Attached files

file filename
EX-23 - NORTHWEST BIOTHERAPEUTICS INCv208904_ex23.htm
EX-32.1 - NORTHWEST BIOTHERAPEUTICS INCv208904_ex32-1.htm
EX-31.1 - NORTHWEST BIOTHERAPEUTICS INCv208904_ex31-1.htm
 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-K/A

þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,  2009
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to          .

Commission file number 000-33393

NORTHWEST BIOTHERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)

Delaware
94-3306718
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
   
4800 Montgomery Lane, Suite 800
20814
Bethesda, MD
(Zip Code)
 (Address of principal executive offices)
 
(240) 497-9024
Registrant’s telephone number, including area code:

Securities registered pursuant to section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 Par Value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o     No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o      No  þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ      No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   þ

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  o
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  þ
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o      No  þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the closing price on the consolidated transaction reporting system on June 30, 2009 was approximately $38.2 million.

As of April 12, 2010, the Registrant had an aggregate of 62,365,460 shares of common stock issued and outstanding.

Documents Incorporated by Reference: None

Explanatory Note: This Firm 10-K/A was amended to include amendments to Item 10. Directors, Officers and Corporate Governance requiring disclosure of what led to the conclusion for such persons to serve as a director for the Registrant and to and to correct the dates and titles of the signature page and certifications included herein.

 

 

TABLE OF CONTENTS

     
Page
 
PART I
   
       
Item 1.
Business
 
2
       
Item 1A.
Risk Factors
 
16
       
Item 1B.
Unresolved Staff Comments
 
26
       
Item 2.
Properties
 
27
       
Item 3.
Legal Proceedings
 
27
       
Item 4.
Submission of Matters to a Vote of Security Holders
 
29
       
 
PART II
   
       
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
29
       
Item 6.
Selected Financial Data
 
30
       
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
31
       
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
 
35
       
Item 8.
Financial Statements and Supplementary Data
 
35
       
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
35
       
Item 9A(T).    
Controls and Procedures
 
36
       
Item 9B.
Other Information
 
37
       
 
PART III
   
       
Item 10.
Directors, Executive Officers and Corporate Governance
 
37
       
Item 11.
Executive Compensation
 
39
       
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
47
       
Item 13.
Certain Relationships and Related Transactions, and Director Independence
 
48
       
Item 14.
Principal Accountant Fees and Services
 
51
       
 
PART IV
   
       
Item 15.
Exhibits, Financial Statement Schedules
 
51
       
Signatures
 
80
     
Exhibit Index
 
81

 

 

PART I

Forward-Looking Statements

The following description of our business, discussion and analysis of our financial condition and results of operations should be read in conjunction with the information included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that might cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. The words “believes,” “expects,” “intends,” “anticipates,” “may,” “might,” “will,” “should,” “plans,” “could,” “target,” “projects,” “contemplates,” “estimates,” “predicts,” “potential,” “continue,” the negative of these terms and similar expressions are used to identify forward-looking statements, but their absence does not mean that such statement is not forward-looking. You are encouraged to carefully review the various disclosures made by us in this report and in the documents incorporated herein by reference, in our previous filings with the Securities and Exchange Commission (“SEC”), and those factors described under Item 1A.”Risk Factors.” These factors, among others, could cause results to differ materially from those presently anticipated by us. In addition, past financial or operating performance is not necessarily a reliable indicator of future performance and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. Except as required by law, we undertake no obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the filing of this Annual Report on Form 10-K or documents incorporated by reference herein that include forward-looking statements.

In this Annual Report on Form 10-K, references to “Northwest Biotherapeutics,” the “Company,” “we,” “us,” and “our” refer to Northwest Biotherapeutics, Inc. and its subsidiary.

Item 1.   Business

Overview

Northwest Biotherapeutics, Inc. was formed in 1996 and incorporated in Delaware in July 1998. We are a development stage biotechnology company focused on discovering, developing, and commercializing immunotherapy products that safely generate and enhance immune system responses to effectively treat cancer. Currently approved cancer treatments are frequently ineffective, can cause undesirable side effects and provide marginal clinical benefits. Our approach in developing cancer therapies utilizes our expertise in the biology of dendritic cells (“DC”), which are a type of white blood cells that activate the immune system. Our primary activities since incorporation have been focused on advancing a proprietary dendritic cell immunotherapy for prostate and brain cancer together with strategic and financial planning, and raising capital to fund our operations.

We have two basic technology platforms applicable to cancer therapeutics: dendritic cell-based cancer vaccines, which we call DCVax ® , and monoclonal antibodies for cancer therapeutics. DCVax ® is our registered trademark. Our DCVax ® dendritic cell-based cancer vaccine program is our main technology platform.

We completed an initial public offering of our common stock on the NASDAQ Stock market in December 2001 and an initial public offering of our common stock on the Alternative Investment Market (“AIM”) of the London Stock Exchange in June 2007.

 
2

 

Industry Background

Cancer

Cancer is characterized by aberrant cells that multiply uncontrollably. As cancer progresses, the cancer cells may invade other tissues throughout the body producing additional cancers, called metastases. Cancer growth can cause tissue damage, organ failure and, ultimately, death. Many immunologists believe that cancer cells occur frequently in the human body, yet are effectively controlled by the immune system because these cells are recognized as aberrant. Cancer growth occurs if this natural process fails.

Cancer cells produce abnormal kinds and amounts of biomarkers (called antigens), which may be distinguishable from the antigens produced by healthy cells. These cancer-associated antigens  provide the targets to enable the immune system to seek and destroy cancer cells marked by these antigens.

The Human Immune System

The immune system is the body’s defense mechanism responsible for recognizing and eliminating cancer cells, viruses, bacteria and other disease-causing organisms. This system consists of populations of white blood cells whose components are responsible for initiating the cellular immune response, and the humeral, or antibody-based, immune response.

Dendritic cells, a component of white blood cells, are the master cells of the immune system responsible for mobilizing the overall immune response.  The dendritic cells stimulate cellular immune responses by processing and displaying disease-associated antigen fragments on their outer cell surface, where they are recognized by naive T-cells, that have not yet been exposed to antigens. Upon exposure to these antigen fragments, naive T-cells become disease-specific Helper T-cells or Killer T-cells. Helper T-cells then help Killer T-cells to locate and potentially destroy the cells marked by the disease- associated antigen.

Dendritic cells also mobilize B-cells.  Such B cells contribute to the immune response by binding to disease-associated antigens on the surface of various cell types, producing disease-specific antibodies. Helper T-cells also enhance B-cell production of disease- specific antibodies. These antibodies bind to and initiate the destruction of cells marked by the associated disease-specific antigens.

  A small population of activated Helper T-cells, Killer T-cells, and antibody-producing B-cells survive for long periods of time, retaining the memory of what the disease fragment looks like. These cells can respond very rapidly to subsequent exposure to disease-specific antigens and fragments. The most effective natural immune response is one in which both Helper and Killer T-cells and antibody-producing B-cells are activated.

The immune system response to cancer can be generally characterized by the following sequence:

 
Step 1.  Dendritic cells ingest cancer antigens, break them into small fragments and display them on their outer cell surfaces.

 
Step 2.  Dendritic cells bearing these cancer antigen fragments bind to and activate naive T-cells, which become disease-specific Helper T-cells and Killer T-cells.

 
Step 3.  The activated Helper T-cells produce factors that greatly enhance the cell division of Killer T-cells and mature their cancer-killing properties.

 
Step 4.  Cancer cells and their cancer-associated antigens are also recognized by antibody-producing B-cells.

 
Step 5.  The activated Helper T-cells produce factors that greatly enhance antibody production by B-cells that in turn are specific for the cancer-associated antigens.

 
3

 

 
Step 6.  The Killer T-cells and antibodies, acting alone or in combination, destroy cancer cells.

Limitations of Current Cancer Therapies

Traditional treatments for cancer include:

 
Surgery.  Surgery may be used to remove cancer cells, but not all cancer cells can be removed surgically. Surgery may also result in significant adverse side effects such as collateral damage to healthy tissue, bleeding and infection.

 
Radiation Therapy.  Radiation therapy may be used to treat cancers, but it can cause significant damage to healthy tissue surrounding the targeted cancer cells. Recurrent cancers may not be treatable with further radiation therapy. Radiation therapy may also cause additional significant adverse side effects such as burns to treated skin, organ damage and hair loss.

 
Chemotherapy.  Chemotherapy may be used to treat cancer, but involves the use of toxic chemical agents. These toxic chemical agents affect both healthy and diseased cells and may cause additional significant adverse side effects such as hair loss, immune suppression, nausea and diarrhea.

 
Hormone Therapy.  Hormone therapy may be used to treat cancer, but involves the use of substances that chemically inhibit the production of growth and reproductive hormones and is also limited in effectiveness. Hormone therapy may cause significant adverse side effects such as bone loss, hot flushes, impotence and blood clots.

Current Cancer Immunotherapy Approaches

Immunotherapy offers a new approach to be used as an adjuvant in combination with traditional therapies (or potentially alone). It can stimulate and enhance the body’s natural mechanism for destroying cancer cells, and may overcome many of the limitations of traditional cancer therapies. In recent years, two cancer immunotherapy approaches have emerged to address the limitations of traditional therapies, which have resulted in a number of products approved by the U.S. Food and Drug Administration, or FDA:

 
Antibody-Based Therapies.  Currently approved antibody-based cancer therapies have modestly improved survival rates with partially reduced side effects when compared with traditional therapies. However, these antibody-based therapies can elicit an immune response against themselves because they often contain mouse proteins or fragments of such proteins. This can limit their effectiveness and potentially cause toxic side effects.

 
Immune-Modulating Agents.  Currently approved immune-modulating agents, such as IL-2 and alpha-interferon, are known to have some ability to enhance the immune system and limited efficacy to control cancer growth. However, these therapies involve delivery of the immune modulating agent through the blood system and may result in significant toxicity to healthy tissue.
 
Our Approach

We have developed a proprietary personalized-dendritic cell vaccine, DCVax ® for stimulating and enhancing a patient’s natural cellular and humeral (i.e. antibody) immune response to cancer. Given appropriate funding for future development, we believe that DCVax ® may overcome certain limitations of current cancer therapies and offer cancer patients safe and effective treatment alternatives, alone or in combination with other therapies.

DCVax ® is a platform technology which we believe is applicable to most cancers. It combines a patient’s own dendritic cells either with a patient’s own cancer-related biomarkers (called antigens), or with off-the-shelf antigens, to induce immune responses against a patient’s cancer cells. The Company’s early-stage clinical trial data, and those of its collaborators, suggest that DCVax ® -Brain and DCVax ® -Prostate may have the ability to significantly delay disease progression and significantly prolong patient survival, while maintaining a superior quality of life when compared with current therapies.

 
4

 

The natural immune response starts with activation of a master immune cell type, the dendritic cell (DC). These cells direct all ensuing activities of all components of the immune response. When a virus, bacteria, or a cancer cell, encounters a DC, the DC consumes the virus, bacteria or cancer cell and chops it into small pieces. In the process, the DC becomes activated and starts traveling to the lymph node. In the lymph node, the DC elicits a cascade of events that leads to an immune response. Importantly, the nature of the virus, bacteria or cancer cell and the nature of the DC activation dictate the type of immune response. Preparing the DC outside the body, as is done for DCVax ® products, is intended to allow the greatest degree of control and effectiveness, avoiding suppressive effects and obstacles generated by tumors in the patient’s body. The prepared or “educated” DCs then are re-injected back into the patient to begin the immune response in the natural fashion, leading to an enhanced response against the virus, bacteria or cancer cell.

In cancer patients, the signaling through which the master immune cells (DCs) are activated is impaired. Our technology, therefore, involves delivering the necessary signals to activate the master immune cells outside the patients’ body. We believe that after receiving these signals, the master immune cells will be able to function normally and mobilize the full immune response in the natural manner.

THE IMMUNE SYSTEM

Different Approaches

Most traditional immunization approaches, including traditional virus, specific antigen or peptide vaccines, as well as some that are used for immunotherapy of cancer, rely upon signaling inside the patient’s body to try to activate and mobilize the already existing DCs in the body, or try to modulate only one arm of the immune system. These approaches have worked well to address infectious diseases, but have generally failed to work in cancer patients because such approaches are reliant upon signaling in the patients’ bodies which, as discussed above, is impaired in cancer patients.

In addition, the immunogen, i.e. the virus, specific antigen, peptide or the cancer cells used to prepare the vaccine, is in those cases injected into the body in a formulation that aims at targeting and activating local DCs. Examples are viral, specific antigen or peptide vaccines formulated with adjuvant, or killed tumor cells alone or modified to produce the DC mobilizing protein GM-CSF. In these instances, it is left to chance as to whether the immunogen arrives at the DC, and whether the DCs are properly activated and effectively migrate to lymph nodes to produce an effective immune response.

Treatments that use only a single arm of the immune system may employ large amounts of T-cells, or a single (monoclonal) antibody. We believe that the DCVax ® products have a clear advantage compared to this approach in that they are designed to activate all aspects of the immune response, both cellular and antibody, thereby potentially providing a broader and longer lasting immune and clinical response. Our DCVax ® products consist of pure, activated DCs loaded with the immunogen as would naturally occur, and that are capable of migrating to lymph nodes. The intended result is a full immune response consisting of both a specific cellular T-cell response and a specific antibody response against the cancer-associated antigen consistent with our Phase I and Phase II clinical trial results for DCVax ® -Brain and DCVax ® -Prostate, respectively, and that is translated into a potential clinical benefit — in this case, a delay in disease recurrence and an extension of overall survival of the patient.
 
 Cancer and the Immune System

Cancer cells produce many substances that shut down the immune response, as well as substances that suppress or block the DCs that are resident in the body. The optimal time for controlling cancer growth by activating the immune system is, therefore, at the time when tumor burden is low. Our DCVax ® products target patients with brain cancer following surgery, radiation and chemotherapy, and hormone independent prostate cancer patients with no detectable tumor. This approach is designed to allow induction of powerful immune responses to control progression of the disease. However, in clinical trials, delays in cancer progression and extension of survival have also been seen in late stage patients treated with DCVax ® -Brain and DCVax ® -Prostate.

The DCVax ® Process

The DCVax ® platform uses our proprietary process to efficiently produce and activate DCs outside a patient’s body. The clinical trials with DCVax ® -Brain and DCVax ® -Prostate suggest that these cells can generate an effective immune system response when administered therapeutically. Manufacture of a DCVax ® product takes approximately 30 days to complete for DCVax ® -Prostate and approximately 10 days for DCVax ® -Brain, and is characterized by the following sequence:

 
5

 

 
Collection.  A sample of a patient’s white blood cells is collected in a single and simple outpatient procedure called leukapheresis.

 
Isolation of Precursors.  These cells are sent to a manufacturing facility, where DC precursors are isolated from the patient’s white blood cells.

 
Differentiation by Growth Factors.  DC precursors are transformed in a manner that mimics the natural process in a healthy person’s body, through the application of specific growth factors, into highly pure populations of immature DCs during a six-day culture period.

 
Maturation.  Immature DCs are exposed to a proprietary maturation factor or maturation method in order to maximize Helper T-cell, Killer T-cell, and B-cell activation.

 
Antigen Display.  Cancer-associated antigens, fragments of cancer-associated antigens or deactivated whole cancer cells are added to, ingested, and processed by the maturing DCs, causing the DCs to display fragments of cancer-associated antigens on their outer cell surfaces.

 
Harvest.  These DCs are harvested and separated into standardized single-use DCVax ® administration vials, frozen and stored.

 
Quality Control.  DCVax ® product lot undergoes, according to current industry standards, rigorous quality control testing, including sterility testing for bacterial and mycoplasma contamination, and potency testing prior to shipment to the administration site for injection.

DCVax ® -Brain Manufacturing Steps:

DCVax ® — Characteristics

The DCVax ® platform combines our expertise in dendritic cell biology, immunology and antigen discovery with our proprietary process of activating DCs outside of a patient’s body to develop therapeutic products intended to stimulate beneficial immune responses to treat cancer in a cost-effective manner. DCVax ® has the following significant characteristics, the combination of which we believe makes it a highly attractive alternative to current therapies.

Activation of the Natural Immune System

Our DCVax ® product candidates are designed to elicit a natural immune response. Pre-clinical and clinical trials suggest that our DCVax ® product candidates can train a patient’s own Killer T-cells to locate and destroy specifically targeted cancer cells. These same clinical trials also suggest that DCVax ® -Prostate stimulates the body to produce antibodies and/or Killer T-cells that bind to cancer-associated antigens and potentially destroy cancer cells marked by these antigens. Moreover, the clinical trials show that this immune response may be effective in delaying time to disease progression in brain and prostate cancer, and both may prolong survival and improve the quality of life for brain and prostate cancer patients.

Multiple Cancer Targets

We believe that our DCVax ® platform can be applied towards the treatment of a wide variety of cancers. The platform affords the flexibility to target many different forms of cancer through the pairing of DCs with cancer-associated antigens, fragments of cancer-associated antigens or deactivated whole cancer cells as well as possible direct intra-tumoral injection of partially mature dendritic cells.

Targeting of Serious Cancers with No Effective Treatments

DCVax ® -Prostate targets men with rising PSA levels while on hormone therapy, but before metastases develop. There is currently no effective treatment for this growing population of patients who invariably go on to develop complications from the spread of their cancer to the bone and, eventually, succumb to their disease. DCVax ® -Brain targets patients with GBM, a highly lethal form of brain cancer. In two Phase I trials carried out at UCLA from 1999 to the present day, patients treated with DCVax ® -Brain have survived more than twice as long without relapse compared to matched concurrent controls not receiving DCVax ® -Brain (under “matched concurrent controls” patients received standard of care treatment at the same time clinical trial patients were treated with standard of care treatment together with DCVax ® -Brain; these control patients have been matched for the major prognostic factors for GBM).

