NORTHWEST BIOTHERAPEUTICS INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)
[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended September 30, 2003


[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-26825

NORTHWEST BIOTHERAPEUTICS, INC.

(Exact Name Of Registrant As Specified In Its Charter)


DELAWARE		94-3306718
(State or Other Jurisdiction of		(I.R.S. Employer Identification
Incorporation or Organization)		No.)

Canyon Park Building 8, 22322 20th Avenue S.E., Suite 150, Bothell, Wa. 98021
(Address of Principal Executive Offices, Including Zip Code)

(425) 608-3000
(Registrant’s Telephone Number, Including Area Code)

21720 23rd Dr. S.E., Suite 100, Bothell, Wa. 98021
(Registrant’s Former Address)

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 [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As of November 13, 2003, the registrant had outstanding 19,027,779 shares of common stock, $0.001 par value.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
		Condensed Balance Sheets
		Condensed Statements of Operations
		Condensed Statement of Cash Flows
		Notes to Condensed Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

TABLE OF CONTENTS

NORTHWEST BIOTHERAPEUTICS, INC.

TABLE OF CONTENTS


				Page

PART I — FINANCIAL INFORMATION					3
		Item 1. Financial Statements (unaudited)			3
			Condensed Balance Sheets		3
			Condensed Statements of Operations		4
			Condensed Statement of Cash Flows		5
			Notes to Condensed Financial Statements		7
		Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			10
		Item 3. Quantitative and Qualitative Disclosures About Market Risk			26
		Item 4. Controls and Procedures			26
PART II — OTHER INFORMATION					26
		Item 1. Legal Proceedings			27
		Item 2. Changes in Securities and Use of Proceeds			27
		Item 3. Defaults Upon Senior Securities			27
		Item 4. Submission of Matters to a Vote of Security Holders			27
		Item 5. Other Information			27
		Item 6. Exhibits and Reports on Form 8-K			27
SIGNATURES					28
INDEX TO EXHIBITS
	Exhibit 10.1
	Exhibit 10.2
	Exhibit 10.3
	Exhibit 10.4
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32.1
	Exhibit 32.2

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

NORTHWEST BIOTHERAPEUTICS, INC.
(A Development Stage Company)

Condensed Balance Sheets
(unaudited)

(in thousands)


					September 30,			December 31,
					2003			2002

Assets
Current assets:
	Cash and cash equivalents				$	664		$	2,539
	Marketable securities					—			704
	Accounts receivable					61			—
	Accounts receivable from affiliates					—			3
	Receivable from Medarex					—			1,124
	Prepaid expenses and other current assets					108			745

				Total current assets		833			5,115

Property and equipment:
	Leasehold improvements					69			739
	Laboratory equipment					543			952
	Office furniture and other equipment					128			272

						740			1,963
	Less accumulated depreciation and amortization					(338	)		(615	)

		Property and equipment, net				402			1,348
Restricted cash						105			1,109
Deposit and other non-current assets						45			—

				Total assets	$	1,385		$	7,572

Liabilities And Stockholders’ Equity
Current liabilities:
	Note payable				$	—		$	420
	Current portion of capital lease obligations					48			73
	Accounts payable					109			497
	Accrued expenses					594			241
	Accrued loss on facility sublease, current portion					—			418

			Total current liabilities			751			1,649
Long-term liabilities:
	Capital lease obligations, net of current portion					59			98
	Deferred rent					61			158
	Due to Medarex					—			280
	Accrued loss on facility sublease, net of current portion					—			511

			Total liabilities			871			2,696

Stockholders’ equity:
	Common stock, $0.001 par value; 125,000,000 shares authorized and 19,027,779 and 17,930,276 shares issued and outstanding at September 30, 2003 and December 31, 2002, respectively					19			18
	Additional paid-in capital					63,956			63,794
	Deferred compensation					(89	)		(444	)
	Deficit accumulated during the development stage					(63,372	)		(58,492	)

			Total stockholders’ equity			514			4,876

Total liabilities and stockholders’ equity					$	1,385		$	7,572

See accompanying notes to condensed financial statements.

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NORTHWEST BIOTHERAPEUTICS, INC.

(A Development Stage Company)

Condensed Statements of Operations
(unaudited)

(in thousands, except per share data)


				Three Months Ended							Nine Months Ended						Period from
				September 30,							September 30,						March 18, 1996
																	(inception) to
				2003				2002			2003			2002			September 30, 2003

Revenues:
		Research material sales			$	8		$	—		$	15		$	9		$	351
		Contract research and development from related parties				—			—			—			—			1,128
		License fee				25			—			25			—			25
		Research grants				112			—			361			—			493

			Total revenues			145			—			401			9			1,997

Operating expenses:
		Cost of research material sales				22			—			62			7			313
		Research and development				378			1,657			1,386			5,253			23,736
		General and administrative				893			1,721			3,396			5,486			25,181
		Depreciation and amortization				34			144			171			449			2,035
		Loss on facility sublease and lease cancellation				—			—			174			—			895
		Asset impairment loss				—			—			904			—			1,936

			Total operating expenses			1,327			3,522			6,093			11,195			54,096

			Loss from operations			(1,182	)		(3,522	)		(5,692	)		(11,186	)		(52,099	)

Other income (expense):
	Gain on sale of royalty rights					—			—			816			—			3,656
	Interest expense					(6	)		(8	)		(25	)		(31	)		(7,807	)
	Interest income					1			29			21			141			726

Net loss						(1,187	)		(3,501	)		(4,880	)		(11,076	)		(55,524	)
Accretion of Series A preferred stock mandatory redemption obligation						—			—			—			—			(1,872	)
Series A preferred stock redemption fee						—			—			—			—			(1,700	)
Beneficial conversion feature of Series D preferred stock						—			—			—			—			(4,274	)

Net loss applicable to common stockholders					$	(1,187	)	$	(3,501	)	$	(4,880	)	$	(11,076	)	$	(63,370	)

Net loss per share applicable to common stockholders - basic and diluted					$	(0.06	)	$	(0.21	)	$	(0.26	)	$	(0.66	)

Weighted average shares used in computing basic and diluted loss per share						19,014			16,896			18,896			16,887

See accompanying notes to condensed financial statements.

