NorthWest Biotherapeutics Inc (NWBO)

[OncoJock]

The Risks We Face Together As NWBO Investors

Dear fellow NWBO shareholders:

So, I realize that with all the excitement about the new Class C preferred shares few people may actually take the time to read this lengthy post. But in response to good questions from Kaizenman and Poor Man, some well-informed pushback from biosectinvestor, and even a little encouragement from sentiment_stocks to go ahead and ruffle some feathers so long as I avoid personal attacks and stay focused on NWBO, here are 15 risks that concern me right now.

Before I start my litany, let me assure you that I continue to hold shares. In fact, I’m more heavily invested in NWBO than in any other single company’s stock in our household’s investment portfolio. At today’s closing price of around $.68 per share, the portion of our nest egg devoted to NWBO shares is a little over 6%. My wife and I hold larger amounts in various funds, but the only other individual companies that come close are Medpace Holdings, at 4%, and Halozyme Therapeutics, at 3%. So I have skin in this game.

Also, let me concede David Innes' general point that the risk of investing in NWBO today is less than it might have been a few months ago, before we knew results of the phase 3 clinical trial of DCVax-L in glioblastoma multiforme (GBM). And, the prospect of a financially beneficial partnership appears stronger today than it did just yesterday. Nonetheless a prudent investor might say that substantial risks remain. Here are some of those risks as I see them. Together they explain why I have not put any more precious skin in this game since May 10.

1) Evidence of naked short selling and lack of enforcement/protection by SEC regulators. I have been hearing about this ever since March of 2021 when I first bought shares, but my concerns have continued to grow. This is especially true in light of new evidence I found in a June 16 tweet by @TommyBaxendale. Mr. Baxendale, who tweets from Taiwan, cites the SEC website and precise URL for the source of his information. In trying to confirm this info, I did reach the SEC website, and at the URL Mr. Braxendale specified I could download the SEC “Fails to Deliver” data for the first and second halves of May, but I could not open the spreadsheets on my desktop. I have written the webmaster at the SEC for help. Here is a screenshot of the graphic posted by Mr. Braxendale, which contains the data I have been trying to confirm. I’d also love to see data from the first half of the month, which would include the May 10 debacle at the New York Academy of Sciences:


2) Widespread allegations of market manipulation/orchestration of price movement. I had heard this might be a problem, and my concerns were confirmed when I filed a formal complaint with the SEC after May 10. (I also wrote my representative in the US Congress to request an investigation, but that's another story.) The SEC website requires complainants to choose from a dropdown menu of reasons for their unhappiness. Sure enough, one of the menu options was naked short selling. Another was orchestrated manipulation of security prices. Clearly, if the SEC sees fit to program its website to include these options for complainants, then these problems must be widespread, and NWBO is a potential victim.

3) NWBO is a very small company, and management expertise is concentrated in only a few people. What if Linda Powers, with all her Ivy League magna cum laude brilliance, falls seriously ill?

4) Jerry Jasinowski, a key member of the board of directors when it comes to advising on manufacturing, will turn 83 years old this year, according to Wikipedia. Mr. Jasinowski is a former president of the National Association of Manufacturers, and founder and president of the Manufacturing Institute (again according to Wikipedia). He’s a true visionary, famous for his “Dream It, Do It” campaign to address America’s manufacturing skills shortage by increasing training programs throughout the country. To my eye, the recent success of NWBO in ramping up production at Sawston bears the mark of Mr. Jasinowski’s genius, in addition to hard work and perseverance by Advent staff. However, Mr. Jasinowski’s health could fail at any time and leave the company without his expert guidance.

5) Speaking of guidance, there is a noticeable lack of physicians among members of the top management team. While top management expertise is strong on legal matters and venture capital (Ms. Powers, Mr. Goldman), science/technology/research (Dr. Bosch/Dr. Boynton), manufacturing (Mr. Jasinowski), investment banking/pharmacy(Dr. Malik) and international relations (Mr. Black), there appear to be no MDs in the top group. After researching the public biographies and formal training of all top execs and board members, I was unable to find even one who has ever practiced clinical medicine. I hope I’m wrong about this.

The lack of any physicians, or former physicians, on the leadership team gives top management a major blind spot as they try to steer the company. This opens the company to possible mistakes and missteps since, after all, it will be physicians who choose to prescribe DCVax-L for their patients, or not. And it will be physicians on the Central Nervous System panel at the National Comprehensive Cancer Network who will choose to add autologous tumor lysate-loaded dendritic cell vaccination to the treatment algorithm for glioblastoma, or not. And it will be physicians who, upon reading a report in The ASCO Post, the New England Journal of Medicine, the Lancet, or perhaps an accredited continuing medical education (CME) activity of the type I help to plan, will make the crucial decision to prescribe DCVax-L, or not.