 
6

 

Low Incidence of Significant Adverse Side Effects or Toxicity

Our initial two DCVax ® -Brain Phase I trials and DCVax ® -Prostate Phase I/II clinical trial have shown no significant adverse side effects in over 250 administered injections. Some patients had moderate injection site reactions, and we observed some severe injection site reactions that we believe to be a result of immune activation. Patients treated with DCVax ® -Brain or DCVax ® -Prostate therefore might not need to take additional prescription drugs to manage undesirable side effects as is often the case with certain current cancer treatments. We minimize the potential for toxicity by using the patient’s own cells to create its DCVax ® product candidates. Additionally, because our DCVax ® products are designed to target the cancer- associated antigens in the patient, collateral damage to healthy cells is minimized.

Efficient and Cost-Effective Manufacturing

We have developed a second generation closed and automated device based on tangential flow filtration (“TFF-Cell Separation System”) for manufacturing DC from patient leukapheresis material. We have a contract with Cognate BioServices, Inc. (“Cognate”) for the manufacture of DCVax ® -Brain product for clinical use. This TFF-Cell Separation System is currently undergoing validation. See “— Manufacturing”.

Ease of Administration

We initially collect a sample of a patient’s white blood cells in a single standard outpatient procedure called leukapheresis. After patient-specific manufacturing and quality control testing, each small dose of a DCVax ® product candidate is administered by a simple intradermal injection in an outpatient setting. Dendritic cells administered by intradermal injection migrate to the draining lymph nodes where they interact with and activate T-cells.

Complementary with Other Treatments

Our DCVax ® product candidates are designed to stimulate the patient’s own immune system to safely target cancer cells. Consequently, we believe these products may be used as an adjuvant to standard therapies such as chemotherapy, radiation therapy, hormone therapy and surgery.

Our Clinical and Pre-clinical Development Programs

The following table summarizes the targeted indications and status of our product candidates:

Product Candidate
 
Target Indications
 
Status
DCVax ® Platform
       
DCVax ® - Prostate
 
Prostate cancer
 
Phase III — clinical trial cleared by the FDA for recruitment of patients for non-metastatic hormone independent prostate cancer
         
DCVax ® -Brain
 
Glioblastoma multiforme
 
Phase II — clinical trial initiated. Orphan Drug designation granted in the U.S. in 2006 and in the European Union in 2007
         
DCVax ® -LB
 
Non-small cell lung cancer
 
Phase I — clinical trial cleared by the FDA
         
DCVax ® -Direct
 
Solid tumors
 
Phase I — clinical trial cleared by the FDA for ovarian cancer, head and neck cancer and two other indications (expected to be liver and pancreatic cancers)
         
DCVax ® -L
 
Resectable solid tumors
 
Phase I/II — completed clinical trial at the University of Pennsylvania

 
7

 

Pre-clinical means that a product candidate is undergoing efficacy and safety evaluation in disease models in preparation for human clinical trials. Phase I-III clinical trials denote safety and efficacy tests in humans as follows:

Phase I: Evaluation of safety and dosing.

Phase II: Evaluation of safety and efficacy.

Phase III: Larger scale evaluation of safety and efficacy.

DCVax ® Product Candidates

DCVax ® -L for Brain Cancer

DCVax ® -Brain uses our DCVax ® platform in combination with the patient’s own glioblastoma tumor cell lysate antigens. Our clinical collaborators at UCLA conducted two Phase I clinical trials to assess the safety and efficacy of DC-based immunotherapy for Glioblastoma multiforme (“GBM”). In the first Phase I clinical trial, DCVax ® -Brain was administered to 12 patients and in the second Phase I clinical trial it was administered to 17 patients. The patients in both trials were treated with DCVax ® -Brain being administered as an adjuvant to the standard of care.

The data from progression and survival Kaplan Meier curves of both of these trials together show that newly diagnosed GBM patients treated at UCLA, and matched for the major prognostic factors, with DCVax ® -Brain had a delay in the median time to recurrence or progression of disease from 8.1 months with standard of care treatments in matched concurrent control patients to 18.1 months in patients treated with DCVax ® -Brain (p = 0.00001;n=20). DCVax ® -Brain increased median overall survival from 17.0 months with standard of care in matched concurrent control patients treatments to 36.4 months in patients treated (and continuing as the median is not yet reached) for DCVax ® -Brain treated patients, again matched for the major prognostic factors (p < 0.0004; n=20). The ‘p’ value measures the likelihood that the difference between the treated and non-treated patients is due to chance. A p’ value less than or equal to 0.05 (meaning there is a 5 percent or lower possibility that the observed clinical effect is due to chance) is required for product approval by the FDA and European regulatory authorities. The ‘p’ value of 0.0004 observed with DCVax ® -Brain means that there is only a 0.04 percent (i.e. 4 in 10,000) possibility that the observed effect between standard of care and DCVax ® -treated patients is due to chance, and the ‘p’ value of 0.00001 means that there is only a 0.001 percent (i.e., 1 in 100,000) possibility that the results are due to chance. Eight of the 20 patients remained alive for periods ranging, to date, from 15.9 to 103 months, with five patients having lived for over 45 months without cancer recurrence. Similarly, in recurrent (late stage) patients, DCVax ® -Brain has increased median survival from 6.4 months for those receiving standard of care to 11.9 months for patients receiving DCVax ® -Brain.

In December 2006, we commenced recruiting patients with newly diagnosed GBM in a 141 patient Phase II DCVax ® -Brain clinical trial. We planned to carry out the study at 12 to 15 clinical sites. The study was designed as a randomized study in which patients received either DCVax ® -Brain in addition to standard of care or standard of care alone. The study was not blinded because there was no available approach for making a placebo that was indistinguishable from the DCVax ® -L. Almost 50 patients were screened at 4 clinical sites. However, patients were reluctant to enroll in the study when faced with a 33% chance of being randomized into the control arm of the study under which they will receive standard of care alone. In addition, even patients who did enroll were reluctant to stay in the study if they were assigned to the control arm.  Since the study was not blinded, patients were able to know which arm of the study they were assigned to.  So, the Company stopped and undertook a development program to develop a placebo that is indistinguishable from DCVax

With the placebo developed the Company redesigned the study as a randomized, placebo controlled, double blinded study with a cross-over arm allowing control patients to be treated with DCVax ® -Brain in the event that their cancer progresses. The study size has been increased from 141 to 240 patients and is designed to enable us to petition the FDA for accelerated approval if the study generates results similar to those achieved in the two prior clinical trials. We currently have 13 clinical sites that are qualified and ready to enroll patients.  In order to enable rapid enrollment, we may add some additional clinical sites for this trial when resources permit. We are engaged in discussions with the FDA concerning the study design and end points. Depending on trial results, we plan to seek product approval in both the U.S. and the European Union.

 
8

 

I n February 2007, we, through our legal representative, applied to the Bundesamt für Gesundheit (“BAG” or “Office Fédéral de la Santé Publique”) in Switzerland for an Authorization for Use (“Autorisation”). In June 2007, we, through our legal representative, received such Autorisation from the BAG to make DCVax ® -Brain available at limited selected medical centers in Switzerland, as well as an authorization (“Autorisation pour activités transfrontalières avec des transplants”) to export patients’ cells and tissues from Switzerland for vaccine manufacturing in the United States, and to import patients’ DCVax ® -Brain finished vaccines into Switzerland. These authorizations are conditional upon certain implementation commitments which had to be fulfilled to the satisfaction of Swissmedic (“Institut Suisse des Agents Thérapeutiques”) before the product could be made available (e.g., finalizing our arrangements for a clean-room suite for processing of patients’ immune cells). We believe that we have fulfilled these commitments, and have been awaiting Swissmedic assessment.

Subsequent to the BAG’s favorable decision, the BAG and Swissmedic underwent a reorganization, and the BAG’s jurisdiction was transferred to Swissmedic.  Following that reorganization, each party, who had received a BAG decision such as NWBT had received, was requested to file a Marketing Authorization Application (MAA) with Swissmedic for full product approval.  NWBT did so at year end 2007. During the two-plus years since then, Swissmedic has conducted inspections, and has been reviewing and evaluating the Company’s MAA.

Standard of Care:  The current standard of care for GBM was established in a 573 patient study as set out by Stupp et al. in N Engl J Med 352;10, and resulted in a median time to progression of 6.9 months and a median overall survival rate of 14.6 months in patients receiving a standard of care treatment regimen. The standard of care established in the Stupp trial for GBM patients consists of surgery followed two weeks later by radiation therapy with concomitant daily low-dose Temodar chemotherapy, followed by six monthly cycles of full-doseTemodar chemotherapy. The DCVax ® -Brain treatment regimen fits between the steps of this current standard of care, and does not require a change in clinical practices, other than one 30-day delay after the first chemotherapy treatment.

Target Market:  The American Cancer Society estimates that about 21,810 new cases of primary brain cancer will be diagnosed in the U.S. during 2008. Deaths from newly diagnosed malignant primary brain cancer in the U.S. are estimated to be approximately 13,070 per year. Globocan has estimated that about 48,385 new cases of primary brain cancer would be diagnosed in Europe in 2002 (the last year for which estimates are available). Deaths from brain cancer in Europe were estimated at 39,061 in 2002.

Current Treatments:  As described above, existing treatments for GBM include surgery, radiation and chemotherapy. Such treatments are often used in various combinations and/or sequences and have significant adverse side effects such as bleeding, seizures, nausea and collateral tissue damage. Following initial treatment, virtually all cases of this cancer recur, with a life expectancy of approximately six months following recurrence. Few, if any, effective therapies exist for these patients. We believe that DCVax ® -Brain has the potential to address this critical unmet medical need.

DCVax ® -L for Ovarian Cancer

This trial treated “no option” patients who had already been treated with most or all major drugs currently available for recurrent, metastatic ovarian cancer (including carboplatin, paclitaxel docetaxel, abraxane, gemcitabine and topotecan), and whose cancer had still continued to progress.  In other recent clinical trials testing various drugs and drug combinations for recurrent ovarian cancer, the treated patients have generally attained less than 3 or 4 months without progression of their cancer, and have experienced serious side effects (including gastro-intestinal perforation, a life-threatening condition).

In the Company trial, the two patients who have received treatment attained 8 months and 6 months without progression, respectively.  Each of these NWBT patients had metastases in 4 or 5 locations at the beginning of the trial and, in both of the patients, all of their metastatic lesions responded following the treatment regimen – either by shrinking somewhat (20-25%) or by remaining the same size and not growing, or by disappearing.  The patients did not experience any toxicity or debilitating side effects.

Metastatic ovarian cancer poses a particularly serious and urgent unmet medical need.  In most patients, the disease is not discovered until it is already late stage, because ovarian cancer typically causes little or no symptoms until it is late stage.  When this cancer has metastasized, as in the case of the no-option patients in NWBT’s trial, the cancer usually progresses rapidly and aggressively.  In other recent clinical trials in recurrent ovarian cancer, only limited clinical responses were obtained in the treated patients, and even those were only in a small percentage of patients (for example, 18-28% of those treated).

 
9

 

DCVax ® -Prostate

DCVax ® -Prostate targets hormone independent (i.e. late stage) prostate cancer. DCVax ® -Prostate combines our DCVax ® platform with the cancer-associated antigen “prostate specific membrane antigen” or “PSMA”. PSMA is located on the surface of prostate cells. It is expressed at very low levels on benign or healthy prostate cells, and at much higher levels on prostate cancer cells. Because PSMA is over-expressed in virtually all prostate cancers, it represents an effective target for prostate cancer therapeutics. In addition, we do not have to screen patients. DCVax ® -Prostate is designed to be used in the whole patient population. In contrast, the use of other cancer vaccines in development may be limited to part of the patient population and require screening of patients.

In September 1999, we filed an application to conduct a Phase I/II clinical trial for DCVax ® -Prostate to treat late-stage prostate cancer patients for whom hormone therapy was no longer effective. This trial, which was carried out at the M.D. Anderson Cancer Centre and at UCLA, involved the administration of DCVax ® -Prostate to 33 evaluable patients in order to establish the safety of three different dosage levels of DCVax ® -Prostate.

Additional data from our Phase I/II DCVax ® -Prostate clinical trial in 33 patients with non-metastatic and metastatic hormone independent prostate cancer indicates the following. Of a total of 33 patients who have been treated in this trial, 11 were non-metastatic hormone independent prostate cancer patients (group A) and 22 were metastatic hormone independent prostate cancer patients (group B). In group A, there has been an increase in survival from 36 months for the natural course of the disease to >54 months for DCVax ® -Prostate treated patients. The median had not yet been reached as of the end of 2005 (the latest date to which long-term data is so far available). In this group the time to metastases under the natural course of the disease is 28 to 36 weeks. This time was lengthened to 59 weeks in patients who received DCVax ® -Prostate. In group A, none of the 11 patients had progressed at 28 weeks and only five had progressed at 59 weeks. The group A patient population is the patient population that we will focus on in our Phase III clinical trial.

In group B (hormone independent patients with metastases), there was an increase in median overall survival from 18.9 months for standard of care to 38.7 months for DCVax ® -Prostate treated patients. Patients in this study had a six-times greater chance of being alive at 36 months compared to patients treated with the standard of care.

Many cancer therapeutics elicit a clinical response in only a small fraction of patients. In clinical trials, DCVax ® -Prostate has been shown to elicit a specific PSMA antibody response and a specific and strong T-cell response in about 80 percent of patients. The Company believes that the administration of DCVax ® -Prostate may enhance progression free survival relative to placebo, delay the development of symptomatic disease and increase overall survival.

DCVax ® -Prostate has been cleared by the FDA for a Phase III clinical trial in about 600 patients in 50 centers. The patient population is non-metastatic hormone independent prostate cancer. We currently intend to separate the 600 patient Phase III trial into two Phase III clinical trials in non- metastatic hormone independent prostate cancer patients with about 300 patients per trial.

Standard of Care.   The standard of care for metastatic hormone independent prostate cancer was established in a 674 patient study as set out by Petrylak et al. in N Engl J Med 351;15 and resulted in a median overall survival rate of 18.9 months. This standard of care consists of taxotere (chemotherapy) being administered as a single dose every three weeks or in a weekly regime. Other drugs, such as mitoxantrone and prednisone, are also administered to patients for pain derived from bone metastasis. The DCVax ® -Prostate treatment regimen fits between the steps of current standard of care, and does not require a change in clinical practices. There is no established standard of care for non-metastatic hormone independent prostate cancer as there is no FDA approved therapeutic product for this type of prostate cancer.

Target Market.   The American Cancer Society estimates that 186,320 new cases of prostate cancer will be diagnosed in the U.S. during 2008. Deaths from prostate cancer in the U.S. are estimated to be 28,660 for 2008. We estimate that there is an initial DCVax ® -Prostate target population in the U.S. consisting of approximately 100,000 patients per year with non-metastatic hormone independent prostate cancer. Globocan has estimated that 230,627 new cases of prostate cancer would be diagnosed in Europe in 2002 (the last year for which estimates are available). Deaths from prostate cancer in Europe were estimated at 83,066 in 2002.

 
10

 

Current Treatments.   Existing treatments for localized (i.e. newly-diagnosed) prostate cancer include surgery and/or various forms of radiation therapy. The current standard of care for treating patients who fail primary therapy is hormone therapy through which the effect of male hormones is blocked. Although this therapy achieves temporary tumor control, prostate cancer patients eventually fail hormone treatments, meaning that blocking of hormones no longer keeps the cancer under control. The United States National Cancer Institute’s 1989-1996 five-year survival rate for metastatic prostate cancer is only 32 percent. Moreover, hormone therapy may cause significant adverse side effects, including bone loss, hot flushes and impotence. Disease progression despite hormone therapy occurs on average in two years, and is then classified as hormone independent prostate cancer. Approximately 55 percent of patients with hormone independent prostate cancer will die within two years of its onset. Currently, the only FDA approved treatments for hormone independent prostate cancer are chemotherapy and radioactive pharmaceuticals, which can alleviate cancer-related symptoms but may cause significant toxic side effects and only prolong survival by approximately two and a half months. A large proportion of hormone independent patients do not have objective metastatic disease as measured by bone and CT scans. We believe that DCVax ® -Prostate has the potential to address this critical unmet medical need.

DCVax ® -LB

DCVax ® -LB is targeting non-small cell lung cancer, the largest cause of cancer deaths in both the U.S. and Europe. DCVax ® -LB combines our DCVax ® platform with isolated and killed lung cancer cells as antigens. The autologous DCs used to formulate DCVax ® -LB are activated through a process similar to that used in the manufacturing of DCVax ® -Prostate. We had an investigational new drug application cleared by the FDA in May 2006 for a Phase I clinical trial using DCVax ® -LB in non-small cell lung cancer.

Target Market.   The American Cancer Society estimates that 215,020 new cases of lung cancer will be diagnosed in the U.S. during 2008. Approximately 80 percent of these cases are expected to be attributable to non-small cell lung cancer, the indication that we are targeting. Deaths from all forms of lung cancer are estimated to be 161,840 for 2008. Globocan has estimated that 374,764 new cases of lung cancer would be diagnosed in Europe in 2002 (the last year for which estimates are available). Deaths from lung cancer in Europe were estimated at 341,595 in 2002.
Current Treatments.   Existing treatments for non-small cell lung cancer include surgery and radiation therapy, which are used in various combinations. These treatments have significant toxic side effects and have limited clinical benefit. The American Cancer Society has reported that only 16 percent of patients diagnosed with non-small cell lung cancer survive after five years. Following initial treatment, virtually all cases of this cancer recur, with a life expectancy of approximately one year following recurrence.

DCVax ® -L

DCVax ® -L targets any kind of solid tumor cancer and it combines our DCVax ® platform with patient specific tumor lysate. Following surgery, the tumor is prepared as a lysate (i.e. the tumor tissue is finely chopped) for loading into autologous dendritic cells. The patient’s tumor lysate contains cancer specific biomarkers which will be added to the patient’s own dendritic cells and subsequently injected back into the patient to elicit a cancer specific immune response. The company commenced a Phase I/II study using DCVax ® -L at the University of Pennsylvania in 2007.