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Northwest Biotherapeutics, Inc.
(A Development Stage Company)
Condensed Statement of Cash Flows
(unaudited)

(in thousands)


				Nine Months Ended							Period from
				September 30,							March 18, 1996
											(Inception) to
				2003				2002			September 30, 2003

Cash flows from operating activities:
Net loss					$	(4,880	)	$	(11,076	)	$	(55,524	)
	Reconciliation of net loss to net cash used in operating activities:
		Depreciation and amortization				171			449			2,034
		Amortization of deferred financing costs				—			—			320
		Amortization debt discount				—			—			5,749
		Accrued interest converted to preferred stock				—			—			260
		Stock-based compensation costs				203			438			1,003
		Loss on sale and disposal of property and equipment				904			—			1,386
		Gain on sale of intellectual property and royalty rights				(816	)		—			(3,656	)
		Asset impairment loss				—			—			1,032
		Loss on facility sublease and lease cancellation				174			—			895
	Increase (decrease) in cash resulting from changes in assets and liabilities:
		Accounts receivable				(58	)		53			(61	)
		Prepaid expenses and other current assets				637			20			502
		Accounts payable and accrued expenses				(35	)		(436	)		1,102
		Accrued loss on sublease				(266	)		—			—
		Deferred rent				105			107			61

			Net cash used in operating activities			(3,861	)		(10,445	)		(44,897	)

Cash flows from investing activities:
	Purchase of property and equipment, net					(196	)		(608	)		(4,584	)
	Proceeds from sale of property and equipment					67			—			67
	Proceeds from sale of intellectual property and royalty rights					816			—			1,816
	Proceeds from sale of marketable securities					1828			—			2,000
	Payment of security deposit					(45	)		—			(45	)
	Restricted cash					—			(104	)		(1,109	)

			Net cash provided by (used in) investing activities			2,470			(712	)		(1,855	)

Cash flows from financing activities:
	Proceeds from issuance of note payable to stockholder					—			—			1,650
	Repayment of note payable to stockholder					—			—			(1,650	)
	Proceeds from issuance of convertible promissory note and warrants, net of issuance costs					—			—			5,064
	Borrowing under line of credit, Northwest Hospital					—			—			2,834

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			Nine Months Ended							Period from
			September 30,							March 18, 1996
										(Inception) to
			2003				2002			September 30, 2003

	Repayment of line of credit to Northwest Hospital				—			—			(2,834	)
	Payment on capital lease obligations				(64	)		(20	)		(229	)
	Payments on note payable				(420	)		—			(420	)
	Proceeds from issuance preferred stock, net				—			—			27,432
	Proceeds from exercise of stock options and warrants							225			220
	Proceeds from issuance common stock, net				—			—			17,369
	Series A preferred stock redemption fee				—			—			(1,700	)
	Deferred financing costs				—			—			(320	)

		Net Cash (used in) provided by Financing Activities			(484	)		205			47,416

Net increase (decrease) in cash and cash equivalents					(1875	)		(10,952	)		664
Cash and cash equivalents at beginning of period					2,539			14,966			—

Cash and cash equivalents at end of period					664			4,014			664

Supplemental disclosure of cash flow information — cash paid during the period for interest					25			31			1,391

Supplemental schedule of non-cash financing activities
Equipment acquired through capital leases					—			21			285
Accretion of Series A preferred stock mandatory redemption obligation					—			—			1,872
Beneficial conversion feature of convertible promissory notes					—			—			1,026
Conversion of convertible promissory notes and accrued interest to Series D preferred stock					—			—			5,324
Issuance of Series C preferred stock warrants in connection with lease agreement					—			—			43
Issuance of common stock for license rights					—			—			4
Issuance of common stock and warrants to Medarex					280			—			560
Issuance of common stock to landlord					35			—			35
Deferred compensation on issuance of stock options and restricted stock grants					—			—			471
Cancellation of options and restricted stock					77						770
Financing of prepaid insurance through note payable				$	—		$	—		$	420

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Northwest Biotherapeutics, Inc.

(A Development Stage Company)

Notes to Condensed Financial Statements

(unaudited)

1. Basis of Presentation

The accompanying unaudited financial statements for Northwest Biotherapeutics, Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2003 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year ending December 31, 2003.

The financial information as of December 31, 2002 is derived from the Company’s audited condensed financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission and should be read in conjunction with such financial statements.

The auditor’s report on the foregoing financial statements of the Company for the fiscal year ended December 31, 2002 states that because of operating losses and an accumulated deficit, 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.

Stock-Based Compensation

The Company accounts for its stock option plans for employees in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense related to employee stock options is recorded if, on the date of grant, the fair value of the underlying stock exceeds the exercise price. The Company applies the disclosure-only requirements of SFAS No. 123, Accounting for Stock-Based Compensation, which allows entities to continue to apply the provisions of APB Opinion No. 25 for transactions with employees, and to provide pro forma results of operations disclosures for employee stock option grants as if the fair-value-based method of accounting in SFAS No. 123 had been applied to those transactions.

Stock compensation costs related to fixed employee awards with pro rata vesting are recognized on a straight-line basis over the period of benefit, generally the vesting period of the options. For options and warrants issued to non-employees, the Company recognizes stock compensation costs utilizing the fair value methodology prescribed in SFAS No. 123 over the related period of benefit.

Had the Company recognized the compensation cost of employee stock options based on the fair value of the options on the date of grant as prescribed by SFAS No. 123, the pro forma net loss applicable to common stockholders and related loss per share would have been adjusted to the pro forma amounts indicated below:

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		Three months ended September 30,						Nine months ended September 30,

		2003			2002			2003			2002

Net loss applicable to common stockholders
	As reported		(1,187	)		(3,501	)		(4,880	)		(11,076	)
	Add: Stock-based employee compensation expense included in reported net loss, net		35			113			203			340
	Deduct: Stock-based employee compensation determined under fair value based method for all awards		(77	)		(255	)		(303	)		(859	)

	Pro forma		(1,229	)		(3,643	)		(4,980	)		(11,595	)

Net loss per share-basic and diluted:
	As reported		(0.06	)		(0.21	)		(0.26	)		(0.66	)
	Pro forma		(0.06	)		(0.22	)		(0.26	)		(0.69	)

There were no stock options granted during the three months ended September 30, 2003. The per share weighted average fair value of stock options granted during the three months ended September 30, 2002 was $0.84. The per share weighted average fair values of stock options granted during the nine months ended September 30, 2003 and 2002 were $0.09 and $3.54, respectively. These weighted average fair values were determined on the dates of grants using the following weighted average assumptions:


	Three months ended September 30,					Nine months ended September 30,

	2003		2002			2003			2002

Risk-free interest rate		n/a		3.38			2.87			4.09
Expected life		n/a	5 years			5 years			5 years
Expected volatility		n/a		133	%		198	%		133	%
Dividend yield		n/a		0			0			0

2. Liquidity

As of September 30, 2003, we had approximately $664,000 in cash and cash equivalents. We believe our cash, after the sale of the secured convertible promissory notes described below, will be sufficient to fund our operations through the end of 2003. We are presently pursuing opportunities to obtain additional funding to fund our operations beyond that time. If we are unable to obtain additional funding, we may use Company assets that otherwise would be required to liquidate the Company and pay Company obligations or cease operations to meet the Company’s remaining obligations and to maximize the value, if any, to be paid to our stockholders following a liquidation of the Company.

From October 1, 2003 through December 31, 2003, we expect to receive an additional $118,586 in research grant revenues from a grant award from the National Institutes of Health (NIH).

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time non-refundable $25,000 license fee and future non-refundable minimum annual royalty payments of $10,000 credited against any royalty payments made to the Company. The $25,000 one-time license fee was received on August 25, 2003 and is included in total revenue for the nine months ended September 30, 2003.

We believe that these nominal grant revenues and technology licensing fees will be insufficient to fund our continued operations.

