer delays in disease progression and longer extension of survival than with standard of care), compared with only 25-30% of patients showing clinical benefits with typical cancer drugs.   Further, the clinical effects observed were largely consistent across diverse types of cancer, diverse patient profiles including, age, gender, physical condition, and different stages of disease. Nearly as important, in clinical trials to date, there have been no serious adverse events related to study drug.

 

Brain Cancer (GBM)

 

As discussed above, GBM is the most aggressive and lethal type of brain cancer.  With full standard of care treatment today, including surgery, radiation and chemotherapy the cancer recurs in a median of just 6.9 months and kills the patient in a median of just 14.6 months.  There has been very little improvement in clinical outcomes for GBM patients in the last 30 years.  The incidence of GBM appears to be on the rise, for unknown reasons, and there is an urgent need for new and better treatments.

 

Our Prior Clinical Trials

 

We with our collaborator, Dr. Linda Liau, have conducted two prior Phase I clinical trials at UCLA with DCVax-L for GBM brain cancer. These trials consisted of 30 patients with newly diagnosed GBM and recurrent GBM. The newly diagnosed patients who received DCVax in addition to standard of care treatment typically did not have recurrence for a median of approximately 2 years, more than triple the usual time, and survived for a median of approximately 3 years, approximately 2-1/2 times the usual period attained with standard of care treatment.

 

Furthermore, a substantial percentage of patients who received DCVax in the prior clinical trials have continued far beyond even the 3 year median survival.  As of the latest long-term data update in July, 2011, 33% of the patients had reached or exceeded 4 years’ median survival and 27% had reached or exceeded 6 years’ median survival compared with 14.6 months median survival with full standard of care treatment today.

 

 

 

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Although the number of patients in our prior clinical trials for GBM has been limited, the difference in clinical outcomes with DCVax has been very large relative to outcomes with standard of care treatments, and it has attained a high level of statistical significance rarely seen, even in clinical trials with much larger numbers of patients. This data, if reproducible in a larger study, would demonstrate that patients with GBM can derive significant clinical benefit from DCVax treatment.

 

The measure of statistical significance, or “p value,” measures the probability that a set of clinical results are a fluke.  Accordingly, the smaller the “p value,” the smaller the chance that the results are random and the higher the statistical significance of the results.  The FDA generally requires that the results of clinical trials reach a “p value” of .05 or less, meaning that there is a 5% or less chance that the trial results were due to chance or random events.

 

The clinical results in our two prior clinical trials with DCVax for GBM, with a small number of patients, achieved the following “p values”:

 

·For the delay in time to recurrence, from 6.9 months with standard of care to approximately 2 years in patients treated with DCVax, the “p value” was .00001 (i.e., a 1 in 100,000 chance that these results were random events). In general, the FDA requires a p value of 0.05 or less for product approval (i.e., a 5 in 100 chance or less that the clinical trial results were random events).

 

·For the extension of survival time, from 14.6 months with standard of care to approximately 3 years in patients treated with DCVax, the “p value” was .0003 (i.e., a 3 in 10,000 chance that these results were random events). In general, the FDA requires a p value of 0.05 or less for product approval (i.e., a 5 in 100 chance or less that the clinical trial results were random events).

 

Following up on these results, in 2007-2008, we designed and began a 140-patient randomized, controlled Phase II trial but without a placebo and without blinding (which can only be achieved with a placebo that is indistinguishable from the new treatment being tested), as no placebo had been developed for a living cell product like DCVax.  Unfortunately, without a placebo and blinding, patients who were randomized to the control group in the trial knew that this was the case – and, not surprisingly, they tended to drop out of the trial.  As a result, that 140-patient Phase II trial had to be stopped and a placebo had to be developed to enable blinding, so that patients would not know whether they were receiving DCVax or a placebo.

 

Placebos to look indistinguishable from various kinds of pills have been made for decades, but creating a placebo to be indistinguishable from living cells in a vial (such as the living immune cells that comprise DCVax) was a new and difficult challenge.  Not only must the placebo look indistinguishable from the DCVax visually , it must also not have any positive functional action of its own that would muddy the trial results.  After considerable work, we succeeded in developing such placebo arrangements and re-designing the Phase II trial to accommodate them, including nearly doubling the number of patients (from 140 to 240 patients).  

 

We obtained a new FDA clearance and re-approvals by all the clinical sites, and commenced the new Phase II trial in early 2009. In an amendment to the clinical trial protocol which became effective on May 3, 2012, the FDA, among other things, accepted the redesignation of this trial from a Phase II to a Phase III.

 

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Our Current Phase III Clinical Trial

 

The ongoing Phase III clinical trial in GBM patients is open, and offers a relatively short timeline of approximately fourteen (14) months to a major milestone, namely, reaching full enrollment of the 300-patient trial.  

 

Within just a few months after the enrollment milestone, another major milestone is expected to be reached, namely the primary endpoint of the trial. This endpoint will be the time to disease progression (recurrence of the tumor) in the group treated with DCVax vs. in the control group.  The milestone is based on 110 “events” among the total 300 patients (with an “event” being disease progression/recurrence or death). 

 

As of June 29, 2012, there are more than 40 clinical sites open and operating for the trial across the United States with more expected to be operational by the third quarter of 2012. Based on a partnership with Fraunhofer IZI Institute, or Fraunhofer for applied research in Germany, we are now adding up to 30 additional sites in Germany that will be part of the U.S. trial, with up to half the clinical trial costs being covered by a $5.5 million German government grant to us. After more than a year of training and preparation, we expect that Fraunhofer will be in a position to start manufacturing DCVax in Germany, after a final inspection, which took place on June 12, and 13, 2012, and after development of few additional internal procedures which were requested by the inspection authority. We have also partnered with Kings College Hospital in London as the lead clinical trial site in the United Kingdom, and King's College London for the manufacture of DCVax.

 

The manufacturing arrangements at Fraunhofer in Germany and Kings College London in the United Kingdom have been developed (including the training of personnel) and are being managed and supervised by Cognate BioServices, Inc., our contract manufacturer in the United States, to ensure consistency. Adding these two manufacturing operations carries several important benefits for us: it increases capacity, it provides local operations to satisfy European regulators, and it provides important risk mitigation in case of any disruption in the U.S. manufacturing operation. (In such case, DCVax product can be produced in Europe for the US market.) Importantly, both Fraunhofer in Germany and Kings College London in the United Kingdom had existing “cGMP” (clinical grade) manufacturing facilities for cell products, and both of them dedicated their facilities to our programs – which enable us to engage these two manufacturing facilities without any capital expenditure.

 

We believe that our approach of conducting a Phase III clinical trial of DCVax-L on GBM patients at 80 or more sites in the United States and Europe will potentially give us the opportunity to obtain product approval in the two largest medical markets in the world.

 

In parallel to our clinical trial program, we are undertaking compassionate use programs in both the United Kingdom and Germany. In the United Kingdom, this program will proceed under the “Specials” category. In Germany, this program will proceed under the “Hospital Exemption” provided in §4b of the German Drug Act. Both Kings College London and Fraunhofer will manufacture product for these compassionate use cases. In these compassionate use cases, patients who are not eligible for the clinical trial can obtain DCVax. Such cases are not covered by insurance and must be paid for by patients on a self-pay basis.

 

Prostate Cancer

 

Prostate cancer is the most common cancer in men in the U.S., accounting for more than 25% of all cancers in men, and nearly twice as many cases per year as lung cancer in men, according to the American Cancer Society.  For late stage prostate cancer, there is a pressing unmet need for new treatments.  This late stage cancer includes two subsets of patients, comprising two distinct markets:  (A) about 80-85% of patients do not yet show metastases, have a last good period of life, and typically live for about 36 months; and (B) about 15-20% of patients have more aggressive disease, show metastases right away, and only live for about 18 months.  Nearly 100,000 men reach these late stages of prostate cancer every year in the United States alone (with similar numbers in Europe). Yet, even today, there is no FDA approved drug specifically for the patients in group A, who comprise the vast majority of late stage prostate cancer patients.

 

For the patients in group B, there are only two FDA approved drugs:  taxotere (docetaxil) and Provenge.  Taxotere adds about 10 weeks of survival, in only a limited percentage of patients, and has toxic side effects.   The Provenge immune therapy developed by Dendreon Corporation adds about 4 months (16 weeks) of survival.

 

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We believe that DCVax-Prostate can offer a much needed treatment for late stage prostate cancer patients in group A, for whom there is no treatment specifically approved by FDA today.  In addition, for patients in group B, for whom there are now two FDA approved treatments, we believe that DCVax-Prostate can offer a much longer extension of survival, and lower pricing.

 

Our Prior Clinical Trials

 

Clinical experience with DCVax-Prostate dates back more than a decade, and has reached the Phase III trial stage.  More than one hundred patients were treated with DCVax-Prostate in an academic clinical setting in the mid and late 1990s.  Based on encouraging results from those treatments, we undertook a Phase I/II clinical trial with 35 patients at two leading clinical centers:  MD Anderson and UCLA.  Based upon positive results from that trial, we designed a large 612-patient, Phase III clinical trial, and previously obtained FDA clearance to proceed with this trial.  The details of these clinical programs are described below.

 

The Phase III prostate cancer trial is our second lead program, after the brain cancer program.  The Phase III trial will require funding in the range of $50 million to $60 million.  We plan to finance that trial on a non-dilutive basis, through corporate partnering or through revenue based financing.

 

Our clinical development of DCVax-Prostate has focused from the outset on patients with late stage, “hormone independent” prostate cancer.  Prostate cancer typically progresses through three stages:  (i) early stage, following diagnosis, when surgery or brachytherapy, a procedure where radioactive seeds are implanted into the prostate tissue, are typical treatments;   (ii) mid stage, which can last for a number of years, when hormone therapy is used to keep the cancer under control and confined to the prostate; and (iii) late stage, when hormone treatments fail, the cancer becomes “hormone independent,” spreads and becomes lethal.

 

Our Phase I/II clinical trial conducted at MD Anderson and UCLA included both subsets of hormone independent prostate cancer patients:  group A, without visible metastases, and group B, with metastases.  As is standard for Phase I/II trials, ours was a single arm trial – all patients in the trial received the DCVax treatment. For group A patients, the information below shows a comparison of our clinical results with the natural course of the disease in group A (for whom there is no established standard of care treatment). For group B patients, the information below shows a comparison of our clinical results with the results reported in clinical trials and clinical practice with the only two treatments that are currently FDA approved for these patients (Taxotere and Provenge). The results of this clinical trial were as follows:

 

Group A:  Hormone Independent Prostate Cancer Patients Without Metastases*

 

    Natural Course of Disease   With DCVax-Prostate
Median time to disease progression
(appearance of bone metastases)
  28-34 weeks   59 weeks
         
Median survival   36 months   >54 months and continuing**
         
        **(more than half of these
        patients still alive
        as of 12/31/05-last data followup)

 

* To our knowledge, there are no FDA approved drugs specifically for this group of patients.

 

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Group B:  Hormone Independent Prostate Cancer Patients With Metastases

 

    With Standard of Care     With         
    (Taxotere)     Provenge     With DCVax-Prostate  
Median survival     18.9 months       25.9 months       38.7 months  
                         
Overall survival at 3 years     11 %      33 %     64 %

  

Thus, in the prior Phase I/II clinical trial, patients without metastases (group A) who were treated with DCVax-Prostate typically lived at least 1-1/2 years longer than patients going through the natural course of the disease.

 

Patients with metastases (group B) who were treated with DCVax-Prostate lived twice as long as patients typically do with standard of care, receiving the drug taxotere, and more than a year longer than Dendreon has reported that such patients lived when treated with its Provenge immune therapy in the clinical trials upon which FDA approval of Provenge was based.

 

Following these positive results in both group A and group B patients, we determined to focus our Phase III clinical trial on the patients in group A, because 80-85% of late stage prostate cancer patients fall into this group, while only 15-20% fall into group B.  In contrast, Dendreon focused its clinical trials on the group B patients, and obtained FDA approval only for that group of patients.  Thus, the addressable market for our DCVax-Prostate will be at least four times the size of the addressable market for Provenge.

