Northwest Biotherapeutics (NWBO) has lost over 60% of its market value over the past 3 months, down from $12 to $4. The sell-off has been sudden and heavy in large part due to increased perceived risks with this investment. The perceived risks come from several areas such as a drop in confidence in the entire biotechnology sector, doubts raised about the fate of NWBO’s lead Phase 3 clinical trial, and increasing short interest. I do not believe these perceived risks justify a 60% price fall. NWBO’s market value is now close to levels where a Phase 3 trial failure would be priced even though past clinical results suggest the trial will likely be a success. So at $4 I view NWBO as heavily oversold and an excellent opportunity for the risk-averse investors, the upside potential is huge with a limited downside risk.
NWBO is a small biotechnology company in the Immuno-Oncology space. 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. Their other candidate is DCVax-Direct for treating various inoperable cancers; this program is at an advanced Phase 1/2 stage.
NWBO’s approach to treating cancer is unique and exciting. They claim their dendritic cell vaccine platform can educate and direct the human immune system to identify, find, and destroy all cancer cells. The vaccines are also meant to leave behind an immune memory so cancer cells that return will also get destroyed. Theoretically the vaccines should work on all types of solid tumor cancers.
NWBO’s price drop began in mid-July around the time the entire biotech sector began dropping. The biotech sector is down around 23% from its July’s highs. NWBO price drop has been far more dramatic than its sector peers; it is down around 60%. The recent investor loss of confidence in the biotech sector can be in part attributed to Hillary Clinton’s public comment that the government is considering introducing tighter drug pricing measures. I do not expect lasting weakness in the biotech sector, NWBO will also benefit when we get the recovery.
In late August, a perceived problem surfaced in the media about NWBO’s lead DCVax-L Phase 3 trial. Misleading headlines stated the trial was halted and NWBO suffered a 20% drop that day. NWBO later released a statement clarifying that their trial was not halted and in fact it was on-going with patients continuing their treatments. The only change made to trial was that new patients screening had been temporarily suspended while they prepared certain trial information for regulatory review. The NWBO clarification did not help recover its share price losses.
NWBO has not stated why the suspension is in place and probably cannot comment since a regulatory review is taking place. Unfortunately this open question is a red flag for investors. NWBO’s trial is unlikely to have serious problems since regulators are reviewing it without placing it on halt. Regulators typically halt troubled trials while reviews take place. Instead NWBO’s trial continues to treat patients with over 300 of 348 patients already enrolled.
Media commentators like thestreet.com’s Adam Feuerstein, mislead investors when they state NWBO’s trial is suspended and its enrollment is halted because this implies the trial cannot continue enrolling patients when it fact it can. NWBO performs two screening steps before patients are enrolled in their trial. New patient screening is the first step in the enrollment process. After patients pass this step they then must pass a second screening step after their tumor gets removed and chemo/radiation treatments are completed. If patients then pass the second screening step they can enroll in the trial. The time between the two screenings can take around 12 weeks. So while the first step of new patient screening is suspended the trial can continue to enroll patients that have already moved past that first screening step.
NWBO’s DCVax-L vaccine has a high probability of clinical success. It has performed very strongly in past clinical studies. At Phase 1/2 of 20 patients, DCVax-L produced excellent safety and efficiency data; no chemo/radiation like side effects with 16 months better Progression Free Survival (PFS) than historical standard of care (SOC). To meet its Phase 3 primary endpoint in PFS DCVax-L has to better by 4 months SOC.
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 apparent progressive GBM patients who are not eligible for their main Phase 3 trial. Median Overall Survival (OS) of 25 “Indeterminate” progressive patients is 8 months better than the expected SOC survival.
The German FDA equivalent has already approved DCVax-L for compassionate use in its hospitals even before final Phase 3 results are known. The UK medical board is also considering early approval of DCVax-L. Recently, from GBM patient blogs, we have learned patients may have begun receiving DCVax-L treatments outside the Phase 3 trial in both Germany and England.
NWBO has attracted a large short interest now at 35% of float. This development is worrying for investors because small thinly traded biotech companies can be vulnerable to share price manipulation by unscrupulous short sellers. From its latest press release, NWBO says they believe there is already an orchestrated campaign to drive down its share price citing questionable short selling activity. On October 16th, its share price fell 30% on no fundamental news, and in mid-September after the company released promising patient data for both its clinical trials its share price has unusually continued to trade lower. NWBO is investigating both these suspicious events and warns they are gathering price manipulation evidence.
Short sellers are typically attracted to small companies with poor balance sheets. NWBO may have been targeted here because they were very low on cash and required new funding. Shorts can exploit such situations because often fund raising is accompanied with share price dilution. And should companies be unable to raise funds they face bankruptcy.
On the 21st of October, NWBO announced $30 million in new funding under favorable terms, at 17% above its share price. The funding comes from their large stakeholder UK Fund Manager, Neil Woodford. The new funding is a strong show of confidence from Woodford and will allow NWBO to continue their operations into 2016. Their future fund raising will come easier as their vaccines become further advanced and less uncertain.
NWBO has many potential catalysts in the coming months including an update on the status of its Phase 3 trial, Phase 3 full enrollment and IA review, financing, partnerships, DCVax-Direct Phase 2s update, HE reimbursement, UK approval, and patient data updates from both its trials. All these catalysts should help reduce NWBO’s short interest.
My price target for NWBO is $27 which gives it a huge 450% upside. In my pricing model I have only considered DCVax-L for GBM patients. I have given the vaccine a 75% chance of clinical success and with a 40% market penetration I estimate its peak sales potential near $800M in the USA and EU. Then using a price/sales multiple of 10 and discounting I get a market cap close to $3B which is in-line with valuations for its Immunotherapy peers like KITE $2.9B, BLUE $2.9B, & JUNO $4.8B.
At $360M, NWBO’s valuation is heavily over-sold. This is a company with a seemingly effective and very safe cancer vaccine platform that can potential treat all solid tumor patients. Its two vaccines are in advanced clinical testing with DCVax-L at late-stage Phase 3.
I have confidence NWBO’s share price will bounce back from this recent sell-off. I do not believe their DCVax-L Phase 3 trial is in danger and I expect the latest new financing and show of confidence from Woodford along with the many other positive catalyst in coming months to quieten the short interest.
Disclosure - NWBO is a core holding of my Marketocracy Fund. This Fund is available for investment.
I do not short stocks.