On January 7, 2000, The Company qualified for the State of Washington’s use tax deferral program for businesses engaged in high technology and research and development activities. Under the deferral program, a business may defer paying sales and use tax upon investments in qualified buildings, qualified machinery and equipment, or pilot scale manufacturing. No repayment of the taxes deferred under this program is required if the business uses the investment project for qualified research and development during the calendar year the investment project is certified by the State of Washington’s Department of Revenue as operationally complete, and for an additional seven calendar years. In late 2002, the Company initiated actions to conserve cash including eliminating future lease obligations of approximately $9.1 million over the remaining lease term at the Company’s prior facility. This prior lease was terminated when the Company moved to a smaller facility on June 30, 2003. Through abandoning the tenant improvements at the prior facility, on which use tax payments to the State of Washington had been deferred, including the disposal and/or impairment of previously qualified tax deferred equipment, the company received a tax assessment of $491,802 on October 21, 2003, of which $142,603 had been previously accrued, for 87.5% of the gross tax deferred on such qualified investments. The tax assessment payment is due on November 20, 2003. This assessment is being carried as a liability on the Balance Sheet as of September 30, 2003. The Company plans to appeal this assessment but the appeal may be unsuccessful.

3. Sale of Unregistered Securities

On December 9, 2002, we entered into an Assignment and License Agreement wherein we sold certain intellectual property to Medarex, acquired certain intellectual property from Medarex and acquired the rights to certain additional intellectual property from Medarex. Pursuant to this agreement, we issued to Medarex 2.0 million unregistered shares of common stock and warrants to purchase 800,000 shares of our unregistered common stock, at an average price of $0.165, all of which had been issued at March 31, 2003.

Also pursuant to this agreement, we received $3.0 million consisting of $1.0 million in cash and two payments of $1.0 million each payable in Medarex (MEDX) common stock. Medarex guaranteed the value of each payment of common stock at $1.0 million if sold within 30 days of issuance. Remaining Medarex common stock that had not been sold at December 31, 2002 was recorded as marketable securities and the $1.0 million issued in January 2003 was included as a receivable from Medarex at December 31, 2002. The Company has realized a total of $3.0 million in cash as all such securities were sold by February 10, 2003.

On June 30, 2003, we entered into a Settlement Agreement with Nexus Canyon Park, our prior landlord. Under this Settlement Agreement, Nexus Canyon Park agreed to permit premature termination of our prior lease and excuse future performance by the Company of lease obligations in exchange for 90,000 shares of our unregistered common stock with a fair value of $35,000 and its retention of $1.0 million of restricted cash related to the lease. The Settlement Agreement resulted in an additional loss on facility sublease and lease termination of $174,000, net of deferred rent of $203,000. In June 2003, we moved from our previous facilities and signed a new lease commencing July 1, 2003 for a term of 39 months with a future lease obligation of approximately $788,000.

On November 13, 2003 the Company completed the sale of $335,000 in principal amount of secured convertible promissory notes (“Notes”) and warrants (“Warrants”) to members of management to purchase our common stock. The Notes mature in twelve months and accrue interest at an annual rate equal to the prime rate plus 2% and are secured by substantially all of the Company’s assets. Each note is convertible into shares of our common stock equal to the principal amount of the note divided by (i) in the event that the Company completes an offering of its common stock generating gross proceeds to the Company of at least $1 million, the price per share paid by investors in that offering; or (ii) $0.18 if the Company does not complete such an offering prior to the maturity date of the note. As part of this investment, the investors received one warrant for each share to purchase two shares of common stock, subject to certain antidilution adjustments, at an exercise price to be determined as follows: (i) in the event that the Company completes an offering of its common stock generating gross proceeds to the Company of at least $1 million, then the price per share paid by investors in that offering; or (ii) $0.18 if the Company does not complete such an offering.

The Company has retained an investment banking firm to assist in identifying and evaluating potential longer-term funding options as the Company will continue to need significant amounts of additional capital, which may not be available.

4. Net Loss Per Share Applicable to Common Stockholders

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Basic and diluted net loss per share applicable to common stockholders has been computed using the weighted-average number of shares of common stock outstanding during the period, less, for the three months ended September 30, 2003, 4,000 issued and outstanding restricted shares of common stock that were subject to repurchase. Options to purchase 1,681,817 shares of common stock and warrants to purchase 1,368,525 shares of common and preferred stock were excluded from the calculation of diluted net loss per share for the three and nine months ended September 30, 2003 as such securities were antidilutive. Options to purchase 1,528,496 shares of common stock and warrants to purchase 568,525 shares of common and preferred stock were excluded from the calculation of diluted net loss per share for the three and nine months ended September 30, 2002 as such securities were antidilutive.

5. Sale of Future Royalty Rights

On June 20, 2003, the Company entered into the First Amendment to Assignment and License Agreement with Medarex. Pursuant to the First Amendment to Assignment and License Agreement, the Company released Medarex from future royalty obligations in exchange for a cash payment of $816,000. The purchase price of $816,000 was negotiated based on the expected discounted net present value (NPV) of a future 2% royalty obligation. The Company received the cash payment on July 1, 2003.

6. Asset Impairment Loss

On December 31, 2002, when vacating approximately 22,000 square feet of laboratory and administrative space at our prior offices, we made certain estimates in allocating the cost of tenant improvements to the remaining square feet of impaired space and made certain cost estimates related to the impairment of certain equipment. As a result of that analysis, we recognized an asset impairment loss of approximately $1.0 million in December 2002. With the lease cancellation with respect to the entire leased space on June 30, 2003, we recorded an additional loss on disposal of assets of approximately $904,000 primarily related to leasehold improvements and equipment that will not be utilized in our new location.

7. New Accounting Pronouncements

In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities. Statement No. 146 nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The principal difference between Statement No. 146 and Issue No. 94-3 relates to the recognition of a liability for a cost associated with an exit or disposal activity. Statement No. 146 requires that a liability be recognized for those costs only when the liability is incurred, that is, when it meets the definition of a liability in the FASB’s conceptual framework. In contrast, under Issue No. 94-3, a company recognized a liability for an exit cost when it committed to an exit plan. Statement No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. The Statement is effective for exit or disposal activities that are initiated after December 31, 2002 although earlier application is encouraged. The Company adopted SFAS 146 on January 1, 2003.

Item 2. 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 our financial statements and the notes to those statements included with this report. In addition to historical information, this report contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The words “believe,” “expect,” “intend,” “anticipate,” and similar expressions are used to identify forward-looking statements, but some forward-looking statements are expressed differently. Many factors could affect our actual results, including those factors described under “Factors That May Affect Results of Operations and Financial Condition.” These factors, among others, could cause results to differ materially from those presently anticipated by us. You should not place undue

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reliance on these forward-looking statements.

Overview

Northwest Biotherapeutics was founded in 1996 and has two basic technology platforms applicable to cancer therapeutics; dendritic cell-based cancer vaccines (DCVax^®) and monoclonal antibodies (HuRx^®) for cancer therapeutics. Notwithstanding a difficult financial climate, the Company completed an initial public offering of its common stock in December 2001. Following that offering, the Company’s dendritic cell (DC) vaccine technology was moved into a pivotal Phase III clinical trial for prostate cancer. In addition, the Company submitted a Phase II Clinical Trial protocol to the FDA for DCVax-Brain and a Phase I Clinical Trial protocol for DCVax-Lung. Both of these submissions were cleared by the FDA for patient recruitment.