 

Target Markets

 

Since DCVax is expected, ultimately, to be applicable to most types of cancers, we believe the potential market for DCVax can be very large.  According to the American Cancer Society, 1 in 2 men, and 1 in 3 women in the U.S. will develop some form of cancer in their lifetime.  There are nearly 1.5 million new cases of cancer per year in the U.S., and nearly 600,000 deaths from cancer.  The statistics are similar in Europe and in much of the rest of the world.

 

Even focusing just on the two DCVax products which have already reached late stage clinical trials – for GBM brain cancer and for hormone independent prostate cancer, as described above –we believe that the target markets for each of these have very large (billion dollar) revenue potential.

 

Brain cancer

 

Brain cancers fall into two broad categories:  primary (meaning the cancer first originates in the brain) and metastatic (meaning the cancer first appears elsewhere in the body, but subsequently metastasizes to the brain).  In the U.S. alone, on an annual basis, there are some 40,000 new cases of primary brain cancer, and 160,000 new cases of metastatic brain cancer. The numbers are similar in Europe and the rest of the world.

 

Within the category of primary brain cancer, Grade 4 GBM is the most aggressive and lethal type.  Among the 40,000 new cases of primary brain cancer per year in the US, at least 12,000 cases are GBM (with some estimates as high as 17,000) and the incidence is increasing.

 

In addition, brain cancer is a serious medical problem in children 18 years and under.  It is the second most frequent type of childhood cancers (after leukemias) and, following progress in reducing death rates from leukemias, it is now the leading cause of childhood cancer deaths.

 

Very little has changed in the last 30 years in the treatment and clinical outcomes for GBM.   With all standard of care treatment today – surgery, radiation and chemotherapy – patients still die within a median of about 14.6 months from diagnosis.  

 

The one drug which has become the standard of care chemotherapy treatment for GBM, Temodar, achieved market saturation extremely rapidly, within two years of product launch.  Temodar added 10 weeks of survival (extending survival from its historical 12 months to the 14.6 months typical today), and did so in a limited percentage of patients.  Other drugs approved by FDA for GBM, such as Avastin, did not extend survival at all.

 

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Against this backdrop, we believe DCVax is well positioned for this target market.  Further, after seeking regulatory approval for DCVax for the GBM subset of primary brain cancers, in the future we plan to conduct clinical trials and seek approval for other primary brain cancers and for metastatic brain cancers.

 

We believe that the market potential of DCVax for brain cancer, even under conservative assumptions, is very large.   For example, if one counts only GBM cases (and not other primary brain cancers nor any metastatic brain cancers), only in the U.S. and Europe (and not rest of world), and one assumes a 50% market share (compared with Temodar whose market share rapidly reached saturation), the number of cases to be treated with DCVax would be 12,000 per year.  

 

Prostate cancer

 

We also believe that the market potential of DCVax for prostate cancer is very large, even under conservative assumptions.  Prostate cancer is the most common cancer in men.  At least 217,000 new cases per year are diagnosed in the U.S. alone, according to the American Cancer Society, with similar numbers in Europe.  Among these, at least 100,000 new cases reach late stage prostate cancer each year in the U.S. (with similar numbers in Europe).

 

Among these 100,000 new late stage prostate cancer cases per year, 80-85% of the patients have no visible metastases, and only 15-20% already have visible metastases.  As noted above, in prior clinical trials, patients in both groups were treated with DCVax, and both groups showed positive results (substantial extensions of survival, far beyond existing treatment options – including Provenge).  We are focusing our Phase III trial on the much larger market:  patients without visible metastases, comprising 80-85% of the 100,000 new cases per year in the U.S.

 

If one counts only those 80-85,000 late stage patients, only in the U.S. (not counting either Europe or rest of world), and one assumes only a 25% market share (compared with Taxotere, whose market share is very high despite adding only 10 weeks of survival), the number of cases to be treated with DCVax would be 20-21,000 cases per year.  

 

Manufacturing of DCVax

 

We believe that our proprietary manufacturing process for DCVax products is the key to our favorable product economics, and we are positioning DCVax to be a potential front line therapy that can be provided to patients everywhere.  We have spent more than a decade honing this manufacturing process.

 

We have pioneered a manufacturing model under which at least 3 years of treatments are produced in one large batch in each manufacturing cycle.  In addition, we have implemented special cryopreservation methods which enable this multi-year quantity of product to be frozen, and kept frozen for years, while maintaining its potency.

 

Both of these technologies, the multi-year batch manufacturing and the cryopreservation, are essential elements of our manufacturing model and product economics.  Together, they enable us to incur the high costs of manufacturing just one time, and then store the multi-year quantity of product, frozen, in single doses.  This makes DCVax effectively an “off the shelf” product for the patient, even though it is personalized, and enables the price of DCVax to be at or below the price level of modern, non-personalized cancer drugs while still achieving reasonable profit margins.  This is already the case while we are using first generation manufacturing, without automation and have not yet scaled up to obtain significant economies of scale.  We believe that both automation and economies of scale will further enhance the product economics.

 

Our manufacturing process has been replicated at Kings College in England and the Fraunhofer Institute in Germany so that the same efficiencies and quality controls will be present for the DCVax produced both in Europe and the United States

 

Our manufacturing process takes about 8 days, followed by quality control and sterility testing.  It involves several main steps as follows:

 

Isolation of Precursors.  The precursors of new dendritic cells are isolated from the patient's white blood cells, which were obtained through a blood draw and sent to the manufacturing facility.

 

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Differentiation of Precursors into Immature Dendritic Cells.  Precursors are differentiated (transformed) into immature dendritic cells through a six-day culture period, during which specific growth factors are applied in a manner that mimics the natural process in a healthy person's body.

 

Maturation of Dendritic Cells.  Immature dendritic cells are exposed to proprietary maturation factors and methods.

 

Antigen Display and Activation of Dendritic Cells.  Cancer-associated antigens or antigen fragments obtained from the patient’s own tumor tissue or, for prostate cancer, produced recombinantly, are added to the maturing dendritic cells.  The dendritic cells ingest and process the antigen materials, and then display fragments on their outer cell surfaces (which will serve to pass along the activation signals from these dendritic cells to other agents in the immune system, such as T cells and B cells, when the dendritic cells are injected back into the patient.

 

Harvest. These matured and activated new dendritic cells are isolated with very high purity, and divided into single-dose vials.  They are then frozen and stored until needed.

 

We contract out the manufacturing of our DCVax products to Cognate BioServices, Inc. or Cognate.  Although there are many contract manufacturers for small molecule drugs and for biologics, Cognate is one of only three major contract manufacturers in the U.S. that specialize in producing living cell products.  The manufacturing of living cell products is highly specialized and entirely different than production of biologics:  the physical facilities and equipment are different, the types of personnel and skill sets are different, and the processes are different.

 

In addition, the regulatory requirements for living cell products are exceptionally difficult to meet particularly, for personalized living cell products, which can vary considerably from patient to patient.  We believe that among companies developing such living cell products, nearly all cases in which clinical trials have been put on clinical hold (i.e., stopped) by FDA have been because of product or manufacturing related issues.

 

Cognate has a leading regulatory track record.  According to Cognate, the Cognate team has been responsible for the product and manufacturing aspects of more than 20 INDs (applications for FDA approval of clinical trials) for living cells products, and all of these INDs have been approved by FDA.  Moreover, the Company believes, based upon information provided by Cognate, that no client of Cognate has been put on clinical hold in connection with its product.

 

Cognate’s manufacturing facility for clinical-grade cell products is located in Memphis, Tennessee, near the airport.  Memphis is a worldwide air shipping hub for both Federal Express and UPS.  Cognate's facility is approximately 35,000 square feet and contains substantial expansion space in addition to the portions currently built out and in use.  The current manufacturing facilities are sufficient to produce DCVax for at least 2,000 patients per year – an amount in excess of what is needed for the late stage clinical trial under way.  There is a large amount of  expansion space, which is already planned for build -out in stages to allow for scale -up of production capacity in a modular fashion as the need increases for commercialization. This would allow Cognate's current facility to increase to a total capacity of some 5,000 patients per year.  In addition, the manufacturing arrangements with Fraunhofer in Germany and Kings College London in the United Kingdom provide further manufacturing capacity and flexibility. As a comparison, Dendreon commercially launched its Provenge dendritic cell vaccine for prostate cancer with initial manufacturing capacity for only 2,000 patients per year.

 

Intellectual Property and Orphan Drug Designation

 

We have an integrated strategy for protection of our technology through both patents and other mechanisms, such as Orphan Drug status.  As of June 29, 2012, we have over 100 issued patents (7 in the U.S.), and more than 90 pending patent in the U.S. and abroad. These issued and pending patents are grouped into 18 patent families.  Some cover the use of dendritic cells in particular DCVax products.  Others cover key processes for manufacturing and quality control for DCVax, as well as an automated system which we believe will play a major role in the scale-up of production for large numbers of patients on a cost-effective basis.

 

The expiration dates of the issued patents range from 2015 to 2026.  For some of the earlier dates, we plan to seek extensions of the patent life, and believe we have reasonable grounds for doing so.

 

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In addition to our patent portfolio, we have obtained Orphan Drug designation for our lead product,  DCVax-L for brain cancer.   Such designation brings with it a variety of benefits, including potential market exclusivity for seven years in the U.S. and ten years in Europe if our product is the first of its type to reach the market.

 

Many industrialized countries, including the U.S. and the European Union, have long-established legislation to incentivize companies to develop therapies for diseases which occur in less than a specified number of patients per year, and are referred to as “Orphan Diseases.”  Under U.S. law, Orphan Diseases can involve up to 200,000 cases.  Companies who develop new treatments for such diseases can obtain substantial incentives, including enhanced access to advice from the FDA while the drug is being developed, and market exclusivity once the product reaches approval and begins sales, provided that the new product is first to market.  This market exclusivity applies regardless of patents, according product exclusivity on the market even if the company that developed it has no patent coverage on the product.   In addition, the time period for such market exclusivity does not begin to run until product sales begin.  In contrast, the time period of a patent begins when the patent is filed and runs down during the years while the product is going through development and clinical trials.

 

In order to qualify for these incentives, a company must apply for designation of its product as an “Orphan Drug” and obtain approval from the FDA, or its counterpart, abroad.  In addition, for the market exclusivity, a product must be either the first of its kind for a particular disease to reach the market, or clinically superior to a product currently on the market.   The U.S. and the European Union separately granted an Orphan Drug designation for our DCVax-L product for GBM.

 

Competition

 

The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products.  Several companies, such as Dendreon, Celldex Therapeutics, Inc., Ark Therapeutics plc, Oxford Biomedica plc, Argos Therapeutics, Inc., Agenus, Inc., Prima Biomed, Ltd., Avax Technologies, Inc., Immunocellular Therapeutics, Ltd., Bavarian Nordic, Bellicum Pharmaceuticals and others are actively involved in the research and development of immune therapies or cell-based therapies for cancer.  In addition, other novel technologies for cancer are under development, such as the electro-therapy device of NovoCure.  Of these companies, only one has obtained approval of such an immune therapy:  Dendreon (for its Provenge treatment of prostate cancer).  Additionally, several companies, such as Medarex, Inc., Amgen, Inc., Agensys, Inc., and Genentech, Inc., are actively involved in the research and development of monoclonal antibody-based cancer therapies.  Currently, at least seven antibody-based products are approved for commercial sale for cancer therapy, and a large number of additional ones are under development.  Genentech is also engaged in several Phase III clinical trials for additional antibody-based therapeutics for a variety of cancers, and several other companies are in early stage clinical trials for such products. Many other third parties compete with us in developing alternative therapies to treat cancer, including: biopharmaceutical companies; biotechnology companies; pharmaceutical companies; academic institutions; and other research organizations, as well as some medical device companies (e.g., NovoCure and MagForce Nano Technologies AG).

 

We face extensive competition from companies developing new treatments for brain cancer. These include a variety of immune therapies, as mentioned above, as well as a variety of small molecule drugs and biologics. There are also a number of existing drugs used for the treatment of brain cancer that may compete with our product, including, Avastin® (Roche Holding AG), Gliadel® (Eisai Co. Ltd.), and Temodar® (Merck & Co., Inc.).

 

Most of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, pre-clinical testing, conducting clinical trials, obtaining regulatory approvals and marketing and sales than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly if they enter into collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, as well as in acquiring technologies complementary to our programs, and in obtaining sites for our clinical trials and enrolling patients.