Target Market:   The American Cancer Society estimates that 21,650 new cases of ovarian cancer will be diagnosed in 2008 and that there will be approximately 15,520 deaths from the disease. Globocan has estimated that 63,467 new cases of ovarian cancer were diagnosed in Europe in 2002 (the last year for which estimates are available). Once ovarian cancer has recurred, there are currently no effective treatments for the disease. Thus, new treatment modalities that prevent or delay cancer recurrence are of importance in prolonging survival in women with ovarian cancer. This study is being funded by the Ovarian Cancer Vaccine Initiative (OCVI), a private philanthropic organization.

Current Treatments:   Standard therapy includes surgical debulking, followed by chemotherapy with a taxane/platinum combination for six to eight cycles. Of the patients who present with advanced stage disease (III or IV), 70 percent will have an initial clinical remission following surgery and chemotherapy, with no evidence of disease by physical examination, radiographic imaging (such as CT or MRI) or normalization of the CA125 tumor marker. However, for most of these patients, the ovarian cancer will recur within two years. The median time to progression is approximately 20 months even for patients who received total or near-total surgical removal of the initial tumor and is approximately 14 months for patients with less complete surgical removal of the initial tumor. Once ovarian cancer has recurred, it is not considered curable and progression to death is usually inevitable, despite aggressive chemotherapy strategies. The overall five year survival for advanced ovarian cancer remains at only 20 to 30 percent.

 
11

 

DCVax ® -Direct

DCVax ® -Direct uses our DCVax ® platform to activate DCs suitable for direct injection into solid tumors. DCVax ® -Direct is designed to treat cancer patients whose tumor tissue is not available or whose tumors are considered to be inoperable. Several scientific studies have shown that DCs injected into solid tumors in animal models can result in tumor regression. We have demonstrated in pre-clinical animal studies the ability of activated DCs, when injected directly into just a single tumor of mice bearing multiple tumors, to cause all tumors to regress. In these studies, subsequent challenge of these now tumor-free mice with the injection of additional tumor cells was met with total rejection of tumor growth demonstrating an immunization of the mouse against regrowth of the tumor. The DCs used in the formulation of DCVax ® -Direct are activated through a process similar to that used for DCVax ® -Brain and DCVax ® -Prostate (i.e. using heat-killed and formalin-fixed BCG mycobacteria and interferon gamma), although they are not loaded with tumor antigens prior to injection. Rather, the antigen loading takes place in vivo after injection of the DCVax ® -Direct DCs into the tumor tissue, typically following radiation therapy, chemotherapy, or other treatments that kill tumor cells.

We have a Phase I clinical trial protocol under the DCVax ® -Direct IND for the treatment of head and neck cancer. This clinical trial protocol was cleared by the FDA in the third quarter of 2006. We intend to identify the most appropriate cancers for the remaining two available trials under the DCVax ® -Direct IND at the appropriate time, although our present intention is to pursue liver and pancreatic cancers.

Target markets:  The American Cancer Society estimates that 21,650 new cases of ovarian cancer and 35,310 new cases of head and neck cancer will be diagnosed in the U.S. during 2008. Globocan has estimated that 63,467 new cases of ovarian cancer and 98,175 new cases of head and neck cancer were diagnosed in Europe in 2002 (the last year for which estimates are available). Deaths from ovarian cancer and head and neck cancer in Europe were estimated at 41,024 and 43,273 respectively. Deaths from all solid tumors are estimated to be approximately 500,000 in 2008. Deaths from all solid tumors are estimated at approximately 815,000 in the E.U. in 2002 (the last year for which estimates are available).

Current treatments:  Current treatments for solid tumors typically involve cytotoxic therapy aimed at killing tumor cells. Such treatments include radiation therapy, chemotherapy, or other cell killing treatments such as cryotherapy. These treatments can still be used along with DCVax ® -Direct as they can potentially prepare the tumor tissue for the injection of DCVax ® -Direct. The ability to still use conventional cytotoxic agents along with DCVax ® -Direct will enable DCVax ® -Direct to be adopted in the market without requiring any change of existing clinical practice if so desired.

Therapeutic Antibody Product Candidates

We have been issued patent coverage by the U.S. Patent and Trademark Office which gives us broad rights to the use of CXCR4 antibodies to treat cancer. CXCR4 is a protein that plays a key role in the progression of primary cancers and in the metastatic process. CXCR4 is over-expressed in more than 75 percent of cancers including non- small cell lung cancer, breast cancer, GBM, colon cancer, melanoma, prostate, pancreatic, kidney, ovarian, and certain blood cancers. In all of these cancers CXCR4 is centrally involved in all three phases of disease progression: proliferation of the primary tumor, migration of cancer cells out of the primary tumor, and establishment of distant metastatic sites.

We have completed substantial research and pre-clinical testing phases with two versions of CXCR4 antibodies. We intend to identify the most appropriate cancers for clinical trial or multiple clinical trials using CXCR4 antibodies at the appropriate time.

Manufacturing

We have developed a proprietary manufacturing system that enables us to produce vaccines for an entire multi-year course of treatments in a single manufacturing run using the cancer patient’s own DCs and the patient’s own tumor biomarkers. This manufacturing process results in sufficient patient-specific DCVax ® product for at least a course of 11 injections of DCVax ® , which is sufficient for three years of treatment. The product thus becomes an “off-the-shelf” personalized drug after the initial manufacturing run. The advantages of this method, compared to other cell vaccine production, include not only the “off-the-shelf” feature of drug delivery to clinics and patients, but also the significant reduction in product cost due to the fact that the product does not have to be separately manufactured for each treatment injection or each couple of treatments.

 
12

 

We have entered into a services agreement with Cognate pursuant to which Cognate will provide certain consulting and manufacturing services, for our DCVax ® -Brain Phase II clinical trial. In this process, DC precursor cells are isolated from the patient’s blood and matured into new functional DCs. These DCs are combined with a patient’s own cancer biomarkers from the patient’s tumor tissue removed in surgery. The finished vaccine is then frozen in single-dose vials , and can remain frozen for many years until required for treatment of the patient.

Cognate has moved its operations from Sunnyvale Califormia to Memphis Tennessee where it has an existing  cGMP (clean room manufacturing under current Good Manufacturing Practices) facility that is newer and less expensive.  The capacity in Memphis is approximately 600 patients per year, which we believe will be sufficient for our Phase II clinical trial for DCVax ® -Brain. 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 600 patients to over 9,000 patients per year.

The Company has developed partial automation of its manufacturing process using a TFF System.  This TFF System has been cleared by FDA for use in an upcoming DCVax ® Phase I clinical trials, and the Company’s patent coverage in the US issued during 2009. The TFF System is also targeted to be implemented into the DCVax ® -Brain product after bioequivalence studies have been completed. Since the product economics are favorable even with the existing first generation manufacturing process, the Company intends to only implement the TFF System at a time and in a manner that does not interfere with the pivotal Phase II clinical trial for DCVax ® -Brain, or product approval or launch.

Intellectual Property

We protect our proprietary technologies through patents issued and licensed throughout the world. We have 33 issued and licensed patents (9 in the U.S. and 23 in other jurisdictions) and 134 patent applications pending (15 in the U.S. and 119 in other jurisdictions) which cover the use of DCs in DCVax ® as well as targets for either the Company’s DC or monoclonal antibody therapy candidates and isolation and manufacturing, handling and administration of DCVax ® . The issued patents expire at various dates between 2015 and 2026. We intend to continue using our scientific expertise to pursue and patent new developments with respect to uses, methods, and compositions to enhance our position in the field of cancer treatment.

We have received orphan designation in the U.S.,  the E.U. and Switzerland for our DCVax ® - Brain product candidate applicable to gliomas, which comprise most primary brain cancers, including GBM. Orphan designation in the U.S. entitles us to seven years of market exclusivity for the particular indication and active ingredient provided that the product is the first such orphan to be approved for that indication. Orphan designation in the E.U. and Switzerland entitles us to ten years of market exclusivity on a similar basis.

Any patents that we obtain may be circumvented, challenged or invalidated by our competitors. Our patent applications may not result in the issuance of any patents, and any patents that may be issued may not offer any protection against others who seek to practice the claimed inventions. We have obtained licenses for certain technologies that we use, but we may be unable to maintain those licenses and may be unable to secure additional licenses in the future. Thus, we may be forced to abandon certain product areas or develop alternative methods for operating in those areas.

In addition to patents, we rely on copyright protection, trade secrets, proprietary know-how and trademarks to maintain our competitive position. Our future success will depend in part on our ability to preserve our copyrights and trade secrets. Although our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators, sponsored researchers and other advisors are required to sign agreements obligating them not to disclose our confidential information, these parties may nevertheless disclose such information and compromise our confidential data. We may not have adequate remedies for any such breach. It is also possible that our trade secrets or proprietary know-how will otherwise become known or be independently replicated or otherwise circumvented by competitors.

Our technologies may infringe the patents or violate other proprietary rights of third parties. In the event of infringement or violation, we may be prevented from pursuing further licensing, product development or commercialization. Such a result would materially adversely affect our business, financial condition and results of operations.

 
13

 

If we become involved in any litigation, interference or other administrative proceedings, we will incur substantial expenses and the efforts of our technical and management personnel will be significantly diverted. An adverse determination may subject us to significant liabilities or require us to seek licenses, which may not be available. We may also be restricted or prevented from manufacturing and selling our products, if any, in the event of an adverse determination in a judicial or administrative proceeding, or if we fail to obtain necessary licenses. In addition, any potential litigation or dispute may, as a result of our lack of funding, require us to further reduce or even curtail our operations entirely.

Competition

The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies and a strong emphasis on proprietary products. Several companies, such as  Dendreon Corporation, Immuno-Designed Molecules, Inc., ImmunoCellular Therapeutics, Celldex Therapeutics, Inc., Ark Therapeutics plc, Oxford Biomedica plc, Argos Therapeutics, Inc., Antigenics and others are actively involved in the research and development of immunotherapies or cell-based cancer therapeutics.

Of these companies, Dendreon  has completed its Phase III clinical trials in patients with prostate cancer, although their patient populations are different from those targeted by our Phase III DCVax ® -Prostate product candidate. Celldex Therapeutics has conducted a Phase II clinical trial, with a peptide immunotherapy for newly diagnosed GBM. Ark Therapeutics has completed a Phase III trial with a gene therapy for operable high grade gliomas and applied for product approval in the EU, but recently received a negative decision from the European regulator. The clinical trial data reported to date by these companies for brain and prostate cancer have not shown as long a delay in disease progression, or as long an extension of survival, as have our clinical data to date. As far as we are aware, no cell-based therapeutic product for cancer is currently available for commercial sale, although Dendreon’s vaccine is expected to become commercially available soon.

Additionally, several companies, such as Medarex, Inc., Amgen, Inc., Agensys, Inc., and Genentech, Inc. are actively involved in research and development of monoclonal antibody-based cancer therapies. Currently, at least seven antibody-based products are approved for commercial sale for cancer therapy. Genentech is also engaged in several Phase III clinical trials for additional antibody-based therapeutic products 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.

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. In addition, many of these competitors have become more active in seeking patent protection and licensing arrangements in anticipation of collecting royalties for use of technology they have developed. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors may prevent us from recruiting and retaining qualified scientific and management personnel, or from acquiring technologies complementary to our programs.

We expect that our ability to compete effectively will be dependent upon our ability to:

 
secure the necessary funding to continue our development efforts with respect to our product candidates;

 
successfully complete clinical trials and obtain all requisite regulatory approvals;

 
maintain a proprietary position in our technologies and products;

 
attract and retain key personnel; and

 
14

 

 
maintain existing or enter into new partnerships.

Governmental Regulation

Governmental authorities in the United States and other countries extensively regulate the pre-clinical and clinical testing, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution, among other things, of immunotherapeutics. In the United States, the FDA subjects pharmaceutical and biologic products to rigorous review. Even if we ultimately receive FDA approval for one or more of our products, if we or our partners do not comply with applicable requirements, we may be fined, our products may be recalled or seized, our production may be totally or partially suspended, the government may refuse to approve our marketing applications or allow us to distribute our products and we may be criminally prosecuted. The FDA also has the authority to revoke previously granted marketing authorizations.

In order to obtain approval of a new product from the FDA, we must, among other requirements, submit proof of safety and efficacy as well as detailed information on the manufacture and composition of the product. In most cases, this proof requires documentation of extensive laboratory tests, and pre-clinical and clinical trials. This testing, and the preparation of necessary applications and processing of those applications by the FDA, are expensive and typically take several years to complete. The FDA may not act quickly or favorably in reviewing these applications, and we may encounter significant difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us from marketing any products we may develop. The FDA also may require post-marketing testing and surveillance to monitor the effects of approved products or place conditions on any approvals that could restrict the commercial applications of these products. Regulatory authorities may withdraw product approvals if we fail to comply with regulatory standards or if we encounter problems following initial marketing. With respect to patented products or technologies, delays imposed by the governmental approval process may materially reduce the period during which we might have the exclusive right to exploit the products or technologies.

After an Investigational New Drug, or IND, application becomes effective, a sponsor may commence human clinical trials in the United States. The sponsor typically conducts human clinical trials in three sequential phases, but these phases may overlap. In Phase I clinical trials, the product is tested in a small number of patients or healthy volunteers, primarily for safety at one or more doses. In Phase II, in addition to safety, the sponsor evaluates the efficacy of the product in a patient population somewhat larger than Phase I clinical trials. Phase III clinical trials typically involve additional testing for safety and clinical efficacy in an expanded population at geographically dispersed test sites. The sponsor must submit to the FDA a clinical plan, or protocol, accompanied by the approval of a clinical site responsible for ongoing review of the investigation, prior to commencement of each clinical trial. The FDA or a clinical site may order the temporary or permanent discontinuation of a clinical trial at any time, if the trial is not being conducted in accordance with FDA or clinical site requirements or presents a danger to its subjects.

The sponsor must submit to the FDA the results of the pre-clinical and clinical trials, together with, among other data, detailed information on the manufacture and composition of the product, in the form of a new drug application or, in the case of a biologic, a biologics license application. The FDA is regulating our therapeutic vaccine product candidates as biologics and, therefore, we must submit biologics license applications, or BLA, to the FDA to obtain approval of our products. The clinical trial process generally takes several years, and the FDA reviews the BLA and, when and if it decides that adequate data is available to show that the new compound is both safe and effective and that all other applicable requirements have been met, the FDA approves the drug or biologic for marketing. The amount of time taken for this approval process is a function of a number of variables, including the quality of the submission and studies presented, the potential contribution that the compound will make in improving the treatment of the disease in question, and the workload at the FDA. It is possible that our product candidates will not successfully proceed through this approval process or that the FDA will not approve them in any specific period of time.

The FDA may, during its review of a new drug application or biologics license application, ask for additional test data. If the FDA does ultimately approve a product, it may require post-marketing testing, including potentially expensive Phase IV studies, and surveillance to monitor the safety and effectiveness of the drug. In addition, the FDA may in some circumstances impose restrictions on the use of an approved drug, which may be difficult and expensive to administer, and may require prior approval of promotional materials.

 
15

 

Before approving a new drug application or biologics license application, the FDA also will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facilities are in compliance with guidelines for the manufacture, holding and distribution of a product. Following approval, the FDA periodically inspects drug and biologic manufacturing facilities to ensure continued compliance with manufacturing guidelines. Manufacturers must continue to expend time, money and effort in the areas of production, quality control, record keeping and reporting to ensure full compliance with those requirements. The labeling, advertising, promotion, marketing and distribution of a drug or biologic product must also be in compliance with FDA regulatory requirements. Failure to comply with applicable requirements can lead to the FDA demanding that production and shipment cease, and, in some cases, that the manufacturer recall products, or to FDA enforcement actions that can include seizures, injunctions and criminal prosecution. These failures can also lead to FDA withdrawal of marketing approval for the product.

We and our partners are also subject to regulation by the Occupational Safety and Health Administration, the Environmental Protection Agency, the Nuclear Regulatory Commission and other foreign, federal, state and local agencies under various regulatory statutes, and may in the future be subject to other environmental, health and safety regulations that may affect our research, development and manufacturing programs. We are unable to predict whether any agency will adopt any regulation which could limit or impede on our operations.

Sales of pharmaceutical products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Whether or not we have obtained FDA approval, we must obtain approval of a product by comparable regulatory authorities in foreign countries prior to the commencement of marketing the product in those countries. The time required to obtain this approval may be longer or shorter than that required for FDA approval. The foreign regulatory approval process includes all the risks associated with FDA regulation set forth above, as well as country-specific regulations.

Employees

The Company employs four full-time employees, as of   March 28, 2010. The Company’s internal staff is supplemented by more than two dozen external staff on a contract services basis, and by consultants. Each of our employees has signed a confidentiality and invention assignment agreement, and none are covered by a collective bargaining agreement. We have never experienced employment-related work stoppages and consider our employee relations to be positive.

Available Information

We are subject to the informational requirements of the Exchange Act and, accordingly, file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and other information with the SEC. You may read and copy this Annual Report on Form 10-K and the other reports and information we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. 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.

Our website address is www.nwbio.com. The information available on or through our website is not part of this Annual Report on Form 10-K.

Item 1A.   Risk Factors

Our business, operations and financial condition are subject to various risks and uncertainties, including those described below and elsewhere in this Annual Report on Form 10-K. This section discusses factors that, individually or in the aggregate, we think could cause our actual results to differ materially from expected and historical results. Our business, operations or financial condition could be materially adversely affected by the occurrence of any of these risks.

We will need to raise additional capital, which may not be available.