The Company’s monoclonal antibody platform was partnered with Medarex and a fully human antibody was developed targeting PSMA for prostate cancer. An Investigational New Drug Application (IND) for a Phase I clinical trial was written with Medarex and submitted to the FDA in December 2002. However, to raise additional capital to fund the Company’s ongoing operations, the Company sold its PSMA rights to Medarex according to the Assignment and License Agreement dated December 9, 2002. This Phase I clinical trial is now recruiting patients and is under the direction of Medarex.

Due to the climate of the capital markets during 2002, the Company was unable to secure adequate financing and was forced to withdraw its DCVax-Prostate and DCVax–Lung clinical trials. The DCVax-Brain trial was moved to an inactive status and no patients were recruited. This trial remains open with the FDA.

The Company has a limited history of operations and has incurred significant losses since inception. As of September 30, 2003, we had a deficit accumulated during the development stage of approximately $63.4 million. In late 2002, management initiated actions to conserve cash including reducing and eliminating certain future commitments, the sale of certain fixed assets, and restructuring as a pre-clinical antibody and dendritic cell development company.

Operating costs and expenses consist primarily of research and development expenses, including clinical trial expenses, and general and administrative expenses.

Research and development expenses include salary expenses and costs of supplies used in our internal research and development projects.

From our inception in March 1996 through September 30, 2003, we incurred costs of approximately $23.7 million associated with the research into and development of our product candidates. At this time, 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 compensation expenses related to executive, information technology, finance and administrative personnel, the cost of facilities, insurance and legal support, as well as amortization costs of stock options and warrants issued to consultants and for entering into commercial arrangements.

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. For the nine months ended September 30, 2003, we earned approximately $15,000 in revenues from the manufacture and sale of research materials. We have never generated annual revenues in excess of $129,000 from such sales and these sales were

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made to one customer. If we are to rely exclusively on revenues from the sale of our research products to fund our operations, we will need to significantly increase both the number of customers and the size of such sales. We lack high-volume manufacturing, sales and marketing experience and, as a result, we may experience significant difficulties in funding our operations through the manufactured sale of research products.

Critical Accounting Policies and Estimates

Accounting principles generally accepted in the United States require our management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements, as well as the amounts of revenues and expenses during periods covered by our financial statements. The actual amounts of these items could differ materially from those estimates.

For example, under EITF 94-3, Accounting for Costs Associated with Exit or Disposal Activities, if an entity remains responsible, without realizing ongoing economic benefit, for continued rental payments for premises being vacated, an estimate of the loss over the remaining life of the primary lease must be made. Sublease rental income is an allowable offset against the total accrued cost of the rental payments that the entity continues to be liable for related to the vacated space.

Consequently, we recognized, for the year ended December 31, 2002, a liability of approximately $929,000 and a loss on facility sublease of $721,000, net of deferred rent write off in estimating the loss of economic benefit from vacating approximately 22,000 square feet of laboratory and administrative space at our prior offices.

We also determine our employee stock option compensation costs as the difference between the estimated fair value of our common stock and the exercise price of options on their date of grant. Prior to our initial public offering, our common stock was not actively traded. The fair value of our common stock for purposes of determining compensation expense for this period was determined based on our review of the primary business factors underlying the value of our common stock on the date such option grants were made, viewed in light of the expected initial public offering price per share prior to the initial public offering of our common stock. The actual initial public offering price was significantly lower than the expected price used in determining compensation expense.

Additionally, we estimate the fair value of stock options and warrants issued to non-employees using an option valuation method that considers market indicators.

Related Party Transactions

On June 20, 2003, the Company entered into the First Amendment to Assignment and License Agreement with Medarex, Inc. Medarex owns approximately 14% of our outstanding common stock. Under the First Amendment to Assignment and License Agreement, the Company released Medarex from future royalty obligations in exchange for a cash payment of $816,000. The purchase price of $816,000 was negotiated based on the expected discounted net present value (NPV) of a future 2% royalty obligation under that certain Assignment and License Agreement dated December 9, 2002. The Company received the cash payment on July 1, 2003.

On November 13, 2003, we entered into an Amended and Restate Employment Agreement with Dr. Alton L. Boynton, the Company’s President, Chief Operating Officer, Chief Science Officer and Secretary, wherein we eliminated any potential award of severance compensation to Dr. Boynton in exchange for a one-time payment of $281,571. Subsequent to this amendment, Dr. Boynton invested the after-tax portion of that payment, totaling $183,000, in the Company’s recently completed Secured Convertible Promissory Note Financing.

The Company also eliminated any potential award of severance to Dr. Marnix Bosch and Mr. Larry Richards in

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exchange for one time payments of $19,569 and $14,066 respectively. Subsequently, Messrs. Bosch and Richards invested their respective after-tax portions of these payments, $16,000 and $11,000, in the Company’s recently completed Secured Convertible Promissory Note and Warrant Financing.

Elimination of these particular future severance liabilities reduced the Company’s potential remaining financial obligations in the event of a Company liquidation. The $210,000 after-tax portion of these payments represents approximately 63.0% of the Secured Convertible Promissory Note and Warrant financing.

In addition, the following additional members of our management team purchased Notes in that offering, in the following principal amounts: Mr. Daniel O. Wilds, $50,000 and Dr. Marnix Bosch, $25,000.

These notes have a 12-month term, accrue interest at an annual rate equal to the prime rate plus 2%, and are secured by substantially all of the Company’s assets. Each note is convertible into shares of our common stock equal to the principal amount of the note divided by (i) in the event that the Company completes an offering of its common stock generating gross proceeds to the Company of at least $1 million, the price per share paid by investors in that offering; or (ii) $0.18 if the Company does not complete such an offering prior to the maturity date of the note. As part of this investment, the investors received one warrant for each share to purchase two shares of common stock, subject to certain antidilution adjustments, at an exercise price to be determined as follows: (i) in the event that the Company completes an offering of its common stock generating gross proceeds to the Company of at least $1 million, then the price per share paid by investors in that offering; or (ii) $0.18 if the Company does not complete such an offering.

Off-Balance Sheet Arrangements

On June 18, 2003, the Company signed an Industrial Lease – Multiple Tenant agreement with Benaroya Capital Company, LLC (the “Lessor”) for 14,022 square feet of space at a building located at 22322 20^th S.E. in Bothell, Washington. This lease is for a term of 39 months commencing July 1, 2003 and terminating September 30, 2006 for base rent in the amounts scheduled below:

Tabular Disclosure of Contractual Obligations


				Payments due by period

				Less than						More than
Contractual Obligation		Total		1-year		1-3 Years		3-5 Years		5-years

Capital Lease Obligations			107,000		16,365		88,029		2,607		—

Operating Lease Obligations			788,706		55,750		732,956		—		—

	Total	$	895,706	$	72,115	$	820,985	$	2,607

Results of Operations

Three Months Ended September 30, 2003 and 2002

Total Revenues. Revenues increased from $0 to $145,000 for the three months ended September 30, 2003. This increase in revenue is primarily related to research grant revenue attributable to the receipt of research grant awards received in the first and second quarters of 2003. While we continue to seek funding through research grants, we do not anticipate receiving grant revenue sufficient to fund our operations.