 

Our Website

 

Our website address is www.nwbio.com. Information found on our website is not incorporated by reference into this report.

 

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Employees

 

As of June 29, 2012, we had 8 full-time and 2 part-time employees. We believe our employee relations are satisfactory.

 

Legal Proceedings

 

On March 1, 2011, we entered into a transaction under Section 3(a)(10) of the Securities Act of 1933, as amended with Socius CG II, Ltd. (“Socius”).  Pursuant to this 3(a)(10) transaction, Socius purchased certain claims for payment totaling $1,650,000 from Cognate.  Thereafter, Socius elected to convert the claims into shares of our Common Stock.  The conversion was effected through a settlement agreement between Socius and us.  The settlement agreement was then the subject of a court proceeding (nominally brought by Socius against us, but handled on a cooperative basis through a Joint Stipulation by both parties) in order to obtain court approval of the settlement in accordance with the requirements of Section 3(a)(10).  That Court approval was obtained on March 1, 2011.  Pursuant to the settlement, the full amount of the $1,650,000 debt was converted into shares of Common Stock and the transaction with Socius was completed.

 

From time to time, we are involved in claims and suits that arise in the ordinary course of our business.  At present, we are not involved in any suits other than an action by a creditor with respect to certain disputed amounts. Although management currently believes that resolving any such claims against us will not have a material adverse effect on our business, financial position or results of operations, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

 

Properties

 

On November 30, 2009, we terminated a Sublease Agreement for the space we used as its headquarters at 7600 Wisconsin Avenue, Suite 750, Bethesda, Maryland. Our obligation will be approximately $127,000 in 2012 and will involve similar amounts for subsequent years until the obligation is paid in full.

 

On March 17, 2010, we entered into a non-cancelable operating lease for 7,097 square feet of office space in Bethesda, Maryland, which expires in September 2012.  Future minimum lease payments under the lease are $126,027 in 2012.

 

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MANAGEMENT

 

Executive Officers and Directors

 

The following table sets forth the names and ages of the members of our Board of Directors and our executive officers and the positions held by each as of June 29, 2012. 

 

Name   Age   Position
Linda F. Powers   56   Director, Chairperson, Chief Executive Officer
Alton L. Boynton, Ph.D.   68   Director, Chief Scientific Officer
Anthony Maida, Ph.D.   59   Chief Operating Officer
Leslie Goldman   66   Senior Vice President, Business Development
Marnix Bosch, Ph.D.   52   Chief Technical Officer
Robert A. Farmer   72   Director
Dr. Navid Malik   43   Director
Jerry Jasinowski   69   Director

 

All directors hold office until the next annual meeting of stockholders and the election and qualification of their successors. Officers are elected annually by the board of directors and serve at the discretion of the board.

 

Executive Biographies

 

The principal occupations for the past five years (and, in some instances, for prior years) of each of our directors and executive officers are as follows:

 

Linda F. Powers.   Ms. Powers has served as the Chairperson of our Board of Directors since her appointment on May 17, 2007 and Chief Executive Officer since June 8, 2011. Ms. Powers served as a managing director of Toucan Capital Fund II, a provider of venture capital, for a decade, starting in 2001. She also has over 15 years’ experience in corporate finance and restructurings, mergers and acquisitions joint ventures and intellectual property licensing.  Ms. Powers is a board member of M2GEN (an affiliate of Moffitt Cancer Center), the Trudeau Institute (a specialized research institute focused on immunology), the Chinese Biopharmaceutical Association, and the Rosalind Franklin Society. She was the Chair of the Maryland Stem Cell Research Commission for the first two years of the state’s stem cell funding program, and continues to serve on the Commission. Ms. Powers served for several years on a Steering Committee of the National Academy of Sciences, evaluating government research funding, and has been appointed to three Governors’ commissions created to determine how to build the respective states’ biotech and other high-tech industries.  For six years, Ms. Powers taught an annual internal course at the National Institutes of Health for the bench scientists and technology transfer personnel on the development and commercialization of medical products.  Ms. Powers serves on the boards of six private biotechnology companies.  Ms. Powers holds a B.A. from Princeton University, where she graduated magna cum laude and Phi Beta Kappa. She also earned a JD, magna cum laude, from Harvard Law School.  We believe Ms. Powers’ background and experience makes her well qualified to serve as a Director.

 

Alton L. Boynton, Ph.D.   Dr. Boynton co-founded our company, has served as our Chief Scientific Officer and a Director since our inception in 1998, was appointed our Chief Operating Officer in August 2001, was appointed President in May, 2003, and served as Chief Executive Officer from June, 2007, to June, 2011. Prior to founding our company, Dr. Boynton headed the Molecular Oncology research lab at the Pacific Northwest Research Foundation (the original foundation of Bill Hutchinson, from which the Fred Hutchinson Cancer Center was spun off). Dr. Boynton has also served as Director of the Department of Molecular Medicine of Northwest Hospital from 1995-2003 where he coordinated the establishment of a program centered on carcinogenesis. Prior to joining Northwest Hospital, Dr. Boynton was Associate Director of the Cancer Research Center of Hawaii, The University of Hawaii, where he also held the positions of Director of Molecular Oncology of the Cancer Research Center and Professor of Genetics and Molecular Biology. Dr. Boynton received his Ph.D. in Radiation Biology from the University of Iowa in 1972. As a result of Dr. Boynton’s significant years of service as a director and running a number of programs focusing on oncology and cancer-related research programs, including a Ph.D. in Radiation Biology, we concluded that Dr. Boynton is well qualified to serve as a Director.

 

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Anthony E. Maida joined our company in June, 2011, as Chief Operating Officer bringing more than 20 years' experience in building oncology companies, with expertise in the business, financial, clinical and regulatory aspects of and the underlying science of oncology business.  Over these two decades, Dr. Maida has held positions as Chairman, CEO, COO, CSO, CFO and VP Business Development.  Among these experiences, he served as CEO of CancerVax Corporation, an early leader in cancer vaccines.  In that role, he was responsible for conducting multi-hundred patient, multi-center clinical trials with the company's cancer vaccines.  Prior to joining us, Dr. Maida was serving as global head of oncology for a leading contract research organization that manages clinical trials in the U.S. and internationally.

 

Leslie J. Goldman joined us as Senior Vice President, Business Development, in June, 2011. Prior to joining us, Mr. Goldman was a partner at the law firm of Skadden, Arps for over 30 years, specializing in a wide array of advanced technologies and their commercialization.    Mr. Goldman also serves as an advisor to a number of other technology companies.  In addition, for eight years, Mr. Goldman has served as Chairman of the Board of a group of TV stations in four mid-size cities across the country.

 

Marnix L. Bosch joined us in 2000, and has been serving as Chief Technical Officer for a number of years.  In this capacity, he plays a key role in the preparation and submission of our regulatory applications, as well as ongoing development of our product lines, and ongoing development and/or acquisition of new technologies.  Dr. Bosch led the process of designing the protocols, and managed the successful preparation and submission of our Investigational New Drug (IND) applications for FDA approval to conduct clinical trials, for prostate cancer, brain cancer and multiple other cancers.  He also led the processes for other regulatory submissions in both the U.S. and abroad (including the successful applications for orphan drug status in both the U.S. and Europe for DCVax-L for brain cancer).  He spearheaded the development of our manufacturing and quality control processes, and is working with Cognate on next-generation further development of these processes.  Prior to joining us in 2000, Dr. Bosch worked at the Dutch National Institutes of Health (RIVM) as head of the Department of Molecular Biology, as well as in academia as a professor of Pathobiology.  He has authored more than 40 peer-reviewed research publications in immunology and virology, and is an inventor on several patent applications on dendritic cell product manufacturing.

 

Robert A. Farmer was appointed to the Board of Directors in December 2009. Mr. Farmer served as the national treasurer of four presidential campaigns, including those for John Kerry, Bill Clinton, Michael Dukakis and John Glenn.  In these roles he led fundraising of over $800 million. He served under Ron Brown as treasurer of the Democratic National Committee, and served for eight years as treasurer of the Democratic Governor’s Association.  President Clinton appointed Farmer as the United States Consul General to Bermuda, where he served from 1994 to 1999. Mr. Farmer also had a successful career as an entrepreneur, including building his own publishing company, which he sold in 1983.  Mr. Farmer currently serves on the Boards of Directors of International Data Group, Dale Carnegie Associates, Sober Steering Sensors, LLC, Charlesbridge Publishing, and Haute Living.  Mr. Farmer is a graduate of Dartmouth College and Harvard Law School. The Company n four presidential campaigns and his service on other boards of directors (including International Data Group, Dale Carnegie Associates, Sober Steering Sensors and Clark Ridge Publishing). We believe Mr. Farmer’s background and experience make him well qualified to serve as a Director.

 

Dr. Navid Malik was appointed to the Board of Directors in April 2012. Dr. Navid Malik is the Head of Life Sciences Research at Cenkos Securities Plc. in the U.K., an independent specialist institutional securities firm.  From September 2011 through January 2012, Dr. Malik was the Head of Life Sciences Research at Sanlam (Merchant Securities), a global financial services firm. Dr. Malik was Partner and Head of Life Sciences at Matrix Investment Banking Division, Matrix Group, a financial services firm in London, from December, 2008, through September, 2011. Dr. Malik was a Senior Pharmaceuticals and Biotechnology Analyst at Wimmer Financial LLP from September, 2008, through December, 2008, and was the Senior Life Sciences Analyst at Collins Stewart Plc from January, 2005, through September, 2008. In 2011, Dr. Malik was awarded two Starmine Awards (awarded each year by Thomson Reuters and the Financial Times): Number One Stock Picker in the European Pharmaceutical Sector, and Number Two Stock Picker in the UK and Ireland Healthcare Sector. Dr. Malik holds a PhD in Drug Delivery within Pharmaceutical Sciences, as well as degrees in Biomedical Sciences Research (M.Sc.) and Biochemistry and Physiology (B.Sc., joint honors).  Dr. Malik also holds an MBA in finance from the City University Business School, London. We believe that Dr. Malik’s extensive experience in the life sciences fields and investment banking sector make him well qualified to serve as a Director.

 

Jerry Jasinowski was appointed to the Board of Directors in April 2012. Mr. Jasinowski currently serves on the boards of Procurian and the Washington Tennis and Education Foundation and has held directorships in several other companies since 1990. From 2004 through 2007, Mr. Jasinowski has served as the Founder and President of the Manufacturing Institute, an organization dedicated to improving and expanding manufacturing in the United States. Mr. Jasinowski was also the President and CEO of the National Association of Manufactures, a trade association with 13,000 corporate members. Mr. Jasinowski holds an A.B. in Economics from Indiana University and an M.A in Economics from Columbia University. We concluded that Mr. Jasinowski should serve on its board of directors because of his extensive board experience across a wide range of manufacturing, technology, and financial firms, including Fortune 1000 and Fortune 500 companies. We believe Mr. Jasinowski’s background and experience make him well qualified to serve as a Director.

 

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Family Relationships

 

None.

 

Involvement in Certain Legal Proceedings

 

To our knowledge, during the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has been:

 

the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

 

convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or any Federal or State authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;

 

found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law;

 

the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (a) any Federal or State securities or commodities law or regulation; (b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

 Board Leadership Structure

 

The Board believes that Ms. Powers’ service as both Chairman of the Board and Chief Executive Officer is in our best interest and our stockholders best interests. Ms. Powers possesses detailed and in-depth knowledge of the issues, opportunities, and challenges facing us, and is thus best positioned to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters. Her combined role enables decisive leadership, ensures clear accountability, and enhances our ability to communicate our message and strategy clearly and consistently to our stockholders, employees and partners.

 

Director Independence

 

Our board of directors has determined that a majority of the board consists of members who are currently “independent” as that term is defined under current listing standards of NASDAQ. The board of directors considers Messrs. Farmer, Malik and Jasinowski to be independent.  

 

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Audit Committee

 

The Audit Committee has responsibility for recommending the appointment of our independent accountants, supervising our finance function (which includes, among other matters, our investment activities), reviewing our internal accounting control policies and procedures, and providing the Board such additional information and materials as it may deem necessary to make the Board aware of significant financial matters which require the attention of the Board. The Audit Committee provides the opportunity for direct contact between our independent registered public accounting firm and the Board. The Board has adopted a written charter for the Audit Committee.