As of April 12, 2010, we had approximately $215,000 of cash on hand. We will need additional capital to support and fund the research, development and commercialization of our product candidates and to fund our other operating activities. We are negotiating additional financing with several other parties, which we hope to complete later this year. 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 certain of our operations. We may raise additional funds by issuing additional common stock or securities (equity or debt) convertible into shares of common stock, in which case, the ownership interest of our stockholders will be diluted. Any financing, if available, is likely to include restrictive covenants that could limit our ability to take certain actions. Further, we may seek funding from Toucan Capital or Toucan Partners or their affiliates or other third parties. Such parties are under no obligation to provide us any additional funds, and any such funding may be dilutive to stockholders and may contain restrictive covenants. If we are unable to obtain sufficient additional capital in the near term, we may cease operations at any time.

 
16

 

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 $189.9 million as of December 31, 2009. We expect that these losses will continue and anticipate negative cash flows from operations for the foreseeable future. We will need additional funding, and over the medium term we will need to generate revenue sufficient to cover operating expenses, clinical trial expenses and some research and development costs to achieve profitability. 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, 2009 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 from the outcome of this uncertainty. 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 stockholders, in the event of liquidation.

As a company in the early stage of development with an 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 at an early stage of development. We may not be able to achieve revenue growth in the future. We have generated the following limited revenues: $529,000 in 2003; $390,000 in 2004; $124,000 in 2005; $80,000 in 2006; $10,000 in 2007; $10,000 in 2008 and $10,000 in 2009. We have derived most of these limited revenues from the sale of research products to a single customer, contract research and development for related parties, research grants and royalties from licensing fees generated from a licensing agreement. Our limited operating history makes it difficult to assess our prospects for generating revenues.

We may not be able to retain existing personnel.

We employ four full-time employees. The uncertainty of our business prospects and the volatility in the price of our common stock may create anxiety and uncertainty, which could adversely affect employee morale and cause us to lose employees whom we would prefer to retain. To the extent that we are unable to retain existing personnel, our business and financial results may suffer.

We may not be able to attract expert personnel.

In order to pursue our product development and marketing plans, we will need additional management personnel and personnel with expertise in clinical testing, government regulation, manufacturing and marketing. Attracting and retaining qualified personnel, consultants and advisors will be critical to our success. There can be no assurance that we will be able to attract personnel on acceptable terms given the competition for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions. The failure to attract any of these personnel could impede the achievement of our development objectives.

We must rely at present on a single relationship with a third-party contract manufacturer, which will limit our ability to control the availability of our product candidates in the near-term.

We rely upon a single contract manufacturer, Cognate. The majority owner of Cognate is Toucan Capital, one of our majority stockholders. Cognate provides consulting services and is the manufacturer of our product candidates. We have an agreement in place with Cognate pursuant to which Cognate has agreed to provide manufacturing and other services in connection with our Phase II clinical trial for DCVax ® -Brain. The agreement requires us to make minimum monthly payments to Cognate irrespective of whether any DCVax ® products are manufactured. The agreement does not extend to providing services in respect of commercialization of the DCVax ® -Brain product, nor for other clinical trials or commercialization of any of our other product candidates. If and to the extent we wish to engage Cognate to manufacture our DCVax ® -Brain for commercialization or any of our other product candidates (including DCVax ® -Prostate) for clinical trials or commercialization, we will need to enter into a new agreement with Cognate or another third-party manufacturer which might not be feasible on a timely or favorable basis. The failure to timely enroll patients in our clinical trials will have an adverse impact on our financial results due, in part, to the minimum monthly payments that we make to Cognate.

 
17

 

Problems with our contract manufacturer’s facilities or processes could result in a failure to produce, or a delay in production, of adequate supplies of our product candidates. Any prolonged interruption in the operations of our contract manufacturer’s facilities could result in cancellation of shipments or a shortfall in availability of a product candidate. A number of factors could cause interruptions, including the inability of a supplier to provide raw materials, equipment malfunctions or failures, damage to a facility due to natural disasters, 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, the contract manufacturer going out of business or failing to produce product as contractually required or other similar factors. Because manufacturing processes are highly complex and are subject to a lengthy FDA approval process, alternative qualified production capacity may not be available on a timely basis or at all. Difficulties or delays in our contract manufacturer’s manufacturing and supply of components could delay our clinical trials, increase our costs, damage our reputation and, if our product candidates are approved for sale, cause us to lose revenue or market share if it is unable to timely meet market demands.

Our success partly depends on existing and future collaborators.

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. We do not employ these scientists and medical professionals. 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 as required by our license, consulting and sponsored research agreements. 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.

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. It can vary substantially, based upon the type, complexity and novelty of the product involved. 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 reduce our anticipated revenues and delay or terminate the potential commercialization of our product candidates.

We have limited experience in conducting and managing clinical trials.

We rely on third parties to assist us in managing and monitoring all our clinical trials. Our reliance on these third parties may result in delays in completing, or failure to complete, these trials if the third parties fail to perform under the terms of our agreements with them. We may not be able to find a sufficient alternative supplier of these services in a reasonable time period, or on commercially reasonable terms, if at all. If we were unable to obtain an alternative supplier of these services, we might be forced to curtail our Phase II clinical trial for DCVax ® -Brain.

 
18

 

Our product candidates will require a different distribution model than conventional therapeutic products.

The nature of our product candidates means that different systems and methods will need to be followed for the distribution and delivery of the products than is the case for conventional therapeutic products. The personalized nature of these products, the need for centralized storage, and the requirement to maintain the products in frozen form may mean that we are not able to take advantage of distribution networks normally used for conventional therapeutic products. If our product candidates are approved, it may take time for hospitals and physicians to adapt to the requirements for handling and storage of these products, which may adversely affect our sales.

 We lack sales and marketing experience and as a result may experience significant difficulties commercializing our research 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 sales force and have no experience in sales, marketing or distribution. To fully commercialize our product candidates, we will need a substantial marketing staff and sales force with technical expertise and the ability to distribute these products. As an alternative, we could seek assistance from a third party with a large distribution system and a large direct sales force. We may be unable to put either of these plans in place. In addition, if we arrange for others to market and sell our products, our revenues will depend upon the efforts of those parties. Such arrangements may not succeed.

Even if one or more of our product candidates is approved for marketing, if we fail to establish adequate sales, marketing and distribution capabilities, independently or with others, our business will be seriously harmed.

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 Corporation, Celldex Therapeutics, Inc., Ark Therapeutics plc, Oxford Biomedica plc, Argos Therapeutics, Inc., Antigenics, Immunocellular Therapeutics, and others are actively involved in the research and development of immunotherapies or cell-based cancer therapeutics. Of these companies, we believe that only Dendreon and Ark Therapeutics have completed Phase III clinical trials with a cell-based therapy. To our knowledge no DC-based therapeutic product is currently approved for commercial sale, although it is expected that Dendreon’s Provenge product will be approved soon. 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. 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.

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 than we do. In addition, many of these competitors are actively seeking patent protection and licensing arrangements in anticipation of collecting royalties for use of technology they have developed. Smaller or early-stage companies may also prove to be significant competitors, particularly through 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.

We expect that our ability to compete effectively will be dependent upon our ability to: obtain additional funding; successfully complete clinical trials and obtain all requisite regulatory approvals; maintain a proprietary position in our technologies and products; attract and retain key personnel; and maintain existing or enter into new partnerships.

 
19

 

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

Our intellectual property rights may not provide meaningful commercial protection for our research products or product candidates, which could enable third parties to use our technology, or very similar technology, and could reduce our ability to compete in the market.

We rely on patent, copyright, trade secret and trademark laws to limit the ability of others to compete with us using the same or similar technology in the United States and other countries. However, as described below, these laws afford only limited protection and may not adequately protect our rights to the extent necessary to sustain any competitive advantage we may have. 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 these countries.

We have 33 issued and licensed patents (9 in the United States and 23 in other jurisdictions) and 134 patent applications pending (19 in the United States and 115 in other jurisdictions) which cover the use of dendritic cells in DCVax ® as well as targets for either our dendritic cell or fully human monoclonal antibody therapy candidates. The issued patents expire at various dates from 2015 to 2026.

We will only be able to protect our technologies from unauthorized use by third parties to the extent that they are covered by valid and enforceable patents or are effectively maintained as trade secrets. The patent positions of companies developing novel cancer treatments, including our patent position, generally are uncertain and involve complex legal and factual questions, particularly concerning the scope and enforceability of claims of such patents against alleged infringement. Recent judicial decisions in the United States are prompting a reinterpretation of the limited case law that exists in this area, and historical legal standards surrounding questions of infringement and validity may not apply in future cases. A reinterpretation of existing U.S. law in this area may limit or potentially eliminate our patent position and, therefore, our ability to prevent others from using our technologies. The biotechnology patent situation outside the United States is even more uncertain. Changes in either the patent laws or the interpretations of patent laws in the United States and other countries may, therefore, diminish the value of our intellectual property.

We own or have rights under licenses to a variety of issued patents and pending patent applications. However, the patents on which we rely may be challenged and invalidated, and our patent applications may not result in issued patents. Moreover, our patents and patent applications may not be sufficiently broad to prevent others from using our 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 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. We seek to protect our proprietary information by entering into confidentiality agreements with employees, partners and consultants. Nevertheless, employees, collaborators or consultants may still disclose our proprietary information, and we may not be able to protect our trade secrets in a meaningful way. In addition, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to our trade secrets.

Our success will depend substantially on our ability to operate without infringing or misappropriating the proprietary rights of others.

Our success will depend to a substantial degree upon our ability to develop, manufacture, market and sell our research products and product candidates without infringing the proprietary rights of third parties and without breaching any licenses entered into by us regarding our product candidates.

There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. Infringement and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate and can divert management’s attention from our core business. For example, Lonza Group AG filed a complaint against us in the United States District Court for the District of Maryland alleging patent infringement. The case was groundless, and NWBT succeeded in getting all claims withdrawn by Lonza, with no payment of any consideration (more detailed description under Legal Proceedings). However, the defense of the case used up substantial amounts of management time and Company resources.   In addition, we may be exposed to future litigation by third parties based on claims that our products infringe their intellectual property rights. This risk is exacerbated by the fact that there are numerous issued and pending patents in the biotechnology industry and the fact that the validity and breadth of biotechnology patents involve complex legal and factual questions for which important legal principles remain unresolved.

 
20

 

Competitors may assert that our products and the methods we employ are covered by U.S. or foreign patents held by them. In addition, because patents can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that our products may infringe. There could also be existing patents of which we are not aware that one or more of our products may inadvertently infringe.

If we lose a patent infringement claim, we could be prevented from selling our research products or product candidates unless we can obtain a license to use technology or ideas covered by such patent or we are able to redesign our products to avoid infringement. A license may not be available at all or on terms acceptable to us, or we may not be able to redesign our products to avoid infringement. If we are not successful in obtaining a license or redesigning our products, we may be unable to sell our products and our business could suffer.

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 governmental and other 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 (“EMEA”), will regulate in other jurisdictions. 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.

The time taken to obtain regulatory approval varies between countries. 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.

Further trials and other costly and time-consuming assessments of the product may be required to obtain or maintain regulatory approval.

Medicinal products are generally subject to lengthy and rigorous pre-clinical and clinical trials and other extensive, costly and time-consuming procedures mandated by regulatory authorities. We may be required to conduct additional trials beyond those currently planned, which could require significant time and expense. For example, the field of cancer treatment is evolving, and the standard of care for a particular cancer could change while we are in the process of conducting the clinical trials for our product candidates. Such a change in standard of care could make it necessary for us to conduct additional clinical trials, which could delay our opportunities to obtain regulatory approval of our product candidates.

As for all biological products, we may need to provide pre-clinical and clinical data evidencing the comparability of products before and after any changes in manufacturing process both during and after product approval. Regulators may require that we generate data to demonstrate that products before or after any change are of comparable safety and efficacy if we are to rely on studies using earlier versions of the product. DCVax ® -Brain has been the subject of process changes during the early clinical phase of its development and regulators may require comparability data unless they are satisfied that changes in process do not affect the quality, and hence efficacy and safety, of the product.

  We plan to rely on our current DCVax ® -Brain Phase II clinical trial as a single study in support of regulatory approval. While under certain circumstances, both EMEA and the FDA will accept a Phase II study as a single study in support of approval, it is not yet known whether they will do so in this case. If the regulators do not consider the Phase II study adequate on its own to support a finding of efficacy, we may be required to perform additional clinical trials in DCVax ® -Brain. There is some possibility that changes requested by the FDA could complicate the licensing application process.

Only the data for DCVax ® -Brain has been discussed with European regulators. On an informal basis, a number of European national regulators have indicated that additional pre-clinical and clinical data could be required before the DCVax ® -Brain product would be approved. However, it is not clear whether such data will be required until formal scientific advice is sought from the EMEA, which is the regulator that will ultimately review any application for approval of this product. Unless the EMEA grants a deferral or a waiver, we may also be obliged to generate clinical data in pediatric populations.

 
21

 

The Company’s plan for a 600-patient Phase III clinical trial was cleared by the FDA in January 2005. However, it is likely that we will split this single 600-patient Phase III trial into two separate 300-patient Phase III trials. These revisions in trial design may cause delay in the development process for DCVax ® -Prostate. It is not yet known whether the FDA will consider the two-trial design sufficient for marketing approval, or whether the agency will require us to design and carry out additional studies. If, after the Phase III studies are carried out, the FDA is not satisfied that its concerns have been adequately addressed,  additional clinical studies could be required at that time.

Any delay in completing sufficient trials or other regulatory requirements will delay our ability to generate revenue from product sales and we may have insufficient capital resources to support its operations. Even if we do have sufficient capital resources, our ability to generate meaningful revenues or become profitable may be delayed.

Regulatory approval 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 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 we do not comply. Extensive post-approval safety studies are likely to be a condition of the approval and will commit us to significant time and expense.

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 regulators’ current good manufacturing practices (“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.

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

We may not receive the benefits associated with orphan drug designation. This may result from a failure to achieve or maintain orphan drug status, or result from the development of a competing product that has an orphan designation for the same indication. In Europe, the orphan status of DCVax ® -Brain will be reassessed shortly prior to the product receiving any regulatory approval. The EMEA will need to be satisfied that there is evidence that DCVax ® -Brain offers a significant benefit relative to existing therapies for the treatment of glioma if DCVax ® -Brain is to maintain its orphan drug status.

New legislation may have an adverse effect on our business.

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.

The availability and amount of reimbursement for our product candidates and the manner in which government and private payers may reimburse for our potential products is uncertain.

In many of the markets where we intend to operate, the prices of pharmaceutical products are subject to direct price controls (by law) and to drug reimbursement programs with varying price control mechanisms.

 
22

 

We expect that many of the patients in the United States who may seek treatment with our products that may be approved for marketing will be eligible for coverage under Medicare, the federal program that provides medical coverage for the aged and disabled. Other patients may be covered by private health plans or may be uninsured. The Medicare program is administered by the Centers for Medicare & Medicaid Services (“CMS”), an agency within the U.S. Department of Health and Human Services. Coverage and reimbursement for products and services under Medicare are determined pursuant to regulations promulgated by CMS and pursuant to CMS’s subregulatory coverage and reimbursement determinations. It is difficult to predict how CMS will apply those regulations and subregulatory determinations to novel products such as ours.

Moreover, 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 (the “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. Even if our product candidates are approved for marketing in the U.S., if we are unable to obtain or retain coverage and adequate levels of reimbursement from Medicare or from private health plans, our ability to successfully market such products in the U.S. will be adversely affected. The manner and level at which the Medicare program reimburses for services related to our product candidates (e.g., administration services) also may adversely affect our ability to market or sell any of our product candidates that may be approved for marketing in the U.S.

In the U.S., efforts to contain or reduce health care costs have resulted in many legislative and regulatory proposals at both the federal and state level, and it is difficult to predict which, if any, of these proposals will be enacted, and, if so, when. Cost control initiatives by governments or third party payers could decrease the price that we receive for any one or all of our potential products or increase patient coinsurance to a level that makes our product candidates unaffordable for patients. In addition, government and private health plans are more persistently challenging the price and cost-effectiveness of therapeutic products. If third-party payers were to determine that one or more of our product candidates is not cost-effective, this could result in refusal to cover those products or in coverage at a low reimbursement level. Any of these initiatives or developments could prevent us from successfully marketing and selling any of our potential products.

In the E.U., governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of such products to consumers. The approach taken varies from member state to member state. Some jurisdictions operate positive and/or negative list systems under which products may only be marketed once a reimbursement price has been agreed. Other member states 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, as exemplified by the role of the National Institute for Health and Clinical Excellence in the U.K. which evaluates the data supporting new medicines and passes reimbursement recommendations to the government. In addition, in some countries cross-border imports from low-priced markets (parallel imports) exert commercial pressure on pricing within a country.

  DCVax ® is our only technology in clinical development.

Unlike many pharmaceutical companies that have a number of products in development and which utilize many technologies, we are dependent on the success of our DCVax ® platform and, potentially, our CXCR4 antibody technology. While DCVax ® technology has a number of potentially beneficial uses, if that core technology is not commercially viable, we would have to rely on the CXCR4 technology, which is at an early pre-clinical stage of development, for our success. If the CXCR4 technology also fails, we currently do not have other technologies to fall back on and our business could fail.

We may be prevented from using the DCVax ® name in Europe.

The EMEA has indicated that DCVax ® may not be an acceptable name because of the suggested reference to a vaccine. Failure to obtain the approval for the use of the DCVax ® name in Europe would require us to market our potential products in Europe under a different name which could impair the successful marketing of our product candidates and may have a material adverse effect on our results of operations and financial condition.

Competing generic medicinal products may be approved.

In the E.U., there exists a process for the approval of generic biological medicinal products once patent protection and other forms of data and market exclusivity have expired. If generic medicinal products are approved, competition from such products may reduce sales of our products. Other jurisdictions, including the U.S., are considering adopting legislation that would allow the approval of generic biological medicinal products.

 
23

 

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. Our insurance coverage may not be adequate to cover claims against us or may not be available to us at an acceptable cost, if at all. Regardless of their merit or eventual outcome, product liability claims may result in decreased demand for a product, injury to our reputation, withdrawal of clinical trial volunteers and 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 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.