Cost of Research Material Sales. Cost of research material sales increased from $0 to $22,000 for the three months ended September 30, 2003. This increase was due to increased raw material purchases and increased direct labor costs attributed to our entry into the sale of research reagents. The Company is unable to project when, if ever, its sales of research materials will attain profitability.

Research and Development Expense. Research and development expense decreased 76.4% from $1.6 million for the three months ended September 30, 2002 to $378,000 for the three months ended September 30, 2003. This

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decrease was primarily due to the November 2002 suspension of all clinical trial activity for our DCVax product candidates and the withdrawal of our Investigational New Drug Application (IND) for DCVax-Prostate, a potential treatment for prostate cancer, and for DCVax-Lung, a potential treatment for non-small cell lung cancer.

General and Administrative Expense. General and administrative expense decreased 47.4% from $1.7 million for the three months ended September 30, 2002 to $893,000 for the three months ended September 30, 2003. This decrease was primarily due to stopping all clinical trial activity and resulting elimination of administrative support staff, reductions in rent, utility, and building maintenance when we moved from a 38,000 to a 14,000 square foot facility and a reduction in equipment maintenance contracts.

Depreciation and Amortization. Depreciation and amortization decreased 69.3% from $144,000 for the three months ended September 30, 2002 to $34,000 for the three months ended September 30, 2003. This decrease was primarily due to the disposal or impairment of $1.0 million of equipment and leasehold improvements in the fourth quarter 2002 and approximately $904,000 of equipment and leasehold improvements disposed of during the nine months ending September 30, 2003.

Total Other Income (Expense), Net. Other income (expense), net, consists primarily of interest expense and interest income. Interest expense decreased 25.0% from $8,000 for the three months ended September 30, 2002 to $6,000 for the three months ended September 30, 2003. This decrease was due primarily to several capital leases, with their respective interest expense, terminating in 2003. Interest income decreased 96.5 % from $29,000 for the three months ended September 30, 2002 compared to $1,000 for the three months ended September 30, 2003. This decrease was primarily due to the decline in market interest rates and having lower average cash balances during the three months ended September 30, 2003.

Nine Months Ended September 30, 2003 and 2002

Total Revenues. Revenues increased from $9,000 for the nine months ended September 30, 2002 to $401,000 for the nine months ended September 30, 2003. Research material sales increased 66.7% from $9,000 for the nine months ended June 30, 2002 to $15,000 for the nine months ended September 30, 2003. License fees increased from $0 to $25,000 for the nine months ended September 30, 2003. The remaining revenue for the period consisted of research grant revenue, which increased from $0 to $361,000 for the nine months ended September 30, 2003. This increase in grant revenue was attributable to the receipt of research grant awards in the first and second quarters of 2003. While we continue to seek funding through research grants, we do not anticipate receiving grant revenue sufficient to fund our operations.

Cost of Research Material Sales. Cost of research material sales increased from $7,000 for the nine months ended September 30, 2002 to $62,000 for the nine months ended September 30, 2003. This increase was due to increased direct labor costs attributed to our entry into the sale of research reagents. The Company is unable to project when, if ever, its sales of research materials will attain profitability.

Research and Development Expense. Research and development expense decreased 73.1% from $5.3 million for the nine months ended September 30, 2002 to $1.4 million for the nine months ended September 30, 2003. This decrease was primarily due to the November 2002 suspension of all clinical trial activity for our DCVax product candidates and the withdrawal of our Investigational New Drug Application (IND) for DCVax-Prostate, a potential treatment for prostate cancer, and for DCVax-Lung, a potential treatment for non-small cell lung cancer.

General and Administrative Expense. General and administrative expense decreased 38.2% from $5.5 million for the nine months ended September 30, 2002 to $3.4 million for the nine months ended September 30, 2003. This decrease was primarily due to stopping all clinical trial activity and resulting elimination of administrative support staff, reductions in rent, utility, and building maintenance when we moved from a 38,000 to a 14,000 square foot facility and a reduction in equipment maintenance contracts.

Depreciation and Amortization. Depreciation and amortization decreased 62% from $449,000 for the nine months ended September 30, 2002 to $171,000 for the nine months ended September 30, 2003. This decrease was primarily due to the disposal or impairment of $1.0 million of equipment and leasehold improvements in the fourth

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quarter of 2002 and approximately $904,000, net of equipment and leasehold improvements write-offs during the nine months ending September 30, 2003.

Loss on Facility Sublease and Lease Cancellation. Lease cancellation costs of $174,000 are associated with the June 30, 2003 termination of the Company’s primary lease of its prior offices and release from future lease obligations.

Asset Impairment Loss. Asset disposal costs increased from $0 to $904,000 for the nine months ended September 30, 2003. This increase was primarily related to the write-off of leasehold improvements and equipment associated with the June 30, 2003 termination of the Company’s primary lease and the resulting move from a 38,000 square foot facility to a facility of approximately 14,000 square feet whereby such assets will not be utilized.

Total Other Income (Expense), Net. Other income (expense), net, consists primarily of interest expense and interest income. Interest expense decreased 19.3% from $31,000 for the nine months ended September 30, 2002 to $25,000 for the nine months ended September 30, 2003. This decrease was due primarily to several capital leases, with their respective interest expense, terminating in 2003. Interest income decreased 85.1% from $141,000 for the nine months ended September 30, 2002 compared to $21,000 for the nine months ended September 30, 2003. This decrease was primarily due to the decline in market interest rates and having lower average cash balances during the nine months ended September 30, 2003.

Gain on Sale of Royalty Rights. The $816,000 gain realized on the sale of royalty rights was negotiated based on the expected discounted net present value (NPV) of the future 2% royalty obligation under that certain Assignment and License Agreement dated December 9, 2002 with Medarex and was received in cash on July 1, 2003.

Liquidity and Capital Resources

General Discussion

From October 1, 2003 through December 31, 2003, we expect to receive an additional $118,586 in research grant revenues from a grant award from NIH.

The Company’s effort to license certain rights, title, and interest to technology relating to specific cell lines resulted in the July 1, 2003 License Agreement with DakoCytomation with the payment to the Company of a one-time non-refundable $25,000 license fee and future non-refundable minimum annual royalty payments of $10,000 credited against any royalty payments made to the Company. The $25,000 one-time license fee was received on August 25, 2003 and is included in total revenue for the nine months ended September 30, 2003.

We believe that these nominal grant revenues and technology licensing fees will be insufficient to fund our continued operations.

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Our independent auditors have indicated in their report on our financial statements included in our December 31, 2002 annual report on Form 10-K, that there is substantial doubt about our ability to continue as a going concern. We need to raise significant additional funding to continue our operations, conduct research and development activities, pre-clinical studies and clinical trials necessary to bring our product candidates to market. However, additional funding may not be available on terms acceptable to us or at all. The alternative of issuing additional equity or convertible debt securities also may not be available and, in any event, would result in additional dilution to our stockholders.