 

The Audit Committee currently consists of Messrs. Farmer, Malik and Jasinowski. Our board of directors considers each of Messrs.  Farmer, Malik and Jasinowski as “independent” as that term is defined under applicable SEC and NASDAQ rules.

 

Mr. Jasinowski meets the definition of an “audit committee financial expert” as defined by the SEC.

 

Compensation Committee

 

The Compensation Committee is responsible for determining the overall compensation levels of our executive officers and administering our stock option plans. The board has adopted a written charter for the Compensation Committee and its current members are Messrs. Farmer, Malik and Jasinowski. Our board of directors has determined that all of the members are “independent” under the current listing standards of NASDAQ.

 

Corporate Governance/Nominations Committee

 

The Corporate Governance/Nominating Committee has responsibility for assisting the board of directors in, among other things, effecting board organization, membership and function including identifying qualified board nominees; effecting the organization, membership and function of board committees including composition and recommendation of qualified candidates; establishment of and subsequent periodic evaluation of successor planning for the chief executive officer and other executive officers; development and evaluation of criteria for Board membership such as overall qualifications, term limits, age limits and independence; and oversight of compliance with the Corporate Governance Guidelines. The Corporate Governance/Nominating Committee shall identify and evaluate the qualifications of all candidates for nomination for election as directors. Potential nominees are identified by the Board of Directors based on the criteria, skills and qualifications that have been recognized by the Corporate Governance/Nominating Committee. While our nomination and corporate governance policy does not prescribe specific diversity standards, the Corporate Governance/Nominating Committee and its independent members seek to identify nominees that have a variety of perspectives, professional experience, education, difference in viewpoints and skills, and personal qualities that will result in a well-rounded Board of Directors.

 

The Corporate Governance/Nominating Committee currently consists of Messrs. Farmer, Malik and Jasinowski. The Board of Directors has determined that all of the members are “independent” under the current listing standards of NASDAQ. The Board of Directors has adopted a written charter setting forth the authority and responsibilities of the Corporate Governance/Nominating Committee.

 

Board of Directors’ Role in Risk Oversight

 

The Board plays an active role in risk oversight of us. The Board does not have a formal risk management committee, but administers this oversight function through various standing committees of the board of directors. The Audit Committee maintains responsibility for oversight of financial reporting-related risks, including those related to our accounting, auditing and financial reporting practices. The Audit Committee also reviews reports and considers any material allegations regarding potential violations of the Company’s Code of Ethics. The Compensation Committee oversees risks arising from our compensation policies and programs. This Committee has responsibility for evaluating and approving our executive compensation and benefit plans, policies and programs. The Nominations/Corporate Governance Committee oversees corporate governance risks and oversees and advises the Board with respect to our policies and practices regarding significant issues of corporate responsibility.

 

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Summary Compensation Table

 

The following table sets forth certain information concerning compensation paid or accrued to our named executive officers (the “Named Executive Officers”) during the years ended December 31, 2011 and 2010. The Option Awards shown in the table below do not constitute cash or value actually received by the named executive officer. Instead, the amounts shown are the non-cash aggregate fair values of Option Awards that were granted during the periods presented but were then subject to vesting requirements. The majority of the Options were not vested and will not vest unless certain milestones are met in the future, or certain employment period requirements are met in the future. With respect to the portion of the Options that did vest, in the case Ms. Powers and Mr. Goldman, upon vesting all of those Options became subject to an extended lock-up (until the earlier of 18 months or the Company reaching the primary endpoint of its GBM brain cancer clinical trial).

 

Name and Principal Position  Year   Salary   Bonus   Option
Awards

Total 
                     
Linda M Powers
President, Chairperson & Chief Executive Officer
   2011   $203,308   $   $9,262,133 $9,465,441 
    2010   $   $   $ $ 
                           
Alton L. Boynton, Ph.D. (1)
Chief Scientific Officer
   2011   $334,732   $   $1,547,963 $1,882,695 
President, Chief Executive   2010   $359,528   $   $ $359,528 
Officer, Chief Scientific Officer  and Secretary                          
                           
Anthony Maida, Ph.D.   2011   $160,384   $   $814,182 $974,566 
Chief Operating Officer   2010   $   $   $ $ 
                           
Leslie Goldman   2011   $149,092   $   $1,465,527 $1,614,619 
Senior Vice President,   2010   $   $   $ $ 
Business Development                          
                           
Marnix L. Bosch, Ph.D., M.B.A.   2011   $339,362   $20,000   $1,192,963 $1,552,325 
Chief Technical Officer   2010   $431,652   $   $ $431,652 

 

(1) Dr. Boynton resigned as Chief Executive Officer on June 8, 2011 and was appointed Chief Scientific officer on the same day.

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table shows outstanding stock option awards classified as exercisable and un-exercisable as of December 31, 2011.

 

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   Number of Securities Underlying
Unexercised Options
        
Name and Principal Position  Exercisable   Un-exercisable   Option
Exercise
Price ($)
   Option
Expiration
Date
                
Linda Powers
President & Chief Executive
   -(1)   14,220,000   $0.66   6/21/2018
                   
Alton Boynton
Chief Scientific Officer
   1,406,562(2)   970,000   $0.66   6/21/2018
    5,286(6)      $18.75   4/18/2014
    2,016(6)      $1.35   2/18/2016
    1,430,846(7)      $0.55   8/20/2022
                   
Anthony Maida
Chief Operating Officer
   30,000(3)   1,220,000   $0.66   6/21/2018
                   
Leslie Goldman
Senior Vice President
   -(4)   2,250,000   $0.66   6/21/2018
                   
Marnix Bosch
Chief Technical Officer
   861,536(5)   970,000   $0.66   6/21/2018
    333(8)      $18.75   9/20/2014
    833(8)      $75.00   1/10/2015
    3,194(8)   139   $1.35   2/18/2016
    4,000(8)   1,333   $1.80   12/1/2016
    308,338(9)   541,662   $0.70   6/23/2022
    250,000(10)      $0.55   8/20/2022

 

(1) In conjunction with the employment agreement entered into between us and Ms. Powers on June 8, 2011, and in recognition of Ms. Powers’ service to our company while serving as Chair during the preceding four years, we granted Ms. Powers an option to purchase 14,220,000 shares of our stock with an exercise price of $0.66 per share. One-third of the options vested on the grant date, and upon vesting became subject to a lock-up which extends to the earlier of 18 months or our reaching the primary endpoint of its GBM brain cancer clinical trial.  One-third of the options will vest in equal monthly portions over the term of the employment agreement.  The remaining one-third will vest in portions tied to material milestones in multiple programs, if and to the extent those milestones are achieved.

 

(2) In conjunction with the employment agreement entered into between us and Dr. Boynton on June 8, 2011, we issued Dr. Boynton an option to purchase 2,376,562 shares of our stock with an exercise price of $0.66 per share. 1,376,562 options vested on the grant date. 120,000 options will vest in equal monthly portions over the term of the employment agreement. The remaining 880,000 options will vest in portions tied to material milestones in multiple programs, if and to the extent those milestones are achieved.

 

(3) In conjunction with the employment agreement entered into between us and Dr. Maida on June 8, 2011, we issued Dr. Maida an option to purchase 1,250,000 shares of our stock with an exercise price of $0.66 per share. No options vested on the grant date. 120,000 options will vest in equal monthly portions over the term of the employment agreement. The remainder will vest in portions tied to material milestones in multiple programs, if and to the extent those milestones are achieved.

 

(4) In conjunction with the employment agreement entered into between us and Mr. Goldman on June 8, 2011, we issued Mr. Goldman an option to purchase 2,250,000 shares of our stock with an exercise price of $0.66 per share. One-third of the options vested on the grant date, and upon vesting became subject to a lock-up which extends to the earlier of 18 months or our reaching the primary endpoint of our GBM brain cancer clinical trial. One-third will vest in equal monthly portions over the term of the employment agreement. The remaining one-third will vest in portions tied to material milestones in multiple programs, if and to the extent those milestones are achieved.

 

(5) In conjunction with the employment agreement entered into between us and Dr. Bosch on June 8, 2011, we issued Dr. Bosch an option to purchase 1,831,536 shares of our stock with an exercise price of $0.66 per share. 831,536 options vested on the grant date. 120,000 options will vest in equal monthly portions over the term of the employment agreement. The remaining 880,000 options will vest in portions tied to material milestones in multiple programs, if and to the extent those milestones are achieved.

 

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(6) These options were granted under the 1999 Plan, the 2001 Plan and under Dr. Boynton’s previous employment agreement. Each of these option grants vests over a four year period. One-fourth of each option grant vests on the first anniversary of the grant date and the remaining three-fourths of each grant vests in equal monthly installments over the remaining three year vesting period.

 

(7)  This option was granted under the 2007 Stock Option Plan. The options were granted August 21, 2009 and vested over a one year period and are exercisable over a 10 year period from issuance at a price of $0.55 per share.

 

(8)  This option was granted under the 2007 Stock Option Plan.  This option grant vested over the balance of 2009 with 1,132,464 vesting on the grant date and the remainder vesting in equal installments on August 31, September 30, October 31, November 30 and December 31, 2009.

 

(9)  These options were granted under the 1999 Plan and the 2001 Plan. Each of these option grants vests over a four year period. One-fourth of each option grant vests on the first anniversary of the grant date and the remaining three-fourths of each grant vests in equal monthly installments over the remaining three year vesting period.

 

(10)  This option was granted under the 2007 Stock Option Plan.  This option grant vested over the balance of 2009 with 125,000 vesting on the grant date and the remainder vesting on December 31, 2009.

 

Director Compensation

 

The following table sets forth certain information concerning compensation paid or accrued to our non-executive directors during the year ended December 31, 2011.

 

Name   Year     Fees Earned
or Paid
in Cash
    All Other
Compensation(1)
    Total  
Robert A. Farmer     2011     $ 25,000     $     $ 25,000  

 

(1) Robert Farmer was also issued 33,313 shares of our stock at $0.67 per share for his services to the Board of Directors.

 

Only non-employee directors receive director fees. Effective June 22, 2007, we were required to pay Linda F. Powers, as Chairperson and a non-executive member of the Board of Directors, approximately $100,000 per annum for her services. These payments effectively ended subsequent to Ms. Powers assuming the position of Chief Executive Officer. Also effective December 10, 2009 we were required to issue Robert A. Farmer $50,000 per annum for his services as a non-executive member of the Board of Directors. During 2011, Mr. Farmer elected to take 50% of his 2011 directors’ fee in our common stock.

 

Compensation Committee Interlocks and Insider Participation

  

None of our executive officers served during our last completed fiscal year as a director of any other entity whose executive officers served as a director on our Board or as a member of our Compensation Committee.

 

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Employment Agreements

 

Linda Powers

 

On June 8, 2011, we entered into an employment agreement with Linda Powers, pursuant to which Ms. Powers serves as our CEO. The agreement provides for an annual compensation of $360,000 and options to purchase 14,220,000 shares of our common stock at an exercise price of $0.66 per share. One third of the options vested upon execution of the employment agreement, 1/3 vest monthly over the term of the agreement and the remaining 1/3 vest according to certain performance milestones. The employment agreement is for a term of two years and can be terminated at any time by either party. If the Agreement is terminated without cause, Ms. Powers is entitled to three months severance; provided however, such payment shall be conditional and shall terminate in the event Ms. Powers obtains employment prior to the expiration of the three month period. If Ms. Powers is terminated without cause, all options that may be earned under the agreement and which have not yet been issued/vested will accelerate and become fully vested under certain conditions. Ms. Powers is not entitled to severance if she resigns or is terminated for Cause, as defined in the agreement. If Ms. Powers is terminated for cause, all vested options will expire thirty days from such termination and all other options will lapse immediately. In the event of Ms. Powers’ resignation upon at least 45 days notice, Ms. Powers shall not forfeit any issued/vested options. However, if Ms. Powers provides more than 30 days notice but less than 45 days notice then she shall forfeit all options issued/vested in the preceding 60 days, and shall forfeit all options which were issued/vested during the preceding 90 days if less than 30 days notice is provided. In the event of a change in control, as defined in the agreement, all options that may be earned under the agreement and which have not yet been issued/vested will accelerate and become fully vested. The agreement includes non-competition, non-solicitation, non-disparagement, confidentiality and indemnifications provisions.