Toucan Capital and Toucan Partners beneficially own a majority of our shares of common stock and, as a result, the trading price for our common stock may be depressed and these stockholders can take actions that may be adverse to the interests of other investors.

As of April 9, 2010, Toucan Capital, its affiliate, Toucan Partners and its managing member, Ms. Linda Powers, who also serves as our Chairperson of the Board of Directors, collectively beneficially owned an aggregate of 32,923,510 shares of our common stock, representing approximately 58.1 percent of our issued and outstanding common stock. In addition, as of April 9, 2010, Toucan Capital may acquire an aggregate of approximately 22 million shares of common stock upon exercise of warrants and Toucan Partners may acquire an aggregate of approximately 10.3 million shares of common stock upon the exercise of warrants. This significant concentration of ownership may adversely affect the trading price of our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. Toucan Capital has 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. In addition, a managing member of Toucan Capital is a member of the Board. In light of the foregoing, Toucan Capital can significantly influence the management of our business and affairs. This concentration of ownership 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.

Our Certificate of Incorporation and Bylaws and stockholder rights plan may delay or prevent a change in our management.

Our Seventh Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), Third Amended and Restated Bylaws (the “Bylaws”) and stockholder rights plan contain provisions that could delay or prevent a change in our management team. Some of these provisions:

 
authorize the issuance of preferred stock that can be created and issued by the Board without prior stockholder approval, commonly referred to as “blank check” preferred stock, with rights senior to those of the common stock;

 
allow the Board to call special meetings of stockholders at any time but restrict the stockholders from calling special meetings;

 
authorize the Board to issue dilutive common stock upon certain events; and

 
24

 

 
provide for a classified Board.

These provisions could allow our Board to affect the rights of an investor since the Board can make it more difficult for holders of common stock to replace members of the Board. Because the Board is responsible for appointing the members of the management team, these provisions could in turn affect any attempt to replace the current management team.

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 are generally recognized as being less active markets than NASDAQ, the stock exchange on which our common stock previously was listed. You may not be able to sell your shares at the time 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 release 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.

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

Because our common stock is subject to the SEC’s “penny stock” rules, 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 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.

The price of our common stock may be highly volatile.

The share price of publicly traded biotechnology and emerging pharmaceutical companies, particularly companies without earnings and consistent product revenues, can be highly volatile and are likely to remain highly volatile in the future. The price at which our common stock is quoted and the price which investors may realize in sales of their shares of our common stock will be influenced by a large number of factors, some specific to us and our operations and some unrelated to our operations. These factors could include the performance of our marketing programs, large purchases or sales of the shares, currency fluctuations, legislative changes and general economic conditions. In the past, shareholder class action litigation has often been brought against companies that experience volatility in the market price of their shares. Whether or not meritorious, litigation brought against us following fluctuations in the trading price of our common stock could result in substantial costs, divert management’s attention and resources and harm our financial condition and results of operations.

 
25

 

Our business could be adversely affected by animal rights activists.

Our business activities have involved animal testing. These types of activities have 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 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 have an adverse impact on our sales and profitability.

The requirements of the Sarbanes-Oxley Act of 2002 and other U.S. securities laws reporting requirements impose cost and operating challenges on us.

We are subject to certain of the requirements of the Sarbanes-Oxley Act of 2002 in the U.S. and the reporting requirements under the Exchange Act. These laws require, among other things, an attestation report of our independent auditor on the effectiveness of our internal control over financial reporting, currently expected to begin with our annual report for the year ended December 31, 2010, as well as the 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. To meet these compliance deadlines, we will need to have our internal controls designed, tested and operational by early 2010 to ensure compliance with applicable standards. We initiated the process of documenting and evaluating our internal controls and financial reporting procedures in early 2008. This process is ongoing and will continue to likely be time consuming and will result in us having to significantly change our controls and reporting procedures due to our small number of employees and lack of governance controls. Most similarly-sized companies registered with the SEC have had to incur significant costs to ensure compliance.

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

In connection with the preparation of our financial statements for the year ended December 31, 2009, certain significant internal control deficiencies became evident to management that, in the aggregate, represents 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;

 
insufficient corporate governance policies; and

 
inadequate approval and control over transactions and commitments made on our behalf by related parties.

As part of the communications by our independent auditors with our audit committee with respect to audit procedures for the year ended December 31, 2009, 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 to make the necessary improvements to remediate these deficiencies but we cannot be certain that we will have the necessary financing to address these deficiencies or that we will be able to attract qualified individuals to serve on our Board and to take on key management roles within the Company. Our failure to successfully remediate these issues could lead to heightened risk for financial reporting mistakes and irregularities and a  loss of public confidence in our internal controls that could harm the market price of our common stock.

Item 1B.   Unresolved Staff Comments

None.

 
26

 

Item 2.   Properties

On March 21, 2008, the Company executed a Sublease Agreement (the “Sublease Agreement”) with Toucan Capital for the space the Company used as its headquarters at 7600 Wisconsin Avenue, Suite 750, Bethesda, Maryland. During the term of the Sublease Agreement, the Company incurred monthly rent expense payable to Toucan Capital amounting to $34,000.  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.  The obligation for the Company will be less than $5,000 per month during 2010 and 2011.

Item 3.     Legal Proceedings

From time to time, we are involved in claims and suits that arise in the ordinary course of our business.  At present, the Company is 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 impact 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.

In the last several years, we were involved in the following legal proceedings.

SOMA Arbitration

In January, 2003, Toucan Capital initiated contact with the Company through a letter expressing interest in investing. The Company’s then business managers (who left the Company that year) did not engage with Toucan.  In the spring and summer of 2003, Toucan hired a former employee of the Company, and Toucan retained external advisers who conducted due diligence on the Company. In January, 2004, Toucan pursued investment discussions with the Company at an investment conference.  Those discussions led to initial investment by Toucan a few weeks later, in February 2004, followed by further investment in March and culminating in a recapitalization of the Company pursuant to an agreement completed in April, 2004.

On October 15, 2003, the Company engaged Soma Partners, LLC (Soma), a New Jersey-based investment bank, to help raise funding for the Company.  Although Toucan had initiated contact with the Company ten months earlier and had been conducting due diligence on the Company both internally and externally over the course of those ten months, and although Soma was not present at the January 2004 discussions and did not know such discussions were taking place, thereafter Soma sought to receive investment banking fees on all investment made by Toucan into the Company, despite the chronology of events.

The Company sought to reach a negotiated settlement.  Soma declined to reduce the amount of its claims, and filed an arbitration case to pursue the claims.  Soma also expanded its claims to include not only the investments made by Toucan in 2004, but also all future financings which might be made pursuant to the recapitalization plans that Toucan and the Company had developed for up to $40 million of future financings.  In its arbitration case at various points, Soma sought growing amounts of cash fees and in excess of 10 million shares of stock or warrants.

The arbitration case turned on whether Soma had “first introduced” Toucan to the Company.  The Company vigorously disputed Soma’s claims and defended itself.  The arbitration was held in March and May 2005, and all claims were decided in the Company’s favor.

Soma then filed a series of appeals during 2005.  In the first appeal, the court rejected all of Soma’s claims and confirmed the decision reached in the arbitration.  Soma then filed another appeal in 2006.  In that appeal, the court found an issue with the selection of the arbitrator, and remanded the case for a new arbitration.  Sometime during this period, Soma went out of business, but its former principals still continue to pursue the claims against the Company.

The new arbitration was conducted in May and June of 2009, by a three-arbitrator panel.  Once again, all claims were decided in the Company’s favor.  Soma’s former principals did not file further appeals after that decision, and the case is now finally closed.

 
27

 

Lonza Patent Infringement Claim

       In late June 2007, the Company received a favorable ruling from a Swiss regulatory agency (the B.A.G.), which was expected at the time to enable the Company to begin providing its DCVax ® dendritic cell vaccines to patients commercially through designated medical centers in Switzerland.  Within weeks after this decision was announced, on July 27, 2007, Lonza Group AG (“Lonza”), a large Swiss based corporation, filed a lawsuit against us in the U.S., alleging infringement of some eight different patents, relating to recombinant DNA methods, sequences, vectors and other technology relating to gene modifications of cells, cell lines and host cells.

      None of the Company’s DCVax ® products involve, or have ever involved, any gene modifications of any of the cells.  The lawsuit was groundless and we defended ourselves vigorously, including making clear that we would seek court sanctions under the Federal Rules of Civil Procedure against Lonza and its counsel for filing a complaint without any reasonable basis. Within five months after filing its extensive complaint, Lonza unilaterally withdrew nearly all of the claims in it – all claims except certain claims relating to our DCVax ® -Prostate product.

      Regarding the DCVax ® -Prostate product, Lonza sought to still pursue its claims on the basis that although the Company itself had never used any gene expression or gene modification technology, instead Medarex – who had served as the contract manufacturer of the PSMA antigen (biomarker) in DCVax ® -Prostate and supplied the finished PSMA antigen to us – had potentially used Lonza’s gene expression system.  Although the Company had had no involvement in (and no knowledge of) Medarex’s choice of manufacturing method, and had simply contracted with Medarex for delivery of a quantity of finished PSMA, Lonza sought to hold the Company liable for this because Lonza had reached a business deal with Medarex several years earlier which precluded Lonza pursuing claims against Medarex.

      We continued to dispute and defend ourselves vigorously against Lonza’s remaining claims concerning DCVax ® -Prostate.  During the course of the case, Lonza proposed several times for us to take a license to their gene expression technology.  Since we had no use for their technology, we declined.

     Within another four months after Lonza’s unilateral withdrawal of all other claims in its complaint, in April 2008 we and Lonza entered into a settlement to dispose of the last of Lonza’s claims.  Under this settlement, we refused to pay make any monetary payment of any kind, refused to take a license to Lonza’s technology, and agreed to only one thing: to destroy our remaining inventory of PSMA which had been produced by Medarex, and which had been sitting in our freezers for nearly ten years.  Under this settlement, the last of Lonza’s claims were dismissed with prejudice (meaning they cannot be re-filed), thus ending the case.
 
Stockholder Class Action
 
       In February 2007, the Company applied to the Bundesamt für Gesundheit (B.A.G.) in Switzerland for an Authorization for Use, so that the Company could make DCVax ® available to patients commercially at designated medical centers in Switzerland.  At that time, the B.A.G. had jurisdiction over transplants, and a separate agency, Swissmedic, had jurisdiction over drugs and other medical products.  Our DCVax ® dendritic cell vaccine was classified as a standardized transplant.  The B.A.G. had jurisdiction to issue Authorizations for Use, which were a form of limited regulatory approval for which there is no counterpart or similar form of approval in the U.S.  Swissmedic had jurisdiction to issue Marketing Authorizations, which are full commercial approvals without limitations, and which are similar to product approvals that are issued by the Food and Drug Administration (FDA) in the U.S.

      In June 2007, the Company received a favorable decision from the B.A.G. granting the Authorization for Use for which the Company had applied.  As this was a material event, the Company issued a press release announcing and describing it.  A tremendous amount of activity in our stock followed the announcement, and the stock price rose quite substantially.  There was also a large amount of confusion about what the Company had received.  Various parties thought the Company had received a Marketing Authorization from Swissmedic.  No one was familiar with an Authorization for Use from the B.A.G.  After growing controversy in the days following our public announcement of the Authorization for Use, the Company issued a second public announcement clarifying that the Company had neither applied for nor received a Marketing Authorization from Swissmedic.  The Company also sought to clarify in the second announcement what the Authorization for Use was, and what it provided.

 
28

 

       Following our second public announcement, our stock price dropped sharply.  Within the next weeks and months, six class action lawsuits were filed by parties who bought stock between our first public announcement and our second one, seeking damages on the basis that our public announcements had not been clear enough and had been misleading.

       The Company disputed the claims and strongly defended ourselves.  In January, 2009, the Company reached a settlement which disposed of all six class action cases, in their entirety, for a single payment of $1 million.  The Company entered this settlement because the amount to be paid was a small fraction of what it would have cost to proceed with litigation of the cases.  The settlement also removed the diversion of management time and attention, which was needed on the Company’s operations.  The entire $1 million settlement payment and all of our defense costs were paid by our Directors’ and Officers’ liability insurance.  The settlement executed in January of 2009 was approved by the applicable court in June 2009, and all of the cases were dismissed with prejudice (meaning they cannot be re-filed), thus ending these cases.  Our Directors’ and Officers’ liability insurer has renewed and continued our coverage throughout the time since these cases were brought, unaffected by these cases.
 
      In Switzerland, subsequent to the B.A.G’s favorable decision to us in June 2007, the B.A.G and Swissmedic underwent a reorganization, and the B.A.G’s jurisdiction was transferred to Swissmedic.  Following that reorganization, each party who had received a B.A.G decision, such as NWBT had received, was requested to file a Marketing Authorization Application (MAA) with Swissmedic for full product approval.  NWBT did so at year end 2007.  During the two-plus years since then, Swissmedic has conducted inspections, and has been reviewing and evaluating the Company’s MAA.
 
SEC Inquiry

On August 13, 2007, the Company was notified that the SEC had initiated a non-public informal inquiry regarding the events surrounding our application for and receipt of the Authorization for Use from the B.A.G., and our related press releases dated July 9, 2007 and July 16, 2007. On March 3, 2008 the Company was notified that the SEC had initiated a formal investigation regarding this matter. The Compnay cooperated with the SEC in connection with the inquiry, and after a thorough investigation, the SEC notified us that they had found no basis for any action and had closed the investigation.

Item 4.    (Removed and Reserved)

PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and Price Range of Common Stock

Our common stock is quoted on the OTCBB under the symbol “NWBO.OB” The following table summarizes our common stock’s high and low sales prices for the periods indicated as reported by the OTCBB. Quotations on the OTCBB reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

   
2008
   
2009
 
   
High
   
Low
   
High
   
Low
 
4th Quarter
 
$
1.10
   
$
0.15
   
$
1.79
   
$
0.65
 
3rd Quarter
   
2.00
     
0.60
     
1.00
     
0.55
 
2nd Quarter
   
2.44
     
1.85
     
1.69
     
0.45
 
1st Quarter
   
2.59
     
1.85
     
0.85
     
0.32
 

As of April 12, 2010, there were approximately 231 holders of record of our common stock. Such holders include any broker or clearing agencies as holders of record but exclude the individual stockholders whose shares are held by brokers or clearing agencies.

 
29

 

Dividend Policy

We have never declared or paid cash dividends on our capital stock. We currently intend to retain future earnings, if any, to fund the development and growth of our business and do not currently anticipate paying any cash dividends in the foreseeable future. The payment of future dividends, if any, will be determined by our Board.

Recent Sales of Unregistered Securities

On June 22, 2007, we placed 15,789,473 shares of our common stock with foreign institutional investors at a price of £0.95 per share. The gross proceeds from the placement were approximately £15.0 million, or $29.9 million, while net proceeds from the offering, after deducting commissions and expenses, were approximately £13.0 million, or $25.9 million.

On May 9, 2008 the Company entered into a loan agreement with Al Rajhi Holdings, under which the Company received $4.0 million in return for an unsecured promissory note in the principal amount of US$4,240,000 (reflecting an original issue discount of six percent, or US$240,000) for a period of six (6) months.

On August 19, 2008, the Company entered into a loan agreement with Toucan Partners, under which the Company received $1.0 million in return for an unsecured promissory note in the principal amount of $1,060,000 (reflecting an original issue discount of six percent, or $60,000) for a period of six months.

On October 1, 2008 we entered into a loan agreement with SDS Capital for $1.0 million for a term of six (6) months at 12%. In connection with the loan the Company issued SDS warrants to purchase shares of the Company’s common stock.  The warrants have a term of five years from the issuance date.

On October 22, 2008 we entered into a loan agreement with a group of private investors and SDS Capital for $1.65 million for a term of six (6) months at 12%. In connection with the loan the Company issued the private investors and SDS warrants to purchase shares of the Company’s common stock.  The warrants have a term of five years from the issuance date.

On December 22 2008, we entered into a loan agreement with Toucan Partners for $500,000 with a term of six months at 12% interest. In connection with the loan the Company issued Toucan Partners warrants to purchase shares of the Company’s common stock.  The warrants have a term of five years from the issuance date.

On January 16, 2009 we entered into a securities purchase agreement for $700,000 with Al Rajhi Holdings who purchased 1,000,000 shares of our common stock at $0.70 per share.

 During March 2009, we entered into loan agreements with a group of private lenders for $760,000 for a term of two years at 6% per annum.

On March 27, 2009, we sold approximately 1.4 million shares of common stock at a purchase price of $0.53 per share and raised aggregate gross proceeds of approximately $0.7 million in a closed equity financing with unrelated investors.

In July 2009 we entered into a loan agreement with Toucan Partners for $1,300,000 with a term of two years at 6% interest.

In August and September 2009 we entered into a series of small loan agreements with a group of Private Investors for an aggregate of $580,000 with a term of two years at 6% interest.

In October through December 2009 we entered into a series of small loan agreements with a group of private investors for an aggregate of $720,000 with a term of two years at 6% interest.

Item 6. Selected Financial Data

Not required for smaller reporting companies

 
30

 

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 8. “Financial Statements and Supplementary Data” included below in this Annual Report on Form 10-K. Operating results are not necessarily indicative of results that may occur in future periods.

This discussion and analysis contains forward-looking statements that involve a number of risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include, but are not limited to, those set forth in Item 1A. “Risk Factors” in this Annual Report. All forward-looking statements included in this Annual Report are based on information available to us on the date of this Annual Report and, except as required by law, we undertake no obligation to update publicly or revise any forward-looking statements.

Overview

We are a development stage biotechnology company focused on discovering, developing and commercializing immunotherapy products that generate and enhance immune system responses to treat cancer. Data from our clinical trials suggest that our cancer therapies significantly extend both time to recurrence and survival, while providing a superior quality of life with no debilitating side effects when compared with current therapies. For additional information regarding our business, product candidates and the status of our clinical trials, see Item 1. “Business” in this Annual Report on Form 10-K.