On October 9, 2002, we initiated a series of substantial steps to conserve cash, including: (i) the suspension of all clinical trial activities; (ii) the sale of certain fixed assets; (iii) the relocation and consolidation of our facilities; (iv) a significant reduction in force (including the termination of our Chief Financial Officer and Chief Medical Officer and the conversion of our Chief Executive Officer to non-employee status); and (v) the sale of significant portions of our intellectual property portfolio. On September 30, 2003, after all personnel adjustments, our remaining staff of 8 consisted of 3 employees in administration and 5 employees in research and development. We are currently considering implementing additional cost-cutting measures, which may postpone or prevent a liquidation of the Company. Any such measures, however, may be unsuccessful and may also have the undesirable consequence of further reducing our ability to generate future revenues.

Asset Sales and Sources of Cash

On December 9, 2002, we entered into an agreement to sell certain rights, title, and interest in certain antigen targets pertaining to our fully human monoclonal antibodies to Medarex, Inc. Pursuant to this agreement, we received $3.0 million in working capital and were to receive a royalty of 2% of net sales with respect to any products derived from certain intellectual property. Under the terms of our agreement with Medarex, we acquired the rights to certain other cancer targets in exchange for 2.0 million unregistered shares of our common stock and warrants to purchase 800,000 unregistered shares of our common stock.

On June 20, 2003, we amended this agreement and Medarex purchased the expected discounted net present value (NPV) of the future 2% royalty obligation for $816,000. The $816,000 was received on July 1, 2003 and was included as a receivable from Medarex at June 30, 2003.

On April 8, 2003, we were awarded a NIH cancer research grant, for research to be conducted from February 1, 2003 through January 31, 2004. The total award for fiscal 2003 is $318,137, comprised of approximately $191,649 authorized for direct grant research expenditures and approximately $126,488 authorized for use to cover our facilities and administrative overhead costs. The total award for fiscal 2004 is $327,681, comprised of approximately $197,398 authorized for direct grant research expenditures and approximately $130,283 authorized for use to cover our facilities and administrative overhead costs.

As of September 30, 2003, total revenue of $199,551 has been earned under the grant and was recognized in

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revenue through the nine months ended September 30, 2003.

From October 1, 2003 through December 31, 2003, we expect to receive an additional $118,586 in research grant revenues from a grant award from NIH.

We were also awarded, as a subcontractor to the University of Washington’s award from NIH, a cancer research subcontract on February 26, 2003. This subcontract is from January 1, 2003 through December 31, 2003. The total award for fiscal 2003 is $146,563 consisting of $104,688 authorized for direct grant research expenditures and with approximately $41,875 authorized for use to cover our facilities and administrative overhead costs. As of September 30, 2003, the maximum award of $146,563 has been earned and is recognized in revenue through the nine months ended September 30, 2003.

On April 21, 2003, because we had received frequent requests from researchers for access to our cancer-associated monoclonal antibodies, human dendritic cells, and dendritic cell precursors (monocytes), we announced our entry into the Research Reagents Market. We earned approximately $15,000 in revenue for the nine months ended September 30, 2003 from the manufacture and sale of research materials. However, we have limited manufacturing facilities and expertise to produce our research products and the commercial success of any of our research products will depend upon the strength of our sales and marketing efforts. The Company is unable to project when, if ever, its sales of research materials will attain profitability.

The Company’s effort to license certain rights, title, and interest to technology relating to specific cell lines resulted in the July 1, 2003 License Agreement with DakoCytomation with the payment of a one-time $25,000 license fee and future non-refundable minimum annual royalty payments of $10,000 credited against any royalty payments made to NWBT. The $25,000 one-time license fee was received on August 25, 2003 and is included in total revenue for the nine months ended September 30, 2003.

On November 13, 2003 we completed the sale of $335,000 in principal amount of secured convertible promissory notes (“Notes”) and warrants (“Warrants”) to members of management to purchase our common stock. The Notes mature in twelve months and accrue interest at an annual rate equal to the prime rate plus 2% and are secured by substantially all of the Company’s assets. Each note is convertible into shares of our common stock equal to the principal amount of the note divided by (i) in the event that the Company completes an offering of its common stock generating gross proceeds to the Company of at least $1 million, the price per share paid by investors in that offering; or (ii) $0.18 if the Company does not complete such an offering prior to the maturity date of the note. As part of this investment, the investors received one warrant for each share to purchase two shares of common stock, subject to certain antidilution adjustments, at an exercise price to be determined as follows: (i) in the event that the Company completes an offering of its common stock generating gross proceeds to the Company of at least $1 million, then the price per share paid by investors in that offering; or (ii) $0.18 if the Company does not complete such an offering.

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Uses of Cash

We used $10.4 million in cash for the operating activities during the nine months ended September 30, 2002, compared to $3.9 million during the nine months ended September 30, 2003. The change in cash used in operating activities from 2002 to 2003 was primarily a result of the October 9, 2002 initiated series of substantial steps to conserve cash including the November 2002 suspension of all clinical trial activity, staff reductions, and lower rent obligations.

We used $712,000 in cash for investing activities during the nine months ended September 30, 2002 compared to $2.5 million provided by investing activities during the nine months ended September 30, 2003. The cash provided during the nine months ended September 30, 2003 consisted of $1.8 million received from Medarex and the sale of Medarex common stock held as marketable securities on December 31, 2002 arising from the December 9, 2002 Assignment and License Agreement and the June 20, 2003, amendment to this agreement wherein Medarex purchased the expected discounted net present value (NPV) of the future 2% royalty obligation for $816,000.

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FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION

This section briefly discusses certain risks that should be considered by our stockholders and prospective investors. You should carefully consider the risks described below, together with all other information included in this Quarterly Report on Form 10-Q and the information incorporated by reference. If any of the following risks actually occur, our business, financial condition or operating results could be harmed. In such case, you could lose all of your investment.

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

We believe our cash after the sale of the secured convertible promissory notes will be sufficient to fund our operations only through the end of 2003. We will require substantial additional financial resources to operate into 2004. Our future capital requirements will depend on many factors, including:

• the rate and extent of scientific progress in our research and development programs

• competing technological and market developments; and

• the timing and costs of, and our success in, any commercialization activities and facility expansions, if and as required.

We are pursuing opportunities to obtain capital to fund our operations. The Company has retained an investment banking firm to assist in identifying and evaluating potential longer-term funding options as the Company will continue to need significant amounts of additional capital, which may not be available.

We will need to raise more money to continue our operations. We may seek additional funds from public and private stock offerings, strategic partnerships and licenses, borrowing under lease lines of credit or other sources. These additional forms of capital may not be available on terms acceptable to us, or at all. Any additional equity financing may be dilutive to stockholders, and debt financing, if available, may include restrictive covenants.

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

Our independent auditors have indicated in their report on our December 31, 2002 financial statements included in our Form 10-K 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.

We expect to reduce business umbrella, auto, crime and fiduciary, and directors and officers liability insurance coverage.