The absence of clinical experience among top management may help explain the puzzling lack of research abstracts presented at major medical meetings, like the American Society of Clinical Oncology (ASCO), where an historic breakthrough on such a nasty, stubborn, and lethal tumor type as GBM would normally be welcomed with open arms as a research abstract presented at a plenary session. Instead, NWBO found it necessary to assume the more expensive role of exhibitor, spend a major amount of cash, and rent an exhibit booth for ASCO 2022. There wasn’t even so much as a virtual-only e-poster in the formal conference program. I’ve been helping to educate oncologists about advances in cancer medicine for more than a decade. Trust me, it’s the attitudes of their peers that physicians rely upon, not just the experimental data, when deciding whether to risk making a change in clinical practice. To fix this, NWBO needs to hire a physician as chief medical officer, add him or her to the innermost circle of leaders, and do it soon.

6) Risk of competition is growing. If the wider use of external control arms makes it easier for NWBO to win regulatory approval, it will do the same for competitors’ drugs.

7) Human error during manufacturing is always a possibility, especially with such a highly personalized therapy. Under Murphy’s law, if something can go wrong, it probably will. Namely, Patient A could receive dendritic cells meant for Patient B, a death or major adverse event could occur, and the company could be exposed to massive legal liability.

8) Other legal proceedings are already underway, especially the shareholder lawsuit stemming from the “true-up” executed by management before I became a shareholder. This seems like a wild card.

9) NWBO is a one-trick pony. Its product line is not diversified. While dendritic cell vaccines may well prove to be a platform approach that can improve outcomes in other types of cancer beyond GBM, the amount of time required for that to occur seems like it may extend well beyond the lifetimes of members of current management, esp. Mr. Jasinowski.

10) Human error seems particularly likely due to the shortage of skilled and qualified lab technicians who work in the fast-growing cell and gene therapy industry. Competition for qualified technicians can be cutthroat. It’s possible that NWBO could finally fill an opening after an extensive search only to have the incumbent poached by another, larger company that is able to offer better salary and benefits. Then a newbie replacement could be thrown onto the job quickly (to keep up with prior production commitments) and mistakes could happen.

11) Speaking of human resources, I have been wondering this: Who would want to go to work for a company, and seek to make a career with that employer, when that company is openly trying to avoid having human beings on the factory floor? Who is going to want to make a major, long-term commitment to a company that owns a brilliant, disruptive technology like Flaskworks, that is explicitly designed to fully automate production of cell and gene therapy? It seems like NWBO will need to hire people who are really smart in one area (science and laboratory techniques) and really dumb in another (their own long-term self-interest).

12) Financial risk. Don’t even get me started here. NWBO has been running on fumes for years. Many of these risks have been known for a long time, and, to management's credit, they are disclosed at length in the latest annual report. Perhaps the best example is the $15 million loan (or was it $16.5 million?) borrowed from Streeterville Capital. If memory serves, the loan proceeds became available to NWBO in November, with a term of 22 months, but the first payment would not be due for 8 months. So that means the first loan repayment would be due this month (July). That’s more than $1 million per month in principal, not counting interest, on top of all the other ongoing expenses associated with personnel, production, etc. I’m guessing this Series C preferred stock is being authorized now to help ease the pressure from this debt. Has anyone seen an income statement that shows meaningful sales revenue from vaccine doses sold?

13) Regulatory delays are par for the course. Does NWBO have the financial stamina to withstand one or more regulatory setbacks caused by, say, heavy caseloads at MHRA, human failings by Advent staff during a Sawston site inspection, or (heaven forbid) a complete response letter from the FDA? Does NWBO have any cushion or room for error in its commercialization schedule? If so, it’s not obvious.

14) NWBO has an unpleasant history of dilutive financings. Hate to say it, but Scotty is right on this score. Thanks to Jerry Campbell for doing the research and coming up with this history of financings that have diluted the value of common shares. In the left column you see the date, and in the right column you see the number of shares outstanding. The Series C preferreds may have a similar effect, or they may not. At this point they’ve been authorized, but not yet issued. And whatever dilution may take place could be made up for by a bump in the share price (or not). In any case, another serial dilution remains a risk.


15) NWBO is traded over the counter (OTC) and its chances of ever “graduating” to a national exchange like the NASDAQ are slim. Hate to sound negative, but the odds are against us. An SEC 2016 white paper titled “Outcomes of Investing in OTC Stocks,” available from the SEC website, stated that companies traded OTC “rarely grow into a large company or transition to a listing on a stock exchange.” This is not to say that it never happens; it does. But it’s rare (less than 1% per year based on SEC figures) so that’s why I include this among the risks that give me pause. Here’s a data table from that paper:


So there you have them: 15 reasons to worry. Please tell me why I'm wrong, and include any evidence you may have handy. If you convince me, I may resume buying shares.

Thanks!

--OJ

(OncoJock on iHub, @Onco_Jock on Twitter)