Our financing activities are described below under “— Liquidity and Capital Resources”. We will need to raise additional capital to fund our operations, including our Phase II DCVax ® -Brain clinical trial. Depending on the trial results, we plan to seek product approval for DCVax ® -Brain, our leading product candidate, in both the U.S. and E.U.

We have experienced recurring losses from operations and have a deficit accumulated during the development stage of $189.9 million at December 31, 2009. In addition, our independent registered public accounting firm has indicated in its report on our financial statements included in this Annual Report on Form 10-K that there is substantial doubt about our ability to continue as a going concern.

Going Concern

Our financial statements for the year ended December 31, 2009 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. Nevertheless, we have experienced recurring losses from operations and have a deficit accumulated during the development stage of $189.9 million that raises substantial doubt about our ability to continue as a going concern and our auditors have issued an opinion, for the year ended December 31, 2009, 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 ways to advance our dendritic cell-based product and monoclonal antibody candidates, including pursuing potential corporate partnerships for our monoclonal antibody candidates, and other alternatives, including the possible sale of some or all of our assets.

Expenses

From our inception through December 31, 2009, we incurred costs of approximately $67.0 million associated with our research and development activities. Because our technologies are unproven, we are unable to estimate with any certainty the costs we will incur in the continued development of our product candidates for commercialization.

General and administrative expenses include salary and benefit expenses related to administrative personnel, cost of facilities, insurance, legal support, as well as amortization costs of stock options granted to employees and warrants issued to consultants for their professional services.

To date, our revenues have primarily been derived from the manufacture and sale of research materials, contract research and development services and research grants from the federal government.

 
31

 

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 or complex judgments:

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, and general and administrative expenses.

Research and development:

Discovery and preclinical research and development expenses include scientific personnel related salary and benefit expenses, costs of laboratory supplies used in our internal research and development projects, travel, regulatory compliance, and expenditures for preclinical and clinical trial operation and management when we are actively engaged in clinical trials.

Because we are 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.

 General and administrative:

General and administrative expenses include administrative personnel related salary and benefit expenses, cost of facilities, insurance, travel, legal support, property and equipment depreciation, amortization of stock options and warrants.

Year Ended December 31, 2008 Compared to the Year Ended December 31, 2009

We recognized a loss from operations of $15.8 million for the year ended December 31, 2009 compared to a loss from operations of $21.6 million for the year ended December 31, 2008.

Research and Development Expense. Research and development expense decreased from $12.7 million for the year ended December 31, 2008 to $9.6 million for the year ended December 31, 2009. This decrease was primarily due to reduced clinical trial operations.

General and Administrative Expense. General and administrative expense decreased from $8.9 million for the year ended December 31, 2008 to $5.8 million for the year ended December 31, 2009. This decrease was directly the result of scaling administrative expenses to the current activity level .

 
32

 

Depreciation and Amortization. Depreciation and amortization decreased from $22,000 during the year ended December 31, 2008 to $7,000 for the year ended December 31, 2009 as a result of all assets being fully depreciated

Asset Impairment Loss. In July 2009 the Company’s contract manufacturer, Cognate Bioservices, Inc., consolidated its operations in its newer Memphis, Tennessee manufacturing facilities and closed the Sunnyvale facility housing the Company’s clean room.  As the California clean room cannot be relocated the Company provided an impairment allowance of $389,000 reducing the carrying value of the clean room to $0.

Interest Expense, Net. Interest expense net increased from $0.8 million for the year ended December 31, 2008 to approximately $3.9 million for the year ended December 31, 2009.  Interest expense in 2008 and 2009 was related to notes payable from both related and non related parties and included both interest and debt discount expense. During 2009 the Company incurred interest costs related to the debt burden assumed in 2008 and an increase in the debt burden from $8.1 million at December 31, 2008 to $10.0 million at December 31, 2009.

Liquidity and Capital Resources

At December 31, 2009, cash totaled $65,000, compared to $16,000 at December 31, 2008.  Working capital was a deficit of $19.3 million at December 31, 2009, compared to a deficit of $12.7 million at December 31, 2008.  Working capital decreased as of December 31, 2009 primarily due to an increase in current liabilities arising from note payable obligations compared to December 31, 2008.  Cash balances increased during 2009 due primarily to the financing transactions discussed below that were executed in 2009.

The change in cash for the years ended December 31, 2009 and 2008 was comprised of the following (in thousands):

   
For the Years Ended
December 31,
       
   
2008
   
2009
   
Change
 
Net cash provided by (used in):
                 
Operating activities
 
$
(15,587
)
 
$
(4,677
)
 
$
10,910
 
Investing activities
   
(389
)
   
(2
)
   
387
 
Financing activities
   
8,151
     
4,753
     
(3,398
)
Effect of exchange rates on cash
   
(20
)
   
(25
)
   
(5
)
                         
(Decrease) increase in cash
 
$
(7,845
)
 
$
49
   
$
7,894
 

Operating Activities

We used $4.7 million in cash for operating activities during the year ended December 31, 2009, compared to $15.6 million for the year ended December 31, 2008.  The decrease in cash used in operating activities was a result of the reductions in staff and clinical trial research and development activity due to cash constraints.

Investing Activities

We used $2,000 in cash for investing activities during the year ended December 31, 2009 compared to $389,000 used for investing activities during the year ended December 31, 2008.  The cash used during the year ended December 31, 2008 was related to construction of additional clean room facilities at our contract manufacturer and the cash used during the year ended December 31, 2009 consisted of purchases of property and equipment.

Financing Activities

During 2009, our financing activities consisted of proceeds from notes payable amounting to $3.4 million and proceeds from the issuance of common stock amounting to $1.4 million.  The 2009 financing transactions consisted of:

 
33

 

On January 16, 2009 we entered into a securities purchase agreement for $700,000 with Al Rajhi Holdings who purchased 1,000,000 shares of our common stock at $0.70 per share.

On March 27, 2009, we completed a private placement of 1.4 million shares of our common stock and received $0.7 million.

During March 2009, the Company received $760,000 upon issuing unsecured 6% convertible loan agreements and promissory notes due in March 2011 to a group of private lenders (“Private Lenders”).

Toucan Partners loaned the Company a total of $1,300,000 on July 2, 2009 and July 17, 2009 under unsecured 6% convertible promissory notes due July 1, 2011 and July 16, 2011.

On dates between August 13, 2009 and September 24, 2009, the Company received an aggregate of $580,000 upon issuing a series of small unsecured 6% convertible loan agreements and promissory notes due in August and September 2011 to a group of Private Lenders.

On dates between October 6, 2009 and December 31, 2009, the Company received $720,000 upon issuing unsecured 6% convertible loan agreements and promissory notes due in August and September 2011 to a group of Private Lenders.

During 2008, our financing activities consisted of proceeds from notes payable amounting to $8.2 million.  The 2008 financing transactions consisted of:

Al Rajhi loaned the Company $4.0 million on May 12, 2008 under the terms of an unsecured promissory note with a principal amount of $4,240,000 (reflecting an original issue discount of $240,000).

Toucan Partners loaned the Company $1.0 million on August 19, 2008 under the terms of an unsecured promissory note (the “Toucan Partners August Loan”) with a principal amount of $1,060,000 (reflecting an original issue discount of $60,000).

On October 1, 2008, the Company entered into a $1 million unsecured 12% Loan Agreement with SDS (the “SDS Loan”).

On dates between October 21, 2008 and November 6, 2008, the Company entered into unsecured 12% Loan Agreements (the “Private Investor Loans”) and Promissory Notes (the “Private Investor Promissory Notes”) with SDS and a group of private investors (the “Private Investors”).  Under the Private Investor Promissory Notes, SDS loaned the Company $1 million and the Private Investors loaned the Company $650,000 for a total of $1.65 million.

Toucan Partners loaned the Company $500,000 on December 22, 2008 under the terms of an unsecured 12% promissory note (the “Toucan Partners December Loan”).

As of April 12, 2010, we had approximately $215,000 of cash on hand. We will need to raise additional capital in the near future to fund our clinical trials and other operating activities. We are in discussions with multiple parties regarding potential funding transactions. However, these parties are not obligated to provide such financing.

During 2009, the Company and Cognate BioServices ("Cognate") agreed that most of the accounts payable owed by the Company to Cognate, will be converted into shares of common stock instead of paid in cash.  The conversion price will be no less favorable than the conversion price applied to any other creditor of the Company.  The impact of the conversion will result in a reduction of liabilities for the amount converted.  In addition, the Company will recognize the value of common stock issued in excess of the amount of accounts payable converted, if any, as a charge to operations when the conversion takes place.  Finalization of these arrangements is in process.

Also during 2009, the Company agreed with Toucan Capital, Toucan Partners and Linda Powers that a portion of the accrued expenses owed by the Company to these parties for certain expense reimbursements will be converted into shares of common stock instead of paid in cash.  Toucan Capital, Toucan Partners and Linda Powers have paid certain expenses on behalf of the Company.  The parties agreed that these accrued expenses will be converted into common stock (at a conversion rate of $0.20 per share).  The parties are in the process of determining the amounts of unbilled accrued expenses.  The impact of the conversion will result in a reduction of liabilities for the amount converted.  In addition, the Company will recognize the value of common stock issued in excess of the amount of the accrued expenses converted, if any, as a charge to operations when the conversion takes place.  Finalization of these arrangements is in process.

 
34

 

We estimate that our current funding is sufficient to enable us to proceed with our current (reduced) activities under our DCVax ® -Brain 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, including potential adverse developments in pending litigation and/or regulatory matters.  Without additional capital, we will not be able to proceed with significant enrollment in our DCVax ® -Brain 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. If our capital raising efforts are unsuccessful, our inability to obtain additional cash as needed could have a material adverse effect on our financial position, results of operations and our ability to continue our existence. Our independent registered public accounting firm has indicated in its report on our financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2009 that there is substantial doubt about our ability to continue as a going concern. 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 stockholders. We may seek funding from Toucan Capital or Toucan Partners or their affiliates or other third parties. Such parties are under no obligation to provide us any additional funds, and any such funding may be dilutive to stockholders and may contain restrictive covenants that could limit our ability to take certain actions.

Contractual Obligations

The Company has numerous contractual obligations including Cognate, Synteract, Media Marketing Communications, Dr. David Filer, and others.

Recent Accounting Pronouncements

Refer to Note 3 to the Consolidated Financial Statements

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

Not required for smaller reporting companies

Item 8.   Financial Statements and Supplementary Data

Financial Statements

Our financial statements required by this item are submitted as a separate section of this Annual Report on Form 10-K. See Item 15(a)(1) for a listing of financial statements provided in the section titled “Financial Statements”.

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None
 
 
35

 
 
Item 9A(T).   Controls and Procedures
 
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
 
Under the supervision and with the participation of our management, including our principal executive, financial and accounting officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended.  Based on this evaluation, our principal executive, financial and accounting officer concluded that, as of December 31, 2009, in light of the material weaknesses described below, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our chief executive officer, financial and accounting officer, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods prescribed by the SEC.

Management's Report on Internal Controls Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of our management, including our principal executive, financial and accounting officer, we conducted an evaluation of the effectiveness of our internal controls over financial reporting as of December 31, 2009.  This evaluation was based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

Based on management's evaluation as of December 31, 2009, our management identified the material weaknesses set forth below in our internal control over financial reporting:

(i)
The Company's process for internally reporting material information in a systematic manner to allow for timely filing of material information is ineffective, due to its inherent limitations from being a small company, and there exist material weaknesses in internal control over financial reporting that contribute to the weaknesses in our disclosure controls and procedures.  These weaknesses include the lack of:

 
·
appropriate segregation of duties;
 
·
appropriate oversight and review;
 
·
internal accounting technical expertise;
 
·
preparation, review and verification of internally developed documentation;
 
·
controls in place to insure that all material developments impacting the financial statements are reflected; and
 
·
executed agreements for significant contracts.

(ii)
Lack of a sufficient number of independent directors for our board and audit committee.  We currently only have one independent director on our board, which is comprised of three directors, and on our audit committee.  Although we are considered a controlled company, whereby a group holds more than 50% of the voting power, and as such are not required to have a majority of our board of directors be independent.  It is our intention to have an majority of independent directors in due course.

(iii)
Lack of a financial expert on our audit committee.  We currently do not have an audit committee financial expert, as defined by SEC regulations on our audit committee as defined by the SEC.

(iv)
Insufficient corporate governance policies.  Although we have a code of ethics which provides broad guidelines for corporate governance, our corporate governance activities and processes are not always formally documented.  Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management.

(v)
Inadequate approval and control over transactions and commitments made on our behalf by related parties.  Specifically, during the year certain related party transactions were not effectively communicated to all internal personnel who needed to be involved to account for and report the transaction in a timely manner.  This resulted in material adjustments during the quarterly reviews and annual audit, respectively, that otherwise would have been avoided if effective communication and approval processes had been maintained.

 
36

 

Our company's management concluded that in light of the material weaknesses described above, our company did not maintain effective internal control over financial reporting as of December 31, 2009 based on the criteria set forth in Internal Control—Integrated Framework issued by the COSO.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by our public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management's report in this annual report.

Changes in Internal Control over Financial Reporting
There has been no change in our internal controls over financial reporting that occurred during the fiscal quarter ended December 31, 2009 that has materially affected, or is reasonably expected to materially affect, our internal controls over financial reporting.

Inherent Limitations
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Item 9B.   Other Information

None.

PART III

Item 10.   Directors, Executive Officers and Corporate Governance

Our directors and their ages and positions, as of April 12, 2010, are included in the table below.  Ms. Powers’ and Mr. Farmer’s biographies follows the table. Dr. Boynton’s  biography is included under “Executive Officers of Northwest Biotherapeutics, Inc.” in Part I of this report.

 Name
 
Age
 
Position
Alton L. Boynton, Ph.D.
 
65
 
President, Chief Executive Officer, Secretary and Director
Linda F. Powers
 
54
 
Director, Chairperson
Robert A. Farmer
 
71
 
Director

Alton L. Boynton, Ph.D.   Dr. Boynton co-founded the Company, has served as Secretary since August 2001, 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 was appointed Chief Executive Officer in June 2007. 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 PhD in Radiation Biology, the Company concluded that Dr. Boynton should serve as a director and executive officer.
 
Linda F. Powers.   Ms. Powers has served as the Chairperson of our Board of Directors since her appointment on May 17, 2007. Ms. Powers has served as managing director of Toucan Capital Corporation, a provider of venture capital since 2001. She 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 (well known for its specialization in immunology), the Chinese Biopharmaceutical Association, the Rosalind Franklin Society, the Genetics Policy Institute, and a Task Force of the National Academy of Sciences .  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 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.  Ms. Powers is a member of the Company’s Audit Committee, Compensation Committee and Nominations Committee.  Ms. Powers has over 25 years of experience in corporate financings and business transactions, including 10 years specializing in biotechnology investment and company building.  Ms. Powers has served for a number of years on Boards of a leading immunology research institute, a large cancer center and more than half a dozen biotechnology companies.  The Company believes this background and experience makes Ms. Powers well qualified to serve as a Director.
 
 
37

 

Robert A. Farmer.   Mr. Farmer was appointed to the Board of Directors in December 2009. Mr. Farmer served as the national treasurer of four presidential campaigns, including John Kerry, Bill Clinton, Michael Dukakis and John Glenn.  In these roles he led fund raising 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, Haute Living  Mr. Farmer is a graduate of Dartmouth College and Harvard Law School.  The Company concluded Mr. Farmer should serve as a director of the Company due to his previous business successes, his experience as treasurer in 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).
 
For information pertaining to our executive officers, refer to “Executive Officers of Northwest Biotherapeutics, Inc.” included in Part I, Item 1 of this Annual Report on Form 10-K.

Board of Directors

Our Board of Directors consists of one non-employee director, one director who is currently employed by us and one independent director. The Board has established the following committees:

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 and its current member, Linda F. Powers, is a non-employee director.

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 is Linda F. Powers a non-employee.

  Nominations Committee

The Nominations Committee is responsible for identifying and nominating members of the Board, recommending directors to be appointed to each committee of the Board and the chair of such committees, and overseeing the evaluation of the Board. The Board has adopted a written charter for the Nominations Committee. Linda F. Powers and Robert A. Farmer are currently members of the committee. The Nominations Committee will consider nominees recommended by stockholders pursuant to the procedures outlined in the Company’s Bylaws and as set forth herein. No Nominations Committee meetings were held during the year ended December 31, 2009.

 
38

 

We have adopted a code of ethics meeting the definition of “Code of Ethics” as defined in Item 406 of Regulation S-K. Our Code of Ethics is applicable to the chief executive officer, the chief financial officer, the principal accounting officer or persons performing similar functions. Our code of ethics is posted on our website and may be accessed at www.nwbio.com/about_code.php. We will post to our website any amendments to our code of ethics and any waivers granted under the code to any of our directors or executive officers.

None of our directors meet the definition of an “audit committee financial expert” as defined by the SEC. We intend to recruit one or more additional non-executive directors in due course, including one person who qualifies as an audit committee financial expert but may not be able to do so.

Item 11.   Executive Compensation

Compensation Discussion and Analysis

Our Process

Typically, our executive compensation is comprehensively assessed and analyzed annually; however, given our limited funding since 2002, our executives have received infrequent increases in their compensation. During 2009, our executives also received equity based incentives.

Normally, the review process includes, but is not limited to, the following steps:

 
·
The Compensation Committee reviews the performance of the Chief Executive Officer and other senior executives;

 
·
The current annual compensation of senior management and long-term compensation grants made over the past few years are reviewed;

 
·
The appropriate performance metrics and attributes of annual and long-term programs for the next year are considered and discussed;

 
·
The entirety of our compensation program is considered;

 
·
For our top officers, if peer group compensation is available for their position, we use a blend of survey and peer compensation for comparison, as we compete not only in our own market, but nationally and across industries, for talent;

 
·
The compensation practices of our peer companies are reviewed, including their practices with respect to equity and other grants, benefits and perquisites;

 
·
The compensation of our management team from the standpoint of internal equity, complexity of the job, scope of responsibility and other factors is assessed; and

 
·
Management’s stock ownership is reviewed.