With rising insurance premiums in the market place for most business insurance coverage, we need to weigh the value of specific liability insurance to the Company’s ability to pay for specific levels of coverage. With certain types of coverage, current levels will be reduced while other types of coverage may not be renewed until the Company’s finances are more stable. Such a material reduction in our insurance coverage may make it difficult for us to retain our existing directors and officers, and will also result in increased exposure to potential liabilities arising from any future litigation, either of which may materially harm our business and results of operations.

As a result of questions concerning our status as a going concern, potential customers and strategic partners may decide not to do business with us.

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The success of our restructured operations will depend on our ability to attract customers to our research products and our ability to attract strategic partners to our research initiatives. Due to concerns regarding our ability to continue operations, 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 will suffer significantly.

We expect to continue to incur substantial losses, and we may never achieve profitability.

We have incurred net losses every year since our inception in March 1996 and, as of September 30, 2003, we had a deficit accumulated during the development stage of approximately $63.4 million. We have had net losses applicable to common stockholders as follows:

• $5.0 million in 1998;

• $6.0 million in 1999;

• $13.2 million in 2000;

• $17.3 million in 2001;

• $12.8 million in 2002; and

• $4.9 million for the nine months ended September 30, 2003

We expect that these losses will continue and anticipate negative cash flows from operations for the foreseeable future. Because of our current cash position, we will need to secure additional funding to continue operations. In addition, we will need to generate revenue sufficient to cover operating expenses and research and development costs to achieve profitability. We may never achieve or sustain profitability.

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 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:

• $385,000 in 1998;

• $211,000 in 1999;

• $156,000 in 2000;

• $129,000 in 2001;

• $9,000 in 2002; and

• $401,000 for the nine months ended September 30, 2003

We have derived most of these limited revenues from:

• the sale of research products to a single customer;

• contract research and development from related parties; and

• research grants.

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In the future, we anticipate that our revenues will be derived primarily through the sale of research products. Because this represents a shift in our business focus, it is difficult to evaluate our prospects. Additionally, our future success is more uncertain than if we had a longer or more proven history of operations.

We may not be able to retain existing personnel.

Since July 2002, we have significantly reduced the number of our employees as part of an extensive cost containment initiative. On November 13, 2003, we amended our employment agreement with Dr. Alton L. Boynton, our President and Chief Operating Officer, to eliminate any potential award of severance compensation to Dr. Boynton in exchange for a one-time payment of $281,571.

Dr. Boynton subsequently reinvested approximately $183,000 of that cash severance payout, representing the after-tax portion of that payment, in the Company’s recently completed secured convertible debt financing. Our cash position, workforce reductions, the volatility in our stock price and our recent asset sales may create anxiety and uncertainty, which may adversely affect employee morale and cause us to lose employees whom we would prefer to retain, including Dr. Boynton. To the extent that we are unable to retain our existing personnel, our business and financial results may suffer.

Because we lack sales and marketing experience, we may experience significant difficulties commercializing our research products.

The commercial success of any of our research products will depend upon the strength of our sales and marketing efforts. We do not have a sales force and have no experience in the sales, marketing or distribution of our research products. To fully commercialize our research products, we will need to create 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. If we fail to establish adequate sales, marketing and distribution capabilities, independently or with others, our business will be seriously harmed.

We have limited manufacturing capabilities, which could adversely impact our ability to commercialize our research products.

We have limited manufacturing facilities and expertise to produce our research products. We have never manufactured, on a commercial scale, any of our research products. We may be unable to manufacture these products at a reasonable cost or in sufficient quantities to be profitable.

Our success partially depends on existing and future strategic partners.

The success of our business strategy partially depends upon our ability to develop and maintain multiple strategic partnerships and to manage them effectively. Therefore, our success depends partially upon the performance of our strategic partners. Currently, our primary strategic partner is DakoCytomation. We cannot directly control the amount and timing of resources that our existing or future strategic partners devote to the research, development or marketing of our products. As a result, those strategic partners:

• may not commit sufficient resources to our programs or products;

• may not conduct their agreed activities on time, or at all, resulting in delay or termination of the development of our products and technology;

• may not perform their obligations as expected;

• may pursue product candidates or alternative technologies in preference to ours; or

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• may dispute the ownership of products or technology developed under our strategic partnerships.

We may have disputes with our strategic partners, which could be costly and time consuming. Our failure to successfully defend our rights could seriously harm our business, financial condition and operating results.

We intend to continue to enter into strategic partnerships in the future. However, we may be unable to successfully negotiate any additional strategic partnerships and any of these relationships, if established, may not be scientifically or commercially successful.

We also work with scientists and medical professionals at academic and other institutions, including the University of California, Los Angeles, M.D. Anderson Cancer Center, and the H. Lee Moffitt Cancer Center some of whom conduct research for us or assist us in developing our research and development strategy. These scientists and medical professionals are not our employees. They may have commitments to, or contracts with, other businesses or institutions that limit the amount of time they have available to work with us. We have little control over these individuals. We can only expect them to devote to our projects the amount of time 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 ours. If these individuals do not devote sufficient time and resources to our programs, our business could be seriously harmed.

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

The research products market recently entered by the Company is very competitive with many well-established large and small distribution companies, such as BioWhittaker, a Cambrex Company, DakoCytomation, and Cellsignalling Technology.

Currently, our Company is marketing its research products through direct mail, the Internet, and select participation in trade shows frequented by researchers who could be interested in our research products. We are also seeking distribution relationships with established and well-positioned distribution companies. There can be no assurances that we will be successful in establishing a market demand for our research products nor that we will be successful in finding a suitable distributor interested in selling our research products.

The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. Several companies, such as Cell Genesys, Inc., Dendreon Corporation and Genzyme Molecular Oncology, a division of Genzyme Corporation, are actively involved in the research and development of cell-based cancer therapeutics. Of these companies, we believe that only Dendreon is carrying-out Phase III clinical trials with a cell-based therapy. No dendritic cell-based therapeutic product is currently approved for commercial sale. Additionally, several companies, such as Abgenix, Inc., Agensys, Inc., IDEC Pharmaceuticals Corporation and Genentech, Inc., are actively involved in the research and development of monoclonal antibody-based cancer therapies. Currently, at least six 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.

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Most, if not all 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 have become 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 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:

• 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 strategic partnerships.

Our competitors may develop more effective or affordable products, or achieve earlier patent protection or product marketing and sales than we may. As a result, any products we develop may be rendered obsolete and noncompetitive.

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 seven issued patents (four in the United States and six in foreign jurisdictions) and 68 patent applications pending (18 in the United States and 50 in foreign 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 dates from 2015 to 2017.

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 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 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 in 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 practicing 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.

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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 of our trade secrets or other proprietary information. We seek to protect our proprietary information by entering into confidentiality agreements with employees, strategic partners and consultants. Nevertheless, employees, strategic partners or consultants may still disclose our proprietary information, and we may not be able to protect our trade secrets in a meaningful way. If we lose any employees, we may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by those former employees despite the existence of nondisclosure and confidentiality agreements and other contractual restrictions to protect our proprietary technology. In addition, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to our trade secrets.