 

Dr. Anthony Maida

 

On June 21, 2011, we entered into an employment agreement with Dr. Anthony Maida pursuant to which Dr. Maida serves as our Chief Operating Officer. The agreement provides for an annual compensation of $300,000 and options to purchase 1,250,000 shares of common stock with an exercise price of $0.66. Five thousand options vests on the last day of each month during the term of the agreement with the remainder of the options vesting based on certain milestones. The employment agreement is for a term of two years and can be terminated at any time by either party. If the Agreement is terminated without cause, Dr. Maida is entitled to three months severance; provided however, such payment shall be conditional and shall terminate in the event Dr. Maida obtains employment prior to the expiration of the three month period. Dr. Maida is not entitled to severance if he resigns or is terminated for Cause, as defined in the agreement. If Dr. Maida is terminated without cause, all options that may be earned under the agreement and which have not yet been issued/vested will accelerate and become fully vested under certain conditions. If Dr. Maida is terminated for cause, all issued/vested   options will expire thirty days from such termination and all other options will lapse immediately. In the event of Dr. Maida’ resignation upon at least 45 days notice, Dr. Maida shall not forfeit any issued/vested options. However, if Dr. Maida provides more than 30 days notice but less than 45 days notice then he shall forfeit all options issued/vested in the preceding 60 days, and shall forfeit all options which were issued/vested during the preceding 90 days if less than 30 days notice is provided. In the event of a change in control, as defined in the agreement, all options   that may be earned under the agreement and which have not yet been issued/vested will accelerate and become fully vested. The agreement includes non-competition, non-solicitation, non-disparagement, confidentiality and indemnifications provisions.

 

Leslie J. Goldman

 

On June 8, 2011, we entered into an employment agreement with Leslie J. Goldman pursuant to which Mr. Goldman serves as Senior Vice President for Business Development. The agreement provides for an annual compensation of $264,000 and options to purchase 2,250,000 shares of common stock with an exercise price of $0.66. One third of the options vested upon execution of the employment agreement, 1/3 vest monthly over the term of the agreement and the remaining 1/3 vest according to certain performance milestones. The employment agreement is for a term of two years and can be terminated at any time by either party. If the Agreement is terminated without cause, Mr. Goldman is entitled to three months severance; provided however, such payment shall be conditional and shall terminate in the event Mr. Goldman obtains employment prior to the expiration of the three month period. Mr. Goldman is not entitled to severance if he resigns or is terminated for cause, as defined in the agreement. If Mr. Goldman is terminated without cause, all options that may be earned under the agreement and which have not yet been issued/vested will accelerate and become fully vested under certain conditions. If Mr. Goldman is terminated for cause, all issued/vested options will expire thirty days from such termination. In the event of Mr. Goldman’s resignation upon at least 45 days notice, Mr. Goldman shall not forfeit any issued/vested options. However, if Mr. Goldman provides more than 30 days notice but less than 45 days notice then he shall forfeit all options issued/vested in the preceding 60 days, and shall forfeit all options which were issued/vested during the preceding 90 days if less than 30 days notice is provided. In the event of a change in control, as defined in the agreement, all options that may be earned under the agreement and which have not yet been issued/vested will accelerate and become fully vested. The agreement includes non-competition, non-solicitation, non-disparagement, confidentiality and indemnifications provisions.

 

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Marnix Bosch

 

On June 8, 2011, we entered into an employment agreement with Marnix Bosch pursuant to which Mr. Bosch serves as our Chief Technical Officer. The agreement provides for an annual compensation of $325,000 and options to purchase 1,000,000 shares of common stock with an exercise price of $0.66, which vests over the term based on certain milestones. In addition, the employment agreement extends the term of existing options   for an additional 3 years. The employment agreement is for a term of two years and can be terminated at any time by either party. If the Agreement is terminated without cause, Mr. Bosch is entitled to three months severance; provided however, such payment shall be conditional and shall terminate in the event Mr. Bosch obtains employment prior to the expiration of the three month period. Mr. Bosch is not entitled to severance if he resigns or is terminated for cause, as defined in the agreement. If Mr. Bosch is terminated without cause, as defined in the agreement, all options   that may be earned under the agreement and which have not yet been issued/vested will accelerate and become fully vested under certain conditions. If Mr. Bosch is terminated for cause, all issued/vested options will expire thirty days from such termination. In the event of Mr. Bosch’s resignation upon at least 45 days notice, Mr. Bosch shall not forfeit any issued/vested options. However, if Mr. Bosch provides more than 30 days notice but less than 45 days notice then he shall forfeit all options issued/vested in the preceding 60 days, and shall forfeit all options which were issued/vested during the preceding 90 days if less than 30 days notice is provided. In the event of a change in control, as defined in the agreement, all options that may be earned under the agreement and which have not yet been issued/vested will accelerate and become fully vested. The agreement includes non-competition, non-solicitation, non-disparagement, confidentiality and indemnifications provisions.

 

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SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT

 

The following table presents information regarding the beneficial ownership of our common stock as of June 29, 2012 by:

 

  · each person, or group of affiliated persons, who is known by us to own beneficially 5% or more of any class of our equity securities;

 

  · our directors;

 

  · each of our named executive officers, as defined in Item 402(a)(3) of Regulation S-K; and

 

  · our directors and executive officers as a group.

 

Shares of common stock beneficially owned and the respective percentages of beneficial ownership of common stock assumes the exercise of all options, warrants and other securities convertible into common stock beneficially owned by such person or entity currently exercisable or exercisable within 60 days of June 29, 2012. Shares issuable pursuant to the exercise of stock options and warrants exercisable within 60 days are deemed outstanding and held by the holder of such options or warrants for computing the percentage of outstanding common stock beneficially owned by such person, but are not deemed outstanding for computing the percentage of outstanding common stock beneficially owned by any other person.

 

Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and the entities named in the table have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.

 

Except as otherwise noted, the address of the individuals in the following table below is c/o Northwest Biotherapeutics, Inc., 4800 Montgomery Lane, Suite 800, Bethesda, MD 20814.

 

Name of Beneficial Owner  Number of Shares
Beneficially Owned
   Percentage (1) 
 
Officers and Directors
           
Alton L. Boynton, Ph.D.(2)   3,074,719    1.8%
           
Marnix L. Bosch, Ph.D., M.B.A.(3)   1,820,056    1.1%
           
Linda F. Powers(4)   120,558,957    56.2%
           
Robert A. Farmer (5)   1,300,968    0.8%
           
Leslie Goldman (6)   3,958,796    2.3%
           
All executive officers and directors as a group (5 persons)(7)   130,713,496    58.6%
           
5% Security Holders
           
Toucan Capital Fund III, L.P.(8)
7600 Wisconsin Avenue, Suite 700
Bethesda, MD 20814
   27,162,363    15.1%
           
Toucan Partners, LLC(9)
7600 Wisconsin Avenue,
Suite 700 Bethesda, MD 20814
   38,418,476    19.8%
           
Regen Med Acquisition Corp (10)
1313 N. Market Street, Suite 5100
Wilmington, DE 19801
   11,144,165    6.5%
           
Al Rajhi Holdings (11)
Rue Maurice 3, 1204 Geneve,
Switzerland
   10,780,541    6.5%
           
The Richard M. Schulze
Family Trust (12)
8500 Normandale Lake Blvd,
Suite 1750
Minneapolis, MN 55347
   8,902,175    5.4%
           
Cognate BioServices, Inc.(13)
4800 East Shelby Drive,
Suite 108, Memphis, TN
   46,000,000    27.8%

 

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(1)Percentage represents beneficial ownership percentage of common stock calculated in accordance with SEC rules and does not equate to voting percentages. Based upon 165,245,389 shares of common stock issued and outstanding as of June 29, 2012.

 

(2)Includes 2,833,715 shares of common stock underlying options that are currently exercisable.

 

(3)Includes 1,486,039 shares of common stock underlying options that are currently exercisable.

 

(4)Includes (i) 6,605,408 shares of common stock underlying currently exercisable options held by Ms. Powers; (ii)12,866,324 shares of common stock held by Toucan Capital; (iii) 14,296,039 shares of common stock underlying currently exercisable warrants held by Toucan Capital; (iv) 9,963,114 shares of common stock held by Toucan Partners; (v) 21,925,363 shares of common stock underlying currently exercisable warrants held by Toucan Partners; (vi) 6,530,000 shares of common stock issuable upon conversion of convertible loans to the Company by Toucan Partners; (vii) 46,000,000 shares of common stock issuable upon conversion of accounts payable to Cognate. Ms. Powers is a managing member of Toucan Management, LLC, which is the manager of Toucan Capital; is a managing member of Toucan Partners and controls a majority of the stock of Cognate BioServices, Inc.

 

(5)Includes (i) 328,397 shares of common stock underlying currently exercisable warrants; and (ii) 140,000 shares of common stock that are currently issuable upon conversion of a loan to the Company by Mr. Farmer.

 

(6)Includes (i) 2,562,235 shares of common stock underlying currently exercisable warrants; (ii) 875,000 shares of common stock underlying currently exercisable options; and (iii) 224,000 shares of common stock issuable upon conversion of loans to the Company by Mr. Goldman.

 

(7)Includes (i)11,800,162 shares of common stock underlying currently exercisable options; (ii)39,112,033 shares of common stock underlying currently exercisable warrants; and (iii) 6,894,000 shares of common stock issuable upon conversion of loans to the Company.

 

(8)Includes 14,296,039 shares of common stock underlying currently exercisable warrants. Linda Powers holds the voting and dispositive power over the shares held by Toucan Capital Fund III, L.P.

 

(9)Includes (i) 21,925,363 shares of common stock underlying currently exercisable warrants; and (ii) 6,530,000 shares of common stock issuable upon conversion of loans made to the Company by Toucan Partners, LLC. Linda Powers holds the voting and dispositive power over the shares held by Toucan Partners, LLC.

 

(10)Includes 7,416,703 shares of common stock underlying currently exercisable warrants. Alia Minhas holds the voting and dispositive power over the shares held by Regen Med Acquisition Corp.

 

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(11)Includes 1,743,411 shares of common stock underlying currently exercisable warrants. Linda Powers through Toucan Capital III LP and Toucan Partners LLC holds the voting and dispositive power over the shares held by Al Rajhi Holdings.

 

(12)Includes 2,307,972 shares of common stock underlying currently exercisable warrants. Richard M. Schulze holds the voting and dispositive power over the shares held by the Richard M. Schulze Family Trust.

 

(13)Represents shares of common stock issued upon conversion of accounts payable to Cognate BioServices, Inc. Khalid Al Rajhi holds the voting and dispositive power over the shares held by Cognate BioServices, Inc.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Toucan Capital and Toucan Partners

 

On July 2, 2010 we entered into a securities purchase agreement with Toucan Partners, under which Toucan Partners purchased 866,667 shares of common stock for $650,000.  In connection with this private placement we issued warrants to purchase 86,667 shares of common stock at an exercise price of $0.75 per share with an exercise period of three years. Our Chief Executive Officer and the Board’s Chairperson is the managing director of Toucan Capital.

 

On October 1, 2010 Toucan Partners loaned us $900,000 under a 6% convertible promissory note on the same terms and conditions as the September Notes that we had negotiated and executed with non-affiliated investors on September 28, 2010, secured by an interest in all our assets, due on December 1, 2010. The conversion feature of the note allows Toucan Partners to convert the principal into shares of common stock at a conversion price of $0.75. Additionally, Toucan Partners received 100% warrant coverage, on the same terms and conditions as the September Notes (including the same market formula for the warrant exercise price), at $0.82 per share. In the event of default, Toucan Partners was entitled to adjust the interest rate to 9% per annum for the default period and to be granted an additional 100% warrant coverage at $0.82 per share.  We did not repay the loan on December 1, 2010, however Toucan Partners partially waived its right to the additional warrant.  The loan was repaid in full by December 31, 2010.

 

In December 2010 Toucan Capital transferred 6,433,162 shares of common stock and 7,345,030 warrants to purchase shares of our common stock to Regen Med Acquisition Corp. or Regen Med, a non-affiliate third party.

 

In March 2011, we received $550,000 from Toucan Capital as a convertible note payable.  The note was issued with a 10% original issue discount and a 10% one time interest charge payable to Toucan Capital.