Management has the following involvement with the executive compensation process:

 
·
The Chief Executive Officer recommends salaries, annual and long-term incentive targets, and plan amendments and design before recommendations are submitted to the Compensation Committee for approval; and

 
·
The Chief Executive Officer is involved in establishing and recommending to the Compensation Committee financial goals for the incentive programs based on management’s operational goals and strategic plans.

 
39

 

Compensation Goals

Our philosophy regarding executive compensation is to attract and retain highly qualified people by paying competitive salaries, and to link the financial interests of our senior management to those of our stockholders by tying compensation to the achievement of operational and financial objectives. Our compensation package for our officers includes both short-term and long-term features in the forms of base salary and equity-based incentives in the form of stock options, which are granted periodically at the discretion of the Compensation Committee.

Elements of Executive Compensation

Base Salaries

Base salaries for all executive officers are reviewed annually. The Compensation Committee reviews the compensation of the President and Chief Executive Officer. The President and Chief Executive Officer reviews the compensation of the other executive officers. The Compensation Committee also consults with the President and Chief Executive Officer with respect to the compensation package for all other executive officers. In evaluating salaries, each officer’s individual performance during the prior year, as well as salary levels in the biotechnology industry for comparable positions are considered. In determining how the respective officer contributes to the Company, current corporate performance, as well as the potential for future performance gains, is considered. No specific weight is attributed to the foregoing for purposes of determining base salaries.

Equity-Based Incentives

We provide our executive officers with long-term incentives through our 1998 Plan, 1999 Plan, 2001 Plan, Employee Plan and beginning in 2007, our 2007 Stock Option Plan (each, as defined under “— Equity Plans” below), all described in more detail below. On June 22, 2007, we amended the 1998 Plan, 1999 Plan, 2001 Plan and Employee Plan such that no further stock option grants may be made under any of such plans. The primary objective of these plans is to provide an incentive for employees, including our executive officers, to make decisions and take actions that maximize long-term stockholder value. The plans are designed to promote this long-term focus by using discretionary grants and long-term vesting periods. Subject to the terms of the plans, the Compensation Committee determines the terms and conditions of options granted under the plans, including the exercise price, which is based on fair value of our stock on the date of grant. For various motivation and retention considerations, option awards granted subsequent to our initial public offering in December 2001 generally vest over four years. The Compensation Committee believes that stock options provide an incentive for employees, allowing us to attract and retain high quality management and staff.  No stock options were issued to our executives in 2008.  Stock options were issued to two employees in 2009.

Employee and Executive Benefits

Our executives participate in many of the same employee benefit programs as our other employees. The core employee benefit programs include a tax-qualified retirement plan, medical coverage, dental coverage, life insurance, disability coverage, and vacation. The tax qualified retirement plan is a 401(k) plan. We made matching contributions to each employee’s 401(k) plan account of $0.50 for each dollar contributed on the first $3,000 of compensation contributed to the plan. Our matching contribution policy was terminated effective March 2006. All of these matching contribution amounts to our Named Executive Officers are shown in the All Other Compensation footnote to the Summary Compensation Table following this section.

Perquisites

Historically, we have offered only a very limited number of perquisites to our executives as an incremental benefit to recognize their position within the Company. No perquisites of any kind were offered to executives in 2009.

Compensation of the President and Chief Executive Officer

In assembling the compensation package for our President and Chief Executive Officer, the Compensation Committee considers our annual and long-term performance, the performance of the President and Chief Executive Officer, and our cash resources and needs. Although the Committee’s overall goal is to set the President and Chief Executive Officer’s salary at the median level for competitors that are similar in industry size and performance, the actual level approved by the Committee may be higher or lower based upon the Committee’s subjective evaluation of the foregoing. Consistent with the foregoing, the Compensation Committee set the base salary for the President and Chief Executive Officer at $331,250 for fiscal 2009. The President and Chief Executive Officer did not receive an increase in salary or a bonus for 2009. In connection with our initial public offering on AIM, in December 2007, the Board of Directors granted the President and Chief Executive Officer an option to purchase shares of our common stock.

 
40

 

On September 28, 2009 the Company entered into a retention agreement, with our president and Chief Executive Officer Dr. Alton Boynton.  Under this agreement, Dr. Boynton received a convertible note in the amounts of $75,000.  The note is convertible at the discretion of Dr. Boynton during the term of the note which expires on September 29, 2011.  The note for Dr. Boynton requires that he continues his employment at the Company as either the Chief Executive Officer or the Chief Scientific Officer, until at least September 30, 2010.  Pursuant to the retention agreement, Drs. Boynton must elect, on or before November 1, 2009, one of three alternative structures for his convertible note:  (a) payment in cash;  (b) payment in common stock of the Company at the same price per share as the Private Lender Notes issued in August and September 2009  ($0.20 per share), with the taxes being paid by the recipient and the amount of the common stock being equal to the full gross amount of the retention bonus, or (c) payment in common stock of the Company at $0.20 per share with the taxes being paid by the Company and the amount of the common stock being equal to the net after-tax amount of the retention bonus.  Also pursuant to the retention agreements, the Company has agreed with Dr. Boynton that he may elect to receive common stock in lieu of salary for up to a maximum of six (6) pay periods during 2009, at the same price per share as the New Funding being received by the Company ($0.20 per share). On October 31, 2009 Dr. Boynton elected to structure his convertible note to be paid in common stock of the Company at the same price per share as the Private Lender Notes issued in August and September 2009 ($0.20 per share), with the taxes being paid by the recipient and the amount of the common stock being equal to the full gross amount of the retention bonus. In December 2009 Dr. Boynton also elected to receive common stock in lieu of salary for four pay periods.

On August 21, 2009 Dr. Boynton was granted an option to purchase 1,430,486 shares of the Company’s stock of which 1,132,464 shares vested immediately with the balance vesting in five equal monthly installments between August 31 and December 31, 2009.

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, 2009, 2008 and 2007
 
Name and Principal Position
 
Year
 
Salary
   
Bonus
   
Option
Awards(1)
   
All Other
Compensation(2)
   
Total
 
                                   
Alton L. Boynton, Ph.D. (3)
 
2009
 
$
538,281
(4)
   
75,000
   
$
768,065
   
$
   
$
1,426,346
 
President, Chief Executive
 
2008
 
$
331,250
     
   
$
   
$
504
   
$
331,754
 
Officer, Chief Scientific Officer and Secretary
 
2007
 
$
331,250
     
   
$
2,011,680
   
$
1,828
   
$
2,344,758
 
                                             
Anthony P. Deasey (5)
 
2009
 
$
     
   
$
   
$
   
$
 
Senior Vice President and Chief Financial Officer
 
2008
 
$
215,331
     
   
$
   
$
378
   
$
215,709
 
   
2007
 
$
63,462
     
   
$
115,268
   
$
   
$
178,730
 
                                             
Jim Johnston(6)
 
2009
 
$
     
   
$
   
$
   
$
 
Chief Financial Officer and
 
2008
 
$
     
   
$
   
$
   
$
 
General Counsel
 
2007
 
$
96,718
     
   
$
   
$
   
$
96,718
 
                                             
Marnix L. Bosch, Ph.D., M.B.A.
 
2009
 
$
283,750
     
50,000
   
$
731,892
   
$
   
$
1,065,642
 
Chief Technical Officer
 
2008
 
$
250,000
     
   
$
   
$
672
   
$
250,672
 
   
2007
 
$
224,980
     
   
$
471,661
   
$
482
   
$
697,123
 
 
(1)
Represents the amount recognized for financial statement reporting purposes for 2009, 2008 and 2007 in respect of outstanding option awards at fair value, excluding any impact of assumed forfeiture rates. The assumptions made in valuing option awards reported in this column are discussed in Note 3, Stock-Based Compensation to our consolidated financial statements for the years ended December 31, 2009, 2008, included elsewhere in this Annual Report on Form 10-K.

(2)
All Other Compensation for the years ended December 31, 2009, 2008 and 2007 consisted of Company-paid premiums on term life insurance coverage up to 1.5 times the employee’s annual salary and earned but unpaid accrued vacation payments.

(3)
Dr. Boynton was appointed as our Chief Executive Officer in June 2007. Dr. Boynton served as our Chief Operating Officer and our principal executive officer during 2006.

 
41

 
 
(4)
In conjunction with a retention agreement between Dr. Boynton and the Company dated September 28, 2009 Dr. Boynton elected to have six weeks of salary paid in shares of the Company’s common stock.  The salary payment was converted into stock at a price of $0.20 per share.  The shares issued to Dr. Boynton had a market value at the issue date of  $262,239.

(5)
Effective October 1, 2007, Anthony P. Deasey was named as our Chief Financial Officer.  Mr. Deasey resigned from this position effective August 12, 2008.

(6)
Effective March 1, 2007, Jim Johnston was named as our Chief Financial Officer and General Counsel. Mr. Johnston resigned from these positions effective August 28, 2007.

Given our financial status, there are no regularly scheduled increases in compensation.

 Grants of Plan-Based Awards in 2009

The following table provides information about equity awards granted to the Named Executive Officers during the year ended December 31, 2009. We did not grant any stock options, stock appreciation rights or restricted stock to Named Executive Officers during the fiscal year ended December 31, 2008.

Name
 
Grant Date
 
All other Option
Awards: Number of
Securities
Underlying Options
   
Exercise or Base
Price of Option
Awards
   
Grant Date Closing
Price of Common
Stock
   
Grant Date Value
of Option Awards
 
Dr. Alton L. Boynton
 
08/21/09
    1,430,486 (1)   $ 0.55     $ 0.55       786,055  
Dr. Marnix Bosch
 
06/23/09
    850,000 (2)   $ 0.70     $ 0.70       594,516  
Dr. Marnix Bosch
 
08/21/09
    250,000 (3)   $ 0.55     $ 0.55       137,376  

(1)
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.
(2)
This option was granted under the 2007 Stock Option Plan.  This option vests on the following schedule;

Vesting Event
 
# of Shares
 
June 23, 2009
   
125,000
 
May 31, 2010
   
125,000
 
May 31, 2011
   
100,000
 
May 31, 2012
   
99,996
 
May 31, 2013
   
99,996
 
Swiss Approval
   
100,000
 
Full Enrollment in Phase II Glioblastoma Multiforme Clinical Study
   
100,000
 
FDA Approval of NDA
   
100,000
 

(3)
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.

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, 2009.

 
42

 

   
Option Awards
 
Stock Awards
 
Name and Principal
Position
 
Number
of Securities
Underlying
Unexercised
Options
Exercisable
   
Number
of Securities
Underlying
Unexercised
Options
Un-exercisable
   
Option
Exercise Price
($)
 
Option
Expiration
Date
 
Number of
Shares or Units
of Stock that
Have Not
Vested
   
Market Value
of Shares or
Units of Stock
that Have not
Vested
   
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights that
Have Not
vested
   
Equity
Incentive
Plan
Awards:
Market or
Payout Value
of Unearned
Shares Units
or Other
rights that
Have Not
Vested
 
Alton L. Boynton
    5,286 (1)           18.75  
04/18/11
    0       0       0       0  
President and Chief
    6,666 (1)           1.35  
02/18/13
                               
Executive Officer
    125,142 (2)     750,852       0.60  
12/31/11
                               
      1,430,486 (3)             0.55  
08/20/19
                               
Jim Johnston
    1,667 (4)     0       3.15  
3/18/15
    0       0       0       0  
Chief  Financial
                                                         
Officer and General
                                                         
Counsel
                                                         
Marnix L. Bosch
    1,000 (5)             12.75  
5/16/10
    0       0       0       0  
Chief Technical
    333 (5)             18.75  
11/14/10
                               
Officer
    333 (5)             18.75  
09/20//11
                               
      833 (5)             75.00  
01/10/12
                               
      3,194 (5)     139       1.35  
2/18/13
                               
      4,000 (5)     1,333       1.80  
12/01/13
                               
      196,713 (6)     334,818       0.60  
12/31/11
                               
      197,919 (7)     652,081       0.70  
06/23/19
                               
      250,000 (8)             0.55  
08/20/19
                               

(1)
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.

(2)
This option was granted under the 2007 Stock Option Plan. This option grant vests over a three and one-half year period. Approximately 29% the option grant was vested immediately upon grant with respect to prior service performed. Approximately 17% vests on the first anniversary of the AIM offering (June 22, 2008) and the remaining portion vests in equal monthly installments over the remaining three year vesting period. These options were granted in recognition of past service to the Company and have an exercise price of $0.60 per share, which is equal to the conversion price of warrants issued to Toucan Partners under the Conversion Agreement. In accordance with Dr. Boynton’s option agreement as options to 1,430,846 and 500,568 shares had not been exercised as of December 31, 2008 and 2009 respectively such options were forfeited.

(3)
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.

(4)
These options were granted prior to Mr. Johnston’s employment with us and are fully vested.

(5)
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.

(6)
This option was granted under the 2007 Stock Option Plan. This option grant vests over a three and one-half year period. Approximately 19% of the option grant was vested immediately upon grant with respect to prior service performed. Approximately 21% vests on the first anniversary of the AIM offering (June 22, 2008) and the remaining portion vests in equal monthly installments over the remaining three year vesting period. These options were granted in recognition of past service to the Company and have an exercise price of $0.60 per share, which is equal to the conversion price of warrants issued to Toucan Partners under the Conversion Agreement. In accordance with Dr. Bosch’s option agreement as options to purchase 250,000 and 300,000 shares had not been exercised as of December 31, 2008 and 2009 respectively such options were forfeited.

 
43

 

(7)
This option was granted under the 2007 Stock Option Plan.  This option vests on the following schedule;

 
44

 

Vesting Event
 
# of Shares
 
June 23, 2009
   
125,000
 
May 31, 2010
   
125,000
 
May 31, 2011
   
100,000
 
May 31, 2012
   
99,996
 
May 31, 2013
   
99,996
 
Swiss Approval
   
100,000
 
Full Enrollment in Phase II Glioblastoma Multiforme Clinical Study
   
100,000
 
FDA Approval of NDA
   
100,000
 

(8)
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.

Option Exercises and Stock Vested

No options were exercised by and no stock awards vested for the Named Executive Officers during 2008.

Pension Plans, Deferred Compensation and Severance Agreements

We do not currently offer any such plans or compensation or have any such agreements in place.

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, 2009.

Name
 
Year
 
Fees Earned
or Paid
in Cash
   
All Other
Compensation(1)
   
Total
 
Linda F. Powers
 
2009
  $ 150,000 (1)   $     $ 150,000  
Robert A. Farmer
 
2009
  $     $     $  

(1) includes directors fees for half of 2008 (previously unpaid) as well as full year 2009.

Only non-employee directors receive director fees. Effective June 22, 2007, we are 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. Also effective December 10, 2009 we were required to issue Robert A. Farmer, for his services as a non-executive member of the Board of Directors, 50,000 shares of the company’s common stock per annum.

Compensation Committee Interlocks and Insider Participation

From January 1, 2007 to June 22, 2007, Dr. Boynton was the sole member of our Compensation Committee and served as our President, Chief Operating Officer and Chief Scientific Officer. In addition, as discussed further under “Transactions with Related Persons” below, in 2006, Dr. Boynton exercised warrants and convertible loans covering 126,365 and 146,385 shares of our common stock, respectively. In June 2007, Dr. Boynton was replaced by Linda F. Powers and R. Steve Harris as members of the Compensation Committee. During 2008, none of our executive officers served as a member of the compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as a director on our Board or as a member of our Compensation Committee. None of our executive officers served during 2008 as a director of any other entity, one of whose executive officers served as a director on our Board or as a member of our Compensation Committee.

 
45

 

Equity Plans

Stock Option Plans

The Company’s stock option plans are administered by the Board of Directors, which determines the terms and conditions of the options granted, including exercise price, number of options granted and vesting period of such options.

Our employees, directors and consultants previously participated in the 1998 Stock Option Plan and the 1999 Executive Stock Option Plan.  The 1998 Stock Option Plan and the 1999 Executive Stock Option Plan were terminated during 2008 and 2009 and no further grants may be made under the plans.

 Existing stock option plans are as follows:

(a) 2001 Stock Option Plan

Under the 2001 Stock Option Plan (the “2001 Plan”), 120,000 shares of the Company’s common stock have been reserved for grant of stock options to employees and consultants.  Additionally, on January 1 of each year, commencing January 1, 2002, the number of shares reserved for grant under the 2001 Plan will increase by the lesser of (i) 15% of the aggregate number of shares available for grant under the 2001 Plan or (ii) 20,000 shares.  Our Board of Directors has the authority to amend or terminate this plan, but such action may not adversely affect any outstanding option previously granted under the plan.  If this plan is not terminated earlier, no incentive stock options can be granted under the plan on or after the later of June 2011 or the 10th anniversary of the date when our Board of Directors adopted, subject to approval by our stockholders, the most recent increase in the number of shares available for grant under the plan.

As of December 31, 2009, net of forfeitures, a total of 162,603 shares remain available under this plan; however, effective June 22, 2007, the Company amended the 2001 Stock Option Plan, such that no further option grants may be made under the plan.

(b) 2001 Non-employee Director Stock Incentive Plan

Under the 2001 Non-employee Director Stock Incentive Plan (the “2001 Director Plan”), 13,333 shares of the Company’s common stock have been reserved for grant of stock options to non-employee directors of the Company.  As of December 31, 2009, net of forfeitures, a total of 10,500 shares remain available under this plan; however, no further grants may be made under this plan.