Our success will depend partly 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 we have entered into 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. 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.

Our 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 patent applications 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 lawsuit, 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 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 any 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 use hazardous materials and must comply with environmental, health and safety laws and regulations, which can be expensive and restrict how we do business.

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 strictly 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.

Our principal stockholders, executive officers and directors own a significant percentage of our stock and, as

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a result, the trading price for our shares may be depressed and these stockholders can take actions that may be adverse to your interests.

Our principal stockholders, executive officers, and directors and entities affiliated with them, in the aggregate, beneficially own approximately 40.7% of our common stock as of November 13, 2003. In addition, our management team holds 85.0% of the principal amount of secured convertible promissory notes sold by the Company in its recent debt financing. The Notes are secured by substantially all of the Company’s assets. This significant concentration of share and debt ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. Company management, as a result of the security ownership described above, 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, they can dictate 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 you.

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

Prior to December 14, 2001, there was no public market for our common stock. On December 23, 2002, we were delisted from the NASDAQ National Market and subsequently listed on the Over The Counter Bulletin Board (OTCBB). You may not be able to sell your shares quickly or at the market price if trading in our stock is not active.

Our common stock may experience extreme price and volume fluctuations, which could lead to costly litigation for us and make an investment in us less appealing.

The market price of our common stock may fluctuate substantially due to a variety of factors, including:

• announcements of technological innovations or new products by us or our competitors;

• development and introduction of new cancer therapies;

• media reports and publications about cancer therapies;

• announcements concerning our competitors or the biotechnology industry in general;

• new regulatory pronouncements and changes in regulatory guidelines;

• general and industry-specific economic conditions;

• changes in financial estimates or recommendations by securities analysts; and

• changes in accounting principles.

The market prices of the securities of biotechnology companies, particularly companies like ours without earnings and consistent product revenues, have been highly volatile and are likely to remain highly volatile in the future. This volatility has often been unrelated to the operating performance of particular companies. In the past, securities class action litigation has often been brought against companies that experience volatility in the market price of their securities. Moreover, market prices for stocks of biotechnology-related and technology companies occasionally trade at levels that bear no relationship to the operating performance of such companies. These market prices generally are not sustainable and are subject to wide variations. Whether or not meritorious, litigation brought against us could result in substantial costs, divert management’s attention and resources and harm our financial condition and results of operations.

Our incorporation documents, bylaws and stockholder rights plan may delay or prevent a change in our management.

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Our amended and restated certificate of incorporation, 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 of directors without prior stockholder approval, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock;

• authorize our board of directors to issue dilutive shares of common stock upon certain events; and

• provide for a classified board of directors.

These provisions could allow our board of directors to affect your rights as a stockholder since our board of directors can make it more difficult for common stockholders to replace members of the board. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt to replace our current management team.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is presently limited to the interest rate sensitivity of our cash and cash equivalents which is affected by changes in the general level of U.S. interest rates. We are exposed to interest rate changes primarily as a result of our investment activities. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. To minimize risk, we maintain our cash and cash equivalents in interest-bearing instruments, primarily money market funds. Our interest rate risk management objective with respect to our borrowings is to limit the impact of interest rate changes on earnings and cash flows. Due to the nature of our cash and cash equivalents, we believe that we are not subject to any material market risk exposure. We do not have any foreign currency or other derivative financial instruments.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Our President (Principal Executive Officer) and our Controller (Principal Financial and Accounting Officer), after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) and internal control over financial reporting, as of the date of this quarterly report, have concluded that, as of September 30, 2003. our disclosure controls and procedures were adequate to ensure that material information relating to the registrant and its consolidated subsidiaries would be made known to them by others within those entities. In addition, our President and our Controller have determined that our internal control over financial reporting is sufficient to provide reasonable assurance that; (i) our records accurately and fairly reflect our transaction and our disposition of our assets; (ii) allow transactions to be recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of our Company are only being made in accordance with authorizations of management and Company Directors; and (iii) the Company prevents or timely detects the unauthorized acquisition, use, or disposition of assets that could have a material effect on our financial statements.

(b) Changes in internal controls.

To our knowledge, there were no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls during the quarter ended September 30, 2003.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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None.

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

a) Exhibits:


10.1		Amended and Restate Employment Agreement, dated November 13, 2003, between Northwest Biotherapeutics, Inc. and Dr. Alton L. Boynton.
10.2		Form of Convertible Secured Promissory Note
10.3		Form of Warrant To Purchase Common Shares
10.4		Security Agreement
31.1		Certification of President (Principal Executive Officer), Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Controller (Principal Financial and Accounting Officer), Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of President Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Controller Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	NORTHWEST BIOTHERAPEUTICS, INC

Dated: November 13, 2003	By:	/s/ Alton L. Boynton
		Alton L. Boynton
		President (Principal
		Executive Officer)

Dated: November 13, 2003	By:	/s/ Larry L. Richards
		Larry L. Richards
		Controller
		(Principal Financial and
		Accounting Officer)

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INDEX TO EXHIBITS


Exhibit Number		Description

10.1		Amended and Restate Employment Agreement, dated November 13, 2003, between Northwest Biotherapeutics, Inc. and Dr. Alton L. Boynton.
10.2		Form of Convertible Secured Promissory Note
10.3		Form of Warrant To Purchase Common Shares
10.4		Security Agreement
31.1		Certification of President (Principal Executive Officer), Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Controller (Principal Financial and Accounting Officer), Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of President Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Controller Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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•		the rate and extent of scientific progress in our research and development programs

•		competing technological and market developments; and

•		the timing and costs of, and our success in, any commercialization activities and facility expansions, if and as required.

•		$5.0 million in 1998;

•		$6.0 million in 1999;

•		$13.2 million in 2000;

•		$17.3 million in 2001;

•		$12.8 million in 2002; and

•		$4.9 million for the nine months ended September 30, 2003

•		$385,000 in 1998;

•		$211,000 in 1999;

•		$156,000 in 2000;

•		$129,000 in 2001;

•		$9,000 in 2002; and

•		$401,000 for the nine months ended September 30, 2003

•		the sale of research products to a single customer;

•		contract research and development from related parties; and

•		research grants.

•		may not commit sufficient resources to our programs or products;

•		may not conduct their agreed activities on time, or at all, resulting in delay or termination of the development of our products and technology;

•		may not perform their obligations as expected;

•		may pursue product candidates or alternative technologies in preference to ours; or

•		biopharmaceutical companies;

•		biotechnology companies;

•		pharmaceutical companies;

•		academic institutions; and

•		other research organizations.

•		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 strategic partnerships.

•		announcements of technological innovations or new products by us or our competitors;

•		development and introduction of new cancer therapies;

•		media reports and publications about cancer therapies;

•		announcements concerning our competitors or the biotechnology industry in general;

•		new regulatory pronouncements and changes in regulatory guidelines;

•		general and industry-specific economic conditions;

•		changes in financial estimates or recommendations by securities analysts; and

•		changes in accounting principles.

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

•		authorize our board of directors to issue dilutive shares of common stock upon certain events; and

•		provide for a classified board of directors.