 

On November 1, 2011, we issued 750,000 shares of common stock to Toucan Partners upon conversion of $150,000 of a note payable.

 

On December 29, 2011, we issued a convertible note for $100,000 to Toucan Partners with 100% warrant coverage.

 

As a result of the financings described above, as of December 31, 2011 Toucan Capital held:

 

an aggregate of 12,866,324 shares of Common Stock;

 

warrants to purchase 9,433,821 shares of Common Stock at an exercise price of $0.60 per share (net of 4,716,911 transferred to Regen Med); and

 

warrants to purchase 5,256,238 shares of Common Stock at an exercise price of $0.60 per share (net of 2,628,119 transferred to Regen Med).

 

As a result of the financings described above, and other open market transactions, as of December 31, 2011, Toucan Partners and its managing member Ms. Linda Powers held:

 

an aggregate of 9,750,691 shares of common stock;

 

warrants to purchase 18,266,362 shares of common stock at an exercise price of $0.60 per share;

 

warrants to purchase 513,841 shares of common stock at an exercise price of $0.41 per share;

 

warrants to purchase 132,500 shares of common stock at an exercise price of $0.40 per share;

 

warrants to purchase 2,195,667 shares of common stock at an exercise price of $0.75 per share;

 

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warrants to purchase 842,375 shares of common stock at an exercise price of $0.20 per share; and

 

warrants to purchase 5,256,238 shares of common stock at an exercise price of $0.15 per share.

 

As of December 31, 2011, Linda Powers, including the holdings of Toucan Capital and Toucan Partners, held 71,202,148 shares of common stock, representing approximately 45% of the common stock outstanding. Further, as of December 31, 2011, Linda Powers, including the holdings of Toucan Capital and Toucan Partners, beneficially owned (including unexercised warrants) 110,720,111 shares of common stock, representing a beneficial ownership interest of approximately 56%.

 

On March 21, 2008, we executed a Sublease Agreement (the “Sublease Agreement”) with Toucan Capital Corporation for the space the Company used as its headquarters at 7600 Wisconsin Avenue, Suite 750, Bethesda, Maryland. The Sublease Agreement is effective as of July 1, 2007 and expires on October 31, 2016, unless sooner terminated according to its terms. We were and remain obligated to pay operating expenses allocable to the subleased premises under Toucan Capital Corporation’s master lease.  Effective November 30, 2009, the Sublease was terminated in connection with termination and buyout of the overall lease of this space.  (The overall lease and the Company’s Sublease had 7 years left to run at that time).  The termination and buyout did not require any lump sum exit payment.  Instead, it requires a partial payout over several years. Our obligation will be approximately $127,000 in 2012. There are no more amounts due after 2012.

 

We received proceeds of $1,255,000 in connection with issuing unsecured convertible notes to Toucan Partners on dates between January 3, 2012 and March 6, 2012. Warrants to purchase 4,470,938 shares of common stock at an exercise price of $0.57 and terms between three and five years were issued in connection with the notes. The notes are payable on demand with between 7 and 14 days written notice and carried an original issue discount of 10% and a one-time interest charge of 10%. The conversion prices of the notes are 95% of the average five day closing price of our common stock for twenty days prior to conversion. The relative fair value of the warrants and beneficial conversion feature (based on the effective conversion price of the notes payable) amounted to $616,315 and $673,632, respectively. The debt discount associated with the warrants and beneficial conversion feature was immediately written off to interest expense. 

 

On February 9. 2012, we received proceeds of $1,500,000 in connection with issuing a convertible note to Toucan Partners. Warrants to purchase 4,687,500 shares of common stock at an exercise price of $0.57 for five years were issued in connection with the note. The note is unsecured, but will become secured if we enter into any secured financing or if there is an event of default. The note is payable on demand with 14 days written notice and carried an original issue discount of 10% and a one time interest charge of 10%. The conversion price of the note is 95% of the average five day closing price of our common stock for ten days prior to conversion. The relative fair value of the warrants and beneficial conversion feature (based on the effective conversion price of the note payable) amounted to $761,240 and $792,055, respectively. The debt discount associated with the warrants and beneficial conversion feature was immediately written off to interest expense.

 

On February 9, 2012, we entered into an agreement with Toucan Partners LLC for financing of up to $2.25 million. Toucan provided the first $1.5 million of the funding at the time of execution, and will provide further funding when certain consents are obtained. In consideration of the financing, we issued to Toucan a convertible promissory note, or Note. The Note bears an Original Issue Discount (OID) of ten percent. The Note is payable on demand, with fourteen days’ prior notice. The Note is convertible at any time at a five percent discount to the market price of the common stock at the time of conversion. The Note is unsecured, but will become secured if we enter into any secured financing or encumbrance upon its assets while any portion of the Note remains outstanding or if there is an event of default under the Note. Pursuant to the Note, we also issued to Toucan warrants to purchase shares of our common stock, comprising one hundred percent warrant coverage of the repayment amount under the Note. The exercise price of the warrants will be $0.40 per share if we can obtain a waiver of any applicable anti-dilution provisions. If such waiver is not obtained, the exercise price of the warrants will be $0.57 per share, and the warrant coverage will be correspondingly increased to provide the same economics to the holder.

 

During 2011, we received an operational loan from an entity control by Toucan Capital. Artecel, a cell product company, provided us with $734,000 to be used as funding for ongoing clinical trials. We have not yet agreed to repayment terms with Artecel.

 

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Cognate

 

During the quarter ended June 30, 2011, we entered into a new service agreement with Cognate, a contract manufacturing and services organization in which Toucan Capital has a majority interest. In addition, two of the principals of Toucan Capital are members of Cognate’s board of directors and Linda Powers who is a director of Cognate and managing director of Toucan Capital is Chairperson of our Board of Directors and our Chief Executive Officer. This agreement replaces the agreement dated May 17, 2007 between us and Cognate, which had expired.  Under the service agreement, we agreed to continue to utilize Cognate’s services, for certain consulting and manufacturing services to us for our current Phase III DCVax clinical trial for GBM.  The scope of services and the economics are comparable to the prior agreement, and the structure and process for payments are simplified.  Under the terms of the new agreement we will pay Cognate a monthly facility fee of $400,000 per month (the same amount as under the prior agreement) and a fixed fee (in lieu of cost-plus charges) for each patient enrolled in the study, subject to specified minimum number of patients per month, plus charges for certain patient and product data services if such services are requested us. The current service agreement expires on March 31, 2016. Additionally we have agreed to reimburse Cognate for enrollment ramp up costs, foreign program costs and costs of facilities and equipment dedicated to our programs (which were also previously reimbursable).

 

Cognate has a cGMP (clean room manufacturing under current Good Manufacturing Practices) facility with a capacity for approximately 300 patients per year, which we believe will be sufficient for our Phase III DCVax clinical trial for GBM. We have a plan with Cognate to accommodate an increase in production capacity based on demand and have detailed plans and cost analysis for additional  modular expansions which should increase the capacity of the current facilities from approximately 300 patients to over 5,000 patients per year. We believe that Cognate’s current facilities are sufficient to cover additional agreements for our initial commercialization efforts

 

On November 23, 2011, we executed with Cognate the conversion of $9.2 million dollars of amounts owed by us to Cognate into 46 million shares of common stock, using the agreed upon conversion rate of $0.20 per share. We recognized a loss on conversion of $7.8 million, which was the difference between the market value of the shares and the carrying amount of the liability. We are continuing to negotiate with Cognate the repayment terms of the outstanding balance owed by us.

 

During the years ending December 31, 2010 and 2011, respectively, we recognized approximately $7.8 million and $4.7 million of research and development costs related to this service agreement. As of December 31, 2010 and 2011, we owed Cognate approximately $10.2 million and $0.6 million, respectively.

 

Review, approval or ratification of transactions with related persons

 

Any future transactions with officers, directors or 5% stockholders will be on terms no less favorable to us than could be obtained from independent parties. Any affiliated transactions must be approved by a majority of our independent and disinterested directors who have access to our counsel or independent legal counsel at our expense.

 

Board Determination of Independence

 

Our board of directors has determined that a majority of the board consists of members who are currently “independent” as that term is defined under current listing standards of NASDAQ

 

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DESCRIPTION OF SECURITIES

 

Common Stock

 

Number of Authorized and Outstanding Shares

 

Our Seventh Amended and Restated Certificate of Incorporation, as amended, authorizes the issuance of 450,000,000 shares of common stock, $0.001 par value per share, of which 165,245,389 shares were issued and outstanding on June 29, 2012. 

 

Voting Rights

 

Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock have no cumulative voting rights. Accordingly, the holders of in excess of 50% of the aggregate number of shares of common stock outstanding will be able to elect all of our directors and to approve or disapprove any other matter submitted to a vote of all stockholders.

 

Other

 

No shareholder has any preemptive right or other similar right to purchase or subscribe for any additional securities issued by us.   No shareholder has any right to convert the common stock into other securities. No shares of common stock are subject to redemption or any sinking fund provisions. All the outstanding shares of our common stock are fully paid and non-assessable. There is no outstanding preferred stock, and no outstanding securities convertible into or exercisable for preferred stock.  Our common stock holders are entitled to dividends when, as and if declared by the Board from funds legally available  therefor, although we do not anticipate declaring or paying any cash dividends on the common stock in the foreseeable future.  Upon liquidation, the common stock holders are entitled to a pro-rata share in any distribution to shareholders.

 

Preferred Stock

 

Our Seventh Amended and Restated Certificate of Incorporation, as amended authorizes the issuance of 20,000,000 shares of “Blank Check” Preferred Stock, par value $0.001 per share, in one or more series, subject to any limitations prescribed by law, without further vote or action by the stockholders.  Each such series of Preferred Stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall be determined by our board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

 

As of June 29, 2012, there were no shares of Preferred Stock issued and outstanding.

 

Stock Options

 

As of June 29, 2012, we had outstanding stock options to purchase an aggregate of 24,821,412 shares of common stock, with a weighted average exercise price of $0.66 per share.

 

Warrants

 

As of June 29, 2012 we had outstanding warrants to purchase an aggregate of 71,436,774 shares of common stock, with a weighted average exercise price of $0.58 per share.

 

Representative's Warrants

 

Please see “Underwriting—Representative’s Warrants” for a description of the warrants we have agreed to issue to the representative of the underwriters in this offering, subject to the completion of the offering. We expect to enter into a warrant agreement in respect of the Representative's Warrants prior to the closing of this offering.

 

Registration Rights

 

As of June 29, 2012, approximately                of our outstanding shares of common stock,               shares of common stock issuable upon conversion of outstanding convertible notes, and               shares of common stock issuable upon exercise of outstanding warrants, are subject to demand, piggyback or other registration rights.

 

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Anti-Takeover Provisions

 

Delaware Law

 

We are subject to Section 203 of the Delaware General Corporation Law. This provision generally prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date the stockholder became an interested stockholder, unless:

 

·prior to such date, the board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
·upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
·on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual meeting or special meeting of stockholders and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.

 

Section 203 defines a business combination to include:

 

·any merger or consolidation involving the corporation and the interested stockholder;
·any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
·subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
·any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or
·the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

 

In general, Section 203 defines an “interested stockholder” as any entity or person beneficially owning 15% or more of the outstanding voting stock of a corporation, or an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of a corporation at any time within three years prior to the time of determination of interested stockholder status; and any entity or person affiliated with or controlling or controlled by such entity or person.

 

These statutory provisions could delay or frustrate the removal of incumbent directors or a change in control of our company. They could also discourage, impede, or prevent a merger, tender offer, or proxy contest, even if such event would be favorable to the interests of stockholders.

 

We expect to adopt a shareholder rights plan and declare a dividend distribution of one right for each outstanding share of common stock as fixed by our Board of Directors. Each right, when exercisable, will entitle the registered holder to purchase from us                of a share of a new series of preferred stock on the terms stated in the rights plan. The rights will generally separate from the common stock and become exercisable if any person or group acquires or announces a tender offer to acquire 15% or more of our outstanding common stock without the consent of our board of directors. Because the rights may substantially dilute the stock ownership of a person or group attempting to take us over without the approval of our board of directors, our stockholder rights plan could make it more difficult for a third party to acquire us (or a significant percentage of our outstanding capital stock) without first negotiating with our board of directors.

