The Risks -
NWBO has suffered from the current biotech sell-off and may continue to drop in value should this sector continue to drop.
NWBO like other small biotech companies will require more funding and may continue raising capital under dilutive terms.
There is uncertainty with the timeline of the NWBO’s DCVax-Direct Phase 2 trials.
There is also uncertainty what direction major stakeholder Neil Woodford will now take that his relationship with NWBO management appears strained.
NWBO is increasingly targeted in the media despite its very low valuation.
Below is in article format from my interview with Forbes.com.
2015 was a very damaging year for Northwest Biotherapeutics (NWBO). Since I nominated NWBO as a best investment idea for Forbes.com the stock has dropped 75% of its value, down from$7 to $1.50. The stock initially rose to over $12 in July 2015 before then dropping steadily to today’s all-time lows.
NWBO is a small biotechnology company and like most of its peers carries a very risky profile. Small biotechnology companies are lightly traded and can easily be misunderstood so they are susceptible to wild share-price volatility.
I don’t believe NWBO’s current low valuation is justified. Most of its sell-off can be attributed to perceived troubles with its lead Phase 3 clinical trial. I don’t agree this trial is in real trouble and expect to see a recovery once its suspension is lifted and management explains what happened.
NWBO is working on ways to make the body's immune system more effective in fighting cancer. They have two promising vaccine candidates for treating solid tumor cancers.
DCVax-L is their lead candidate for treating newly diagnosed Glioblastoma (GBM) patients; this program is at an advanced Phase 3 stage.
DCVax-Direct, their second candidate, is for treating various inoperable cancers. This program is at an advanced Phase 1/2 stage.
NWBO’s approach to treating cancer is exciting and unique because, they claim their personalized dendritic cell vaccine platform can educate and direct the human immune system to identify, find, and destroy all cancer cells' antigens.
Cancers are known to each carry hundreds to thousands of different antigens so it makes sense that attacking all of them is your best approach at defeating the cancer.
There are other companies developing dendritic cell based vaccines but their treatments are designed to attack a single or several cancer cell antigens so their approaches will likely have limited successes with the fight against cancer.
Celldex’s (CLDX) recently failed GBM vaccine Rintega targeted a single cancer antigen. Immunocellular Therapeutics’s (IMUC) GBM vaccine ICT-107 targets 6 cancer antigens and will likely fare better than Rintega.
NWBO’s major problem began in August 2015 when new patient screening was temporarily suspended for its lead Phase 3 trial while a regulatory review was taking place.
Management unfortunately cannot say much about this trial while regulators are investigating. But leaving investors' questions unanswered has caused many to assume the worst and the stock has continued to decline in value.
Nevertheless, I think the Phase 3 trial is unlikely to have serious problems since regulators are allowing NWBO to continue to treat patients while they are reviewing it. Regulators typically halt troubled trials while reviews take place.
NWBO have performed very strongly in past studies. In a Phase 1/2 of 21 patients, DCVax-L produced excellent safety and efficacy data; no chemo/radiation like side effects with around 24 months of Progression Free Survival (PFS), that’s a 3-fold improvement on historical standard of care (SOC). To meet its Phase 3 primary endpoint DCVax-L has to improve PFS by 4 months. I think DCVax-L has a high probability of clinical success.
Some patient data is also available from DCVax-L‘s Phase 3 trial and it is also very encouraging. NWBO is running a Phase 3 “Info Arm” for progressive GBM patients that are not eligible for their main Phase 3 trial. Median Overall Survival of 25 of these patients (rGBM) is 8 months better than the expected SOC survival.
Two European medical bodies have also been impressed with NWBO’s clinical data. The German FDA equivalent has already approved DCVax-L for compassionate use even before final Phase 3 results. The UK medical board is also considering early approval of DCVax-L.
I continue to view NWBO as an attractive long-term investment. I am very encouraged by their clinical results so far but the risks with this investment have dramatically increased over the past 7 months so while I continue to hold the stock I am not adding to my position until management can answer some of my questions.
There may be good legal reasons for management to remain quiet considering the regulatory situation. But there is no doubt that management's silence has shaken investors' confidence and severely damaged their share price. Here's what I would like to know before I think about adding to my position.
1. How many patients are enrolled in the DCVax-L Trial?
2. How many patients have been treated in European compassionate trials?
3. Are the compassionate trials suspended?
4. What is the timeline for DCVax-Direct?
My price target for NWBO is $11-$16 which makes this stock a 10-bagger candidate. In my pricing model I have only considered DCVax-L for GBM patients. I have given the vaccine between 55% and 75% chance of clinical success and a 40% market penetration. I estimate peak sales near $250M in the US and EU. Then using a price/sales multiple of 8 and discounting I get a market cap close to $2B which is in-line with valuations for its Immunotherapy peers like KITE $2.6B, BLUE $2.0B, & JUNO $4.4B.
At today’s valuation of $140M, NWBO is heavily over-sold but with high risks.
This is the link to my interview in Forbes.com
Disclosure - NWBO is a core holding of my Marketocracy Fund.
I do not short stocks.