(c) 2007 Stock Option Plan

The 2007 Stock Option Plan became effective on June 15, 2007 (the “2007 Stock Option Plan”).  In April 2008, the Company increased the number of shares reserved for issuance under the 2007 Stock Option Plan by 519,132 shares of its common stock for an aggregate of 6,000,000 shares of its common stock, par value $0.001 per share, reserved for issue of options granted under the plan.  The plan provides for the grant to employees of the Company, its parents and subsidiaries, including officers and employee directors, of “incentive stock options,” as defined, and for the grant of non-statutory stock options to the employees, officers, directors, including non-employee directors, and consultants of the Company, its parents and subsidiaries.  As of December 31, 2009, net of forfeitures, a total of 849,454 shares remain available for issuance under this plan.

Employee Stock Purchase Plan

Our Employee Stock Purchase Plan (the “Employees’ Plan”) was adopted by our Board of Directors and approved by our stockholders in June 2001. A total of 33,333 shares of common stock have been reserved for issuance under this plan and, as of December 31, 2009, 958 shares have been issued under this plan.

 
46

 

This plan is administered by the Compensation Committee of our Board of Directors and provides a mechanism for eligible employees to purchase shares of our common stock. To facilitate these purchases, eligible participants are assigned plan accounts, to which they may contribute funds via payroll deduction. The purchases are accomplished through the use of six-month offering periods. Purchases pursuant to this plan are made at a price equal to the lower of (i) 85% of the fair market value of our common stock on the last trading day in the offering period; or (ii) 85% of the fair market value of our common stock on the last trading day before the commencement of such offering period. No participant may purchase more than 67 shares of our common stock during any offering period. Additionally, purchases under the plan are limited such that no participant may purchase under the plan, in any offering period that commenced in that calendar year, shares with a fair market value in excess of $25,000 minus the fair market value of any shares that the participant previously purchased in that calendar year. In the case of shares purchased during an offering period that commenced in the preceding calendar year, the limitation is $50,000 minus the fair market value of any shares that the participant purchased during the calendar year of the purchase and the calendar year immediately preceding such purchase.

Our Board of Directors has the authority to amend or terminate this plan at any time. Amendments to the plan are subject to approval by our stockholders to the extent required by applicable law.

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table presents information regarding the beneficial ownership of our common stock as of April 13, 2009 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.

The applicable percentages of ownership are based on an aggregate of 62,365,460 shares of common stock issued and outstanding on April 9, 2010. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed shares of common stock subject to options, warrants, convertible preferred stock or convertible notes held by that person that are currently exercisable or exercisable within 60 days of April 9, 2010.

We have determined beneficial ownership in accordance with the rules of the SEC. 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)
   
3,714,468
     
5.9
 
Marnix L. Bosch, Ph.D., M.B.A.(3)
   
1,396,282
     
2.3
 
Linda F. Powers(4)
   
65,279,856
     
69.7
 
Robert A. Farmer
   
602,667
     
1.0
 
All executive officers and directors as a group (5 persons)(5)
   
70,392,273
     
73.2
 
5% Security Holders
               
Toucan Capital Fund II, L.P.(6)
   
41,334,675
     
49.6
 
7600 Wisconsin Avenue, Suite 700, Bethesda, MD 20814
               
Toucan Partners, LLC(7)
   
20,622,571
     
28.8
 
7600 Wisconsin Avenue, Suite 700, Bethesda, MD 20814
               
Al Rajhi Holdings
   
10,835,111
     
17.2
 
Rue Maurice 3 1204 Geneve Switzerland
               
IS Partners Investment Solutions
               

 
47

 

(1)
Percentage represents beneficial ownership percentage of common stock calculated in accordance with SEC rules and does not equate to voting percentages.

(2)
Includes 1,776,150 shares of common stock issuable upon exercise of options that are exercisable within 60 days of April 9, 2010.

(3)
Includes 726,492 shares of common stock issuable upon exercise of options that are exercisable within 60 days of April 9, 2010.

(4)
Includes (i) 19,299,486 shares of common stock held by Toucan Capital; (ii) 22,035,089 shares of common stock currently issuable upon exercise of warrants that are exercisable within 60 days of April 9, 2010 held by Toucan Capital; (iii) 10,301,334 shares of common stock held by Toucan Partners and (iv) 10,321,257 shares of common stock currently issuable upon exercise of warrants that are exercisable within 60 days of April 9, 2010 held by Toucan Partners. Ms. Powers is a managing member of Toucan Management, LLC, which is the manager of Toucan Capital, and is a managing member of Toucan Partners.

(5)
Includes 2,502,642 shares issuable to officers and directors upon exercise of options that are exercisable within 60 days of April 9, 2010. Excludes 32,356,346 shares of common stock as to which Ms. Powers disclaims beneficial ownership. See Note 4 above.

(6)
Includes 22,035,089 shares of common stock currently issuable upon exercise of warrants that are exercisable within 60 days of April 9, 2010 held by Toucan Capital.

(7)
Includes 10,321,257 shares of common stock currently issuable upon exercise of warrants that are exercisable within 60 days of April 9, 2010 held by Toucan Partners.

Item 13.   Certain Relationships and Related Transactions, and Director Independence

Toucan Capital and Toucan Partners

Toucan Capital Fund II, L.P. (“Toucan Capital”) loaned the Company $6.75 million during 2004 and 2005.  The Board’s Chairperson is the managing director of Toucan Capital. In April 2006, the $6.75 million of notes payable plus all accrued interest were converted into shares of Series A-1 cumulative convertible Preferred Stock (the “Series A-1 Preferred Stock”). In connection with these loans the Company issued Toucan Capital a warrant to purchase 8,166,667 shares of Series A-1 Preferred Stock.  The warrants to purchase Series A-1 Preferred Stock were later converted into warrants to purchase 17,256,888 shares of common stock in connection with the Conversion Agreement, described below.

On January 26, 2005, Toucan Capital purchased 32.5 million shares of Series A cumulative convertible preferred stock (the “Series A Preferred Stock”) at $0.04 per share, for a total of $1.276 million. In connection with the securities purchase agreement, the Company issued Toucan Capital a warrant to purchase 2,166,667 million shares of Series A Preferred Stock.  The warrants to purchase Series A Preferred Stock were later converted into warrants to purchase 4,778,201 shares of common stock in connection with the Conversion Agreement, described below.

From November 14, 2005 through May 25, 2007, Toucan Partners, LLC (“Toucan Partners”) loaned the Company $4.825 million under various promissory note agreements.  The Board’s Chairperson is the managing member of Toucan Partners.  The promissory note agreements were amended and restated into the 2007 Convertible Notes.  The 2007 Convertible Notes also included warrants to purchase shares of Series A-1 Preferred Stock ("2007 Warrants").  The Company repaid $5.3 million of principal and accrued interest due to Toucan Partners during 2007.  The warrants to purchase Series A-1 Preferred Stock were later converted into warrants to purchase 8,832,541 shares of common stock in connection with the Conversion Agreement, described below.

Under the June 22, 2007 Conversion Agreement, Toucan Capital and Toucan Partners agreed to eliminate a number of rights, preferences and protections associated with the Series A Preferred Stock and the Series A-1 Preferred Stock and Toucan Capital received 4,287,851 shares of common stock and Toucan Partners received 2,572,710 shares of common stock.  Also, Toucan Capital converted its preferred shares into 15,011,635 shares of common stock. Additionally under the conversion agreement the Company exchanged the warrants to purchase Series A-1 Preferred Stock and Series A Preferred Stock (discussed above) for warrants to purchase common stock. As a result of the conversion Toucan Capital received warrants to purchase 14,150,732 shares of Common Stock at an exercise price of $0.60 per share and warrants to purchase 7,884,357 shares of Common Stock at an exercise price of $0.15 per share and Toucan Partners received warrants to purchase 8,832,541 shares of Common Stock at an exercise price of $0.60 per share.

 
48

 

Toucan Partners loaned the Company $1.0 million on August 19, 2008 under the terms of an unsecured promissory note (the “Toucan Partners August Loan”) with a principal amount of $1,060,000 (reflecting an original issue discount of $60,000).  On September 28, 2009, the note principal and accrued interest (including a default penalty of 0.25% per month) amounting to $1,156,718 was converted to 5,783,589 shares of common stock at a conversion rate of $0.20.  In connection with the conversion, the Company issued Toucan Partners a warrant to purchase 690,000 shares of common stock at an exercise price of $0.20 per share.

Toucan Partners loaned the Company $500,000 on December 22, 2008 under the terms of an unsecured 12% promissory note (the “Toucan Partners December Loan”).  In connection with the promissory note, the Company issued to Toucan Partners a warrant to purchase 132,500 shares of common stock at an exercise price of $0.40 per share and a term of 5 years.  On September 28, 2009, the note principal and accrued interest (including a default penalty of 0.25% per month) amounting to $552,738 was converted to 2,763,691 shares of common stock at a conversion rate of $0.20.  As consideration for the extension of the maturity date, the Company issued Toucan Partners a warrant to purchase 513,841 shares of common stock at an exercise price of $0.40 per share.  In connection with the conversion, the Company issued Toucan Partners a warrant to purchase 152,375 shares of common stock at an exercise price of $0.20 per share.

Toucan Partners and the Company's Chairperson also received a total of  2,504,034 shares of common stock as compensation for services rendered during September 2009.

Toucan Partners loaned the Company a total of $1,300,000 on June 30, 2009, July 2, 2009 and July 17, 2009 under unsecured 6% convertible promissory notes due June 29, 2009, July 1, 2011 and July 16, 2011.  The conversion feature of the notes allows Toucan Partners to receive shares of common stock only, and not cash or other consideration, at a conversion price of $0.20.

As a result of the financings described above, as of December 31, 2009 Toucan Capital held:

 
an aggregate of 19,299,486 shares of Common Stock;

 
warrants to purchase 14,150,732 shares of Common Stock at an exercise price of $0.60 per share; and

 
warrants to purchase 7,884,357 shares of Common Stock at an exercise price of $0.15 per share.

As a result of the financings described above, as of December 31, 2009, Toucan Partners and its managing member Ms. Linda Powers held:

 
an aggregate of 13,624,024 shares of Common Stock;

 
warrants to purchase 8,832,541 shares of Common Stock at an exercise price of $0.60 per share;

 
49

 

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

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

 
warrants to purchase 842,375 shares of common stock at an exercise price of $0.20.

As of December 31, 2009, Toucan Capital, including the holdings of Toucan Partners, held 32,923,510 shares of common stock, representing approximately 55.8% of the common stock outstanding.  Further, as of December 31, 2009, Toucan Capital, including the holdings of Toucan Partners, beneficially owned (including unexercised warrants) 65,279,856 shares of common stock, representing a beneficial ownership interest of approximately 69.9%.

On March 21, 2008, the Company executed a Sublease Agreement (the “Sublease Agreement”) with Toucan Capital Corporation for the space the Company uses 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. Previously, the Company had been occupying its Bethesda headquarters under an oral arrangement with Toucan Capital Corporation, whereby the Company was required to pay base rent of $32,949.10 per month through December 31, 2007. Under the Sublease Agreement, the Company was required to pay base rent of $34,000 per month during the year 2008, which monthly amount was to increase by $1,000 on an annual basis, to a maximum of $42,000 per month during 2016, the last year of the lease term. In addition to monthly base rent, the Company was and remains 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.  The obligation for the Company will be less than $5,000 per month during 2010 and 2011.

Cognate

On July 30, 2004, the Company entered into a service agreement with Cognate Therapeutics, Inc. (now known as Cognate BioServices, Inc., or 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, on May 17, 2007, the managing director of Toucan Capital was appointed to serve as a director of the Company and to serve as the non-executive Chairperson of the Company’s Board of Directors. Under the service agreement, the Company agreed to utilize Cognate’s services for an initial two-year period, related primarily to manufacturing DCVax ® product candidates, regulatory advice, research and development preclinical activities and managing clinical trials. The agreement expired on July 30, 2006; however, the Company continued to utilize Cognate’s services under the same terms as set forth in the expired agreement. On May 17, 2007, the Company entered into a new service agreement with Cognate pursuant to which Cognate will provide certain consulting and, when needed, manufacturing services to the Company for its DCVax ® -Brain Phase II clinical trial. Under the terms of the new contract, the Company paid a non-refundable contract initiation fee of $250,000 and committed to pay budgeted monthly service fees of $400,000, subject to quarterly true-ups, and monthly facility fees of $150,000. Under the terms of the contract unless the contract is terminated earlier the contract will expire at the earlier of (i) the submission of an FDA biological license application/new drug application on the Company’s brain cancer clinical trial or (ii) July 1, 2010. The Company may terminate this agreement with 180 days notice and payment of all reasonable wind-up costs and Cognate may terminate the contract in the event that the brain cancer clinical trial fails to complete enrollment by July 1, 2009. However, if such termination by the Company occurs at any time prior to the earlier of the submission of an FDA biological license application/new drug application on the Company’s brain cancer clinical trial or July 1, 2010 or, such termination by Cognate results from failure of the brain cancer clinical trial to complete patient enrollment by July 1, 2009, the Company is obligated to make an additional termination fee payment to Cognate equal to $2 million.  Although the Company failed to complete enrollment the brain cancer clinical trial by July 1, 2009 Cognate has elected not to terminate the agreement and as such the $2 million termination penalty had not been triggered as of December 31, 2009.  Since July 1, 2009 with the mutual agreement of Cognate and the Company the agreement has continued on a month to month basis on the same terms as included in the original agreement.

Cognate has moved its operations from Sunnyvale Califormia to Memphis Tennessee where it has purchased an existing  cGMP (clean room manufacturing under current Good Manufacturing Practices) facility that is fully functional.  The capacity in Memphis is approximately 600 patients per year, which we believe will be sufficient for our Phase II clinical trial for DCVax ® -Brain. 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 600 patients to over 9,000 patients per year. We believe that Cognate’s current facilities are sufficient to cover additional agreements for our initial commercialization efforts in Switzerland, and potentially in the United States and/or Europe, as well as to meet demands of clinical trial activity once commenced.

 
50

 

During 2009, the Company and Cognate BioServices ("Cognate") agreed that most of the accounts payable owed by the Company to Cognate, will be converted into shares of common stock instead of paid in cash.  The conversion price will be no less favorable than the conversion price applied to any other creditor of the Company.  The impact of the conversion will result in a reduction of liabilities for the amount converted.  In addition, the Company will recognize the value of common stock issued in excess of the amount of accounts payable converted, if any, as a charge to operations when the conversion takes place.  Finalization of these arrangements is in process.

Also during 2009, the Company agreed with Toucan Capital, Toucan Partners and Linda Powers that a portion of the accrued expenses owed by the Company to these parties for certain expense reimbursements will be converted into shares of common stock instead of paid in cash.  Toucan Capital, Toucan Partners and Linda Powers have paid certain expenses on behalf of the Company.  The parties agreed that these accrued expenses will be converted into common stock (at a conversion rate of $0.20 per share).  The parties are in the process of determining the amounts of unbilled accrued expenses.  The impact of the conversion will result in a reduction of liabilities for the amount converted.  In addition, the Company will recognize the value of common stock issued in excess of the amount of the accrued expenses converted, if any, as a charge to operations when the conversion takes place.  Finalization of these arrangements is in process.

During the years ending December 31, 2008 and 2009, respectively, we recognized approximately $7.8 million and $7.3 million of research and development costs related to this service agreement. As of December 31, 2008 and 2009, the Company owed Cognate approximately $1.1 million and $5.9 million, respectively.

Director Independence

We have one independent director on our Board of Directors and will insure that all transactions are on terms at least as favorable to the Company as we would negotiate with unrelated third parties

Item 14.   Principal Accountant Fees and Services

The following table represents aggregate fees billed to us for the fiscal years ended December 31, 2009 and 2008 by Peterson Sullivan, our principal independent registered public accounting firm.

Fiscal Year Ended December 31:
 
2009
   
2008
 
Audit Fees
 
$
123,244
   
$
152,979
 
Tax Fees
   
4,701
     
 5,930
 
Total
 
$
127,945
   
$
158,909
 

Audit fees primarily include services for auditing our financial statements along with reviews of our interim financial information included in our Forms 10-K and 10-Q. Peterson Sullivan’s work on these two audits was performed by full time, regular employees and partners of Peterson Sullivan. Tax fees, which includes tax consulting and tax compliance fees, in both the current year and prior year relate to the preparation of our Federal income tax return. All fees described above were approved by our Audit Committee, and the Audit Committee considers the provision of the services rendered in respect of those fees compatible with maintaining the auditor’s independence.

Item 15.   Exhibits, Financial Statement Schedules

(a)(1) Index to Consolidated Financial Statements and Independent Auditors Report.
 
51

 
The financial statements required by this item are submitted in a separate section as indicated below.
 
   
Page
Report of Peterson Sullivan, LLP, Independent Registered Public Accounting Firm
 
53
Consolidated Balance Sheets
 
54
Consolidated Statements of Operations
 
55
Consolidated Statements of Stockholders’ Equity (Deficit) and Comprehensive Loss
 
56
Consolidated Statements of Cash Flows
 
57
Notes to Consolidated Financial Statements
  
58

(2) Index to Financial Statement Schedules

All financial statement schedules are omitted since the required information is not applicable, not required or the required information is included in the financial statements or notes thereto.

(3) Exhibits

See Exhibit Index on page 102.

 
52

 


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 Subsidiary (a development stage company) ("the Company") as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and for the period from March 18, 1996 (date of inception) to December 31, 2009.  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 Subsidiary (a development stage company) as of December 31, 2009 and 2008, 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, 2009, 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, has a working capital deficit, 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 15, 2010

 
53

 

NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

   
December 31,
2008
   
December 31,
2009
 
   
(In thousands)
 
ASSETS
           
Current assets:
           
Cash
 
$
 16
   
$
 65
 
Accounts receivable
   
1
     
 —
 
Prepaid expenses and other current assets
   
1,057
     
36
 
Total current assets
   
1,074
     
101
 
Property and equipment:
               
Laboratory equipment
   
 29
     
29
 
Office furniture and other equipment
   
82
     
82
 
Construction in progress
   
387
     
 
     
 498
     
111