  

Amended and Restated Certificate of Incorporation and Bylaw Provisions

 

Our Seventh Amended and Restated Certificate of Incorporation, as amended and bylaws contain provisions that could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. In particular, the certificate of incorporation and bylaws, as applicable, among other things:

 

·provide our board of directors with the ability to alter its bylaws without stockholder approval; and

·provide that vacancies on our board of directors may be filled by a majority of directors in office, although less than a quorum.

 

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Such provisions may have the effect of discouraging a third-party from acquiring us, even if doing so would be beneficial to our stockholders. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by them, and to discourage some types of transactions that may involve an actual or threatened change in control of our company. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage some tactics that may be used in proxy fights. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our company outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms.

 

However, these provisions could have the effect of discouraging others from making tender offers for our shares that could result from actual or rumored takeover attempts. These provisions also may have the effect of preventing changes in our management.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our common stock is Computershare Shareowner Services.

 

Listing

 

The shares of our common stock are currently quoted on the OTCBB. We intend to apply for the listing of our common stock on The NASDAQ Capital Market under the symbol “NWBO.”

 

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UNDERWRITING

 

Aegis Capital Corp. is acting as the representative of the underwriters of the offering. We have entered into an underwriting agreement dated     , 2012 with the representative. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each underwriter named below and each underwriter named below has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:

 

Name of Underwriter  Number of
Shares
 
Aegis Capital Corp.           

 

The underwriters are committed to purchase all the shares of common stock offered by us other than those covered by the option to purchase additional shares described below, if they purchase any shares. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement, the underwriters’ obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.

 

The underwriters propose to offer the common stock directly to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers that are members of the Financial Industry Regulatory Authority, or FINRA, at that price less a concession not in excess of $ per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the public offering price. After the public offering of the shares, the offering price and other selling terms may be changed by the underwriters.

 

We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.

 

Discounts and Commissions.        The following table shows the public offering price, underwriting discount and proceeds, before expenses, to us. The information assumes either no exercise or full exercise by the underwriters of their over-allotment option

 

       Total 
   Per
Share
   Without
Over-
Allotment
   With
Over-
Allotment
 
Public offering price  $         
Underwriting discount (7%)  $                         
Non-accountable expense allowance (0.5%)  $            
Proceeds, before expenses, to us  $         

 

No underwriting discount or non-accountable expense allowance shall be paid to the underwriters for amounts raised in the offering directly from our directors, officers or employees of the Company, and any of their respective immediate family members (spouses and children living in the same household), or from specific individuals or beneficial owners as identified by us and agreed upon with the representative.

 

We have paid an expense deposit of $10,000 to the representative, which will be applied against the non-accountable expenses that will be paid by us to the underwriters in connection with this offering. The underwriting agreement, however, provides that in the event the offering is terminated, the $10,000 expense deposit paid to the representative will be returned to the extent offering expenses are not actually incurred. We estimate that the total expenses of the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discount, will be approximately $                    .

 

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Overallotment Option.  We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase a maximum of       additional shares (15% of the shares sold in this offering) from us to cover over-allotments, if any. If the underwriters exercise all or part of this option, they will purchase shares covered by the option at the public offering price that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total price to the public will be $        and the total net proceeds, before expenses, to us will be $ .

 

Discretionary Accounts. The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.

 

Lock-Up Agreements.  We, our directors and executive officers and certain of our stockholders expect to enter into lock up agreements with the representative prior to the commencement of this offering pursuant to which each of these persons or entities, for a period of three months from the effective date of the registration statement of which this prospectus is a part without the prior written consent of the representative, agree not to (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our securities or any securities convertible into or exercisable or exchangeable for shares of our common stock owned or acquired on or prior to the closing date of this offering (including any shares of common stock acquired after the closing date of this offering upon the conversion, exercise or exchange of such securities); (2) file or caused to be filed any registration statement relating to the offering of any shares of capital stock of the Company; or (3) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described in clause (1), (2) or (3) above is to be settled by delivery of common stock or such other securities, in cash or otherwise.

 

The lock-up period described in the preceding paragraphs will be automatically extended if: (1) during the last 17 days of the restricted period, we issue an earnings release or announce material news or a material event; or (2) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the date of the earnings release.

 

Representative’s Warrants.  We have agreed to issue to the representative warrants, or the Representative’s Warrants, to purchase up to a total of         shares of common stock (5% of the shares of common stock sold in this offering). The warrants are exercisable at a per share price equal to 125% of the public offering price per share in the offering, commencing on a date which is one year from the effective date of the offering under this prospectus and expiring five years from the effective date of the offering. The warrants have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The representative (or permitted assignees under Rule 5110(g)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the date of this prospectus. In addition, the warrants provide for registration rights upon request, in certain cases. The demand registration right provided will not be greater than five years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(H)(iv).  The piggyback registration right provided will not be greater than seven years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(H)(v).  We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price. We expect to enter into a warrant agreement in respect of the Representative’s Warrants prior to the closing of this offering.

 

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Right of First Refusal. Until three months after the closing date of the offering, the representative shall have a right of first refusal to act as, in our discretion, lead underwriter or minimally as co-manager with at least 50% of the economics, or in the case of a the underwriter or placement agent transaction, 33% of the economics, for each and every future public and private equity and public debt offerings, on terms no less favorable to the us than the terms of this offering, which we or any subsidiary or successor may seek to sell in public or private equity and public debt offerings during such three (3)-month period.

 

Electronic Offer, Sale and Distribution of Shares. A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representative may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.

 

Stabilization.  In connection with this offering, the underwriters may engage in stabilizing transactions, which involve making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be “covered” shorts or may be “naked” shorts. The underwriters may close out any covered short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.

 

The underwriters have advised us that, pursuant to Regulation M promulgated under the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if a representative of an underwriter purchases common stock in the open market in stabilizing transactions or to cover short sales, the underwriter can require the representative that sold those shares as part of this offering to repay the underwriting discount received by such representative.

 

These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on The NASDAQ Capital Market, in the over-the-counter market or otherwise.

 

In determining the public offering price, we and the underwriters expect to consider a number of factors including:

 

the information set forth in this prospectus and otherwise available to the underwriters;

 

our prospects and the history and prospects for the industry in which we compete;

 

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an assessment of our management;

 

our prospects for future earnings;

 

the general condition of the securities markets at the time of this offering;

 

the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and

 

other factors deemed relevant by the underwriters and us.

 

Neither we, nor the underwriters can assure investors that an active trading market will develop for our common stock, or that the shares will trade in the public market at or above the public offering price.

 

Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

 

Passive market making. In connection with this offering, underwriters and selling group members may engage in passive market making transactions in our common stock on The NASDAQ Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.

 

Other Terms.  Certain of the underwriters and their affiliates have provided, and may in the future provide, various investment banking, commercial banking and other financial services for us and our affiliates for which they have received, and may in the future receive, customary fees, however, except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services.

 

From time to time, the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future.

 

We have also agreed to pay the underwriters’ expenses relating to the offering, including (a) all fees, expenses and disbursements relating to background checks of our officers and directors in an amount not to exceed $5,000 per individual but no more than $15,000 in the aggregate; (b) all fees incurred in clearing this offering with FINRA; (c) all fees, expenses and disbursements relating to the registration, qualification or exemption of securities offered under the securities laws of foreign jurisdictions designated by the underwriters; (d) upon successfully completing this offering, $20,000 for the underwriters’ use of Ipreo’s book-building, prospectus tracking and compliance software for this offering; and (e) upon successfully completing this offering, $25,000 of the representative’s actual accountable road show expenses for the offering. We paid an advance of $10,000 to the representative, which will be applied against the non-accountable expense allowance (including an advance for the fees and expenses of the underwriter’s counsel.) The total of any advanced payments will be refundable to the extent not actually incurred in compliance with FINRA Rule 5110(f)(2)(C).

 

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Offer Restrictions Outside the United States

 

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

 

Australia

 

This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the common stock under this prospectus is only made to persons to whom it is lawful to offer the common stock without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the common stock sold to the offeree within 12 months after its transfer to the offeree under this prospectus.

 

China

 

The information in this document does not constitute a public offer of the common stock, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The common stock may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”

 

European Economic Area — Belgium, Germany, Luxembourg and Netherlands

 

The information in this document has been prepared on the basis that all offers of common stock will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities.

 

An offer to the public of common stock has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:

 

(a)to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
(b)to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements);
(c)to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)I of the Prospectus Directive) subject to obtaining the prior consent of the Company  or any underwriter for any such offer; or
(d)in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of common stock shall result in a requirement for the publication by the Company of a prospectus pursuant to Article 3 of the Prospectus Directive.

 

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France

 

This document is not being distributed in the context of a public offering of financial securities (estr au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des estrai financiers (“AMF”). The common stock have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.

 

This document and any other offering material relating to the common stock have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.

 

Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs estraint) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D. 744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle estraint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.

 

Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the common stock cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.

 

Ireland

 

The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The common stock have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.

 

Israel

 

The common stock offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the ISA), or ISA, nor have such common stock been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the common stock being offered. Any resale in Israel, directly or indirectly, to the public of the common stock offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.

 

Italy

 

The offering of the common stock in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Societ|$$|Aga e la Borsa, “CONSOB” pursuant to the Italian securities legislation and, accordingly, no offering material relating to the common stock may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:

 

·to Italian qualified investors, as defined in Article 100 of Decree no.58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and
·in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended.

 

Any offer, sale or delivery of the common stock or distribution of any offer document relating to the common stock in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:

 

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·made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and
·in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws.

 

Any subsequent distribution of the common stock in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such common stock being declared null and void and in the liability of the entity transferring the common stock for any damages suffered by the investors.

 

Japan

 

The common stock have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the common stock may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires common stock may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of common stock is conditional upon the execution of an agreement to that effect.

 

Portugal

 

This document is not being distributed in the context of a public offer of financial securities ( oferta pública de valores mobiliários ) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code ( Código dos Valores Mobiliários ). The common stock have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the common stock have not been, and will not be, submitted to the Portuguese Securities Market Commission ( Comissão do Mercado de Valores Mobiliários ) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of common stock in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.

 

Sweden

 

This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the common stock be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of common stock in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.

 

Switzerland

 

The common stock may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the common stock may be publicly distributed or otherwise made publicly available in Switzerland.

 

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Neither this document nor any other offering material relating to the common stock have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of common stock will not be supervised by, the Swiss Financial Market Supervisory Authority (FINMA).

 

This document is personal to the recipient only and not for general circulation in Switzerland.

 

United Arab Emirates

 

Neither this document nor the common stock have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor has the Company. received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the common stock within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating to the common stock, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within the United Arab Emirates by the Company.

 

No offer or invitation to subscribe for common stock is valid or permitted in the Dubai International Financial Centre.

 

United Kingdom

 

Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the common stock. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the common stock may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.

 

Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the common stock has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to the Company.

 

In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

 

LEGAL MATTERS

 

The validity of the securities being offered by this prospectus has been passed upon for us by Sichenzia Ross Friedman Ference LLP, New York, New York. Certain legal matters related to the offering will be passed upon for the underwriters by Reed Smith LLP, New York, New York.

 

EXPERTS

 

Our financial statements included in this prospectus as of and for the fiscal years ended December 31, 2011 and 2010 (as indicated in their reports) have been audited by Peterson Sullivan LLP, Seattle, Washington, an independent registered public accounting firm and are included herein in reliance upon the authority as experts in giving said reports. 

 

75
 

 

WHERE YOU CAN FIND MORE INFORMATION

 

We are a reporting company and file annual, quarterly and special reports, and other information with the Securities and Exchange Commission. Copies of the reports and other information may be read and copied at the SEC’s Public Reference Room at 100 F Street NE, Washington, D.C. 20549. You can request copies of such documents by writing to the SEC and paying a fee for the copying cost. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.

 

This prospectus is part of a registration statement on Form S-1 that we filed with the SEC. Certain information in the registration statement has been omitted from this prospectus in accordance with the rules and regulations of the SEC. We have also filed exhibits and schedules with the registration statement that are excluded from this prospectus. For further information you may:

 

·read a copy of the registration statement, including the exhibits and schedules, without charge at the SEC’s Public Reference Room; or
·obtain a copy from the SEC upon payment of the fees prescribed by the SEC.

 

76
 

 

NORTHWEST BIOTHERAPEUTICS, INC.

(A Development Stage Company)

 

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

Audited Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm   F-2
Consolidated Balance Sheets as of December 31, 2010 and 2011   F-3
Consolidated Statements of Operations for the two years ended December 31, 2010 and 2011 and March 18, 1996 (inception) to December 31, 2011   F-4
Consolidated Statements of Stockholders’ Equity (Deficit) and Comprehensive loss for the period March 18, 1996  (inception) to December 31, 2011   F-5
Consolidated Statements of Cash Flows for the two years ended December 31, 2010 and 2011 and for the period March 18, 1996 (inception) to December 31, 2011   F-6
Notes to the Consolidated Financial Statements   F-7

 

Unaudited Condensed Consolidated Financial Statements

 

Condensed Consolidated Balance Sheets as of December 31, 2011 and March 31, 2012 (Unaudited)   F-28
     
Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2011 and 2012 and the period from March 18, 1996 (inception) to March 31, 2012   F-29
     
Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three months ended March 31, 2011 and 2012 and the period from March 18, 1996 (inception) to March 31, 2012   F-30
     
Condensed Consolidated Statements of Cash Flows(unaudited) for the three months ended March 31, 2011 and 2012 and the period from March 18, 1996 (inception) to March 31, 2012   F-31
     
Notes to Condensed Consolidated Financial Statements   F-32

 

F-1
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

 

To the Board of Directors and Stockholders

Northwest Biotherapeutics, Inc.

Bethesda, Maryland

 

 

We have audited the accompanying consolidated balance sheets of Northwest Biotherapeutics, Inc. and Subsidiaries (a development stage company) ("the Company") as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders' equity (deficit) and comprehensive loss, and cash flows for the years then ended, and for the period from March 18, 1996 (date of inception) to December 31, 2011. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Northwest Biotherapeutics, Inc. and Subsidiaries (a development stage company) as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended, and for the period from March 18, 1996 (date of inception) to December 31, 2011, in conformity with accounting principles generally accepted in the United States.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has experienced recurring losses from operations since inception, net operating cash flow deficits, and has a deficit accumulated during the development stage. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/S/ PETERSON SULLIVAN LLP

 

 

Seattle, Washington

April 13, 2012

 

F-2
 

 

NORTHWEST BIOTHERAPEUTICS, INC.

(A Development Stage Company)

 

Consolidated Balance Sheets

(in thousands)

 

   December 31, 2010   December 31, 2011 
Assets          
Current assets:          
Cash  $153   $24 
Prepaid expenses and other current assets   86    94 
Total current assets   239    118 
           
Property and equipment:          
Laboratory equipment   29    29 
Office furniture and other equipment   123    172 
    152    201 
Less accumulated depreciation and amortization   (113)   (123)
Property and equipment, net   39    78 
Deposit and other non-current assets   16    16 
Total assets  $294   $212 
Liabilities And Stockholders’ Equity (Deficit)          
Current liabilities:          
Accounts payable  $2,835   $2,219 
Accounts payable, related party   10,527    1,589 
Accrued expenses   2,074    2,185 
Accrued expenses, related party   1,749    630 
Notes payable   1,364    3,149 
Note payable to related parties   4,000    2,056 
Convertible notes payable, net   2,736    4,832 
Convertible notes payable to related party, net   -    3,588 
Embedded derivative liability   839    601 
Liability for reclassified equity contracts   -    29,903 
Total current liabilities   26,124    50,752 
Long term liabilities:          
Notes payable, net   350    200 
Convertible notes payable, net   555    1,433 
Convertible notes payable to related party, net   949    - 
Total long term liabilities   1,854    1,633 
Total liabilities   27,978    52,385 
Stockholders’ equity (deficit):          
Preferred stock, $0.001 par value; 20,000,000 shares authorized and none issued and outstanding          
Common stock, $0.001 par value; 150,000,000 shares authorized, 73,118,471 and 149,345,623 shares issued and outstanding at December 31, 2010 and December 31, 2011, respectively   73    150 
Additional paid-in capital   191,344    199,605 
Deficit accumulated during the development stage   (218,948)   (251,778)
Cumulative translation adjustment   (153)   (150)
Total stockholders’ equity (deficit)   (27,684)   (52,173)
Total liabilities and stockholders’ equity (deficit)  $294   $212 

 

See accompanying notes to the consolidated financial statements 

 

F-3
 

 

NORTHWEST BIOTHERAPEUTICS, INC.

(A Development Stage Company)

 

Consolidated Statements of Operations

(in thousands, except per share data)

 

       Period from 
       March 18, 1996 
   Years Ended   (Inception) to 
   December 31   December 31, 
   2010   2011    2011 
Revenues:               
Research material sales  $10   $10   $580 
Contract research and development from related parties   -    -    1,128 
Research grants and other   -    -    1,061 
Total revenues   10    10    2,769 
Operating cost and expenses:               
Cost of research material sales   -    -    382 
Research and development   9,899    13,452    90,264 
General and administration   5,463    13,335    75,324 
Depreciation and amortization   2    10    2,363 
Loss on facility sublease   -    -    895 
Asset impairment loss and other loss   -    -    2,445 
Total operating costs and expenses   15,364    26,797    171,673 
Loss from operations   (15,354)   (26,787)   (168,904)
Other income (expense):               
Valuation of reclassified equity instruments   -    8,821    15,580 
Conversion inducement expense   (4,673)   (7,944)   (18,234)
Derivative valuation gain   54    728    782 
Gain on sale of intellectual property and property and equipment   -    -    3,664 
Interest expense   (7,884)   (7,648)   (41,564)
Interest income and other   489    -    1,707 
Net loss   (27,368)   (32,830)   (206,969)
Issuance of common stock in connection with elimination of Series A and Series A-1 preferred stock preferences   -    -    (12,349)
Modification of Series A preferred stock warrants   -    -    (2,306)
Modification of Series A-1 preferred stock warrants   -    -    (16,393)
Series A preferred stock dividends   -    -    (334)
Series A-1 preferred stock dividends   -    -    (917)
Warrants issued on Series A and Series A-1 preferred stock dividends   -    -    (4,664)
Accretion of Series A preferred stock mandatory redemption obligation   -    -    (1,872)
Series A preferred stock redemption fee   -    -    (1,700)
Beneficial conversion feature of Series D preferred stock   -    -    (4,274)
Net loss applicable to common stockholders  $(27,368)  $(32,830)  $(251,778)
                
Net loss per share applicable to common stockholders — basic  $(0.41)  $(0.35)     
                
Weighted average shares used in computing basic loss per share   67,063    94,197      

 

See accompanying notes to consolidated financial statements.

 

F-4
 

 

NORTHWEST BIOTHERAPEUTICS, INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND COMPREHENSIVE LOSS

 

                                   Deficit         
                                   Accumulated         
           Preferred Stock   Preferred Stock   Additional       During the   Cumulative   Total 
   Common Stock   Series A   Series A-1           Paid-In   Deferred   Development   Translation   Stockholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Compensation   Stage   Adjustment   Equity (Deficit) 
                    (In thousands)                
Balances at March 18, 1996      $       $       $   $   $   $   $   $ 
Accretion of membership units mandatory redemption obligation                                   (106)       (106)
Net loss                                    (1,233)       (1,233)
Balances at December 31, 1996                                   (1,339)       (1,339)
Accretion of membership units mandatory redemption obligation                                   (275)       (275)
Net loss                                   (2,560)       (2,560)
Balances at December 31, 1997                                   (4,174)       (4,174)
Conversion of membership units to common stock   2,203    2                            (2)        
Accretion of Series A preferred stock mandatory redemption obligation                                   (329)       (329)
Net loss                                   (4,719)       (4,719)
Balances at December 31, 1998   2,203    2                            (9,224)       (9,222)
Issuance of Series C preferred stock warrants for services related to sale of Series C preferred shares                           394                394 
Accretion of Series A preferred stock mandatory redemption obligation                                   (354)       (354)
Net loss                                   (5,609)       (5,609)
Balances at December 31, 1999   2,203    2                    394        (15,187)       (14,791)
Issuance of Series C preferred stock warrants in connection with lease agreement                           43                43 
Exercise of stock options for cash   2                        1                1 
Issuance of common stock at $0.85 per share for license rights   5                        4                4 
Issuance of Series D preferred stock warrants in convertible promissory note offering                           4,039                4,039 
Beneficial conversion feature of convertible promissory notes                           1,026                1,026 
Issuance of Series D preferred stock warrants for services related to sale of Series D preferred shares                           368                368 
Issuance of common stock warrants in conjunction with issuance of promissory note                           3                3 
Cancellation of common stock   (275)                                        
Accretion of Series A preferred stock mandatory redemption obligation                                   (430)       (430)
Net loss                                    (12,779)       (12,779)
Balances at December 31, 2000   1,935    2                    5,878        (28,396)       (22,516)
Issuance of Series D preferred stock warrants in conjunction with refinancing of note payable to stockholder                           225                225 
Beneficial conversion feature of convertible promissory note                           456                456 
Beneficial conversion feature of Series D preferred stock                           4,274        (4,274)        
Issuance of Series D preferred stock warrants for services related to the sale of Series D preferred shares                           2,287                2,287 
Exercises of stock options and warrants for cash   1,158    1                    407                408 
Issuance of common stock in initial public offering for cash, net of offering costs of $2,845   4,000    4                    17,151                17,155 
Conversion of preferred stock into common stock   9,776    10                    31,569                31,579 
Series A preferred stock redemption fee                                   (1,700)       (1,700)
Issuance of stock options to nonemployees for services                           45                45 
Deferred compensation related to employee stock options                           1,330    (1,330)            
Amortization of deferred compensation                               314            314 
Accretion of Series A preferred stock mandatory redemption obligation                                   (379)       (379)
Net loss                                   (10,940)       (10,940)
Balances at December 31, 2001   16,869    17                    63,622    (1,016)   (45,689)       16,934 
Issuance of unregistered common stock   1,000    1                    199                200 
Issuance of common stock, Employee Stock Purchase Plan   9                        6                6 
Issuance of common stock warrants to Medarex                           80                80 
Issuance of restricted stock to nonemployees   8                        34                34 
Issuance of stock options to nonemployees for service                           57                57 
Issuance of stock options to employees                           22    (22)            
Cancellation of employee stock options                           (301)   301             
Exercise of stock options and warrants for cash   32                        18                18 
Deferred compensation related to employee restricted stock option   99                        449    (449)            
Cancellation of employee restricted stock grants   (87)                       (392)   392             
Amortization of deferred compensation, net                               350            350 
Net loss                                   (12,804)       (12,804)
Balances at December 31, 2002   17,930    18                    63,794    (444)   (58,493)       4,875 
Issuance of unregistered common stock to Medarex   1,000    1                    199                200 
Issuance of unregistered common stock to Nexus   90                        35                35 
Issuance of common stock warrants to Medarex                           80                80 
Issuance of warrants with convertible promissory note                           221                221 
Beneficial conversion feature of convertible promissory note                           114                114 
Issuance of common stock, Employee Stock Purchase Plan   4                                         
Exercise of stock options and warrants for cash   8                                         
Cancellation of employee restricted stock grants   (4)                       (20)   20             
Cancellation of employee stock options                           (131)   131             
Amortization of deferred compensation, net                               240            240 
Non-employee stock compensation                           2                2 
Net loss                                   (5,752)       (5,752)
Balances at December 31, 2003   19,028    19                    64,294    (53)   (64,245)       15 
Issuance of warrants with convertible promissory note                           1,711                1,711 
Beneficial conversion feature of convertible promissory note                           1,156                1,156 
Issuance of common stock, Employee Stock Purchase Plan   1                                         
Cancellation of employee stock options                           (5)   5             
Amortization of deferred compensation, net                               41            41 
Warrant valuation                             368                368 
Net loss                                   (8,508)       (8,508)
Balances at December 31, 2004   19,029    19                    67,524    (7)   (72,753)       (5,217)
Issuance of unregistered common stock and preferred stock to Toucan Capital           32,500    33            1,243                1,276 
Issuance of stock options to non-employees for services                           3                3 
Issuance of warrants with convertible promissory note                           1,878                1,878 
Exercise of stock options and warrants for cash   49                        4                4 
Amortization of deferred compensation, net                               7            7 
Beneficial conversion feature of convertible promissory note                           1,172                1,172 
Common Stock warrant liability                           (604)