Northwest Biotherapeutics: All Is Not Well With This One
Dec. 14, 2024 3:43 AM ETNorthwest Biotherapeutics, Inc. (NWBO) Stock
Galzus Research
Summary
Northwest Bio is sitting near 5-year lows, but they have accomplished a key goal in getting their product submitted for approval.
The company's near-term prospects hinge on DCVax, a dendritic cell vaccine aimed at generating a tailored immune response by using a patient's own immune cells.
Despite mixed opinions on the validity of their phase 3 trial published in January 2023, the potential of DCVax remains a focal point for investors.
With almost no cash on hand, the company is funding itself through a shoestring effort, but no word on how they will definitively address cash issues.
Approval is still possible, even though the review is taking longer than the company would like; there has not been guidance from them on the status of this application.
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Topline Summary and Update
Northwest Biotherapeutics (OTCQB:NWBO) is one of those never-say-die companies that just keeps hanging in there despite what would seem to be setback after setback. Now that we're over 2 years since the publication of what the company hoped would be a pivotal study, shareholders are still waiting for news of a filing, which has been delayed again and again. My last take on the company was a "Strong Sell" sentiment, which drew some substantial attention to my mixed record of calling stocks.
But now the question remains: what is happening with NWBO? And is now the time to buy as they sit near 5-year lows in terms of share price? Let's take another look.
Pipeline Updates
DCVax
The near-term hopes of NWBO rest almost entirely on the development and commercialization of DCVax, a dendritic cell vaccine made by incubating a patient's immune cells with a lysate of tumor, before re-introducing those cells back into the patient in order to generate a tailored immune response.
Much ink has been spilled over the validity and clinical relevance of their phase 3 trial, published in early 2023. Many reviews have gone over this study, but in short they recruited 232 patients with either newly diagnosed or recurrent glioblastoma to receive DCVax-L, and they simulated a control arm of 99 patients who were matched external controls, representing a placebo group.
DCVax-L demonstrated an improvement in median overall survival (19.3 months vs 16.5 months), which was statistically significant, in the newly diagnosed cohort. In patients with recurrent disease, median OS was 13.2 vs 7.8 months, which was also statistically significant.
There are academic criticisms published related to this study, which you can read in full here. In short, there were major concerns about the conduct of the trial, which opened with a progression-free survival primary endpoint, but this was not presented in a first readout of the trial, attributed to excessive crossover in the control group, as well as the challenge of distinguishing "pseudoprogression" (due to enhancement on imaging from immune cells entering the tumor site) from genuine disease progression. This led to the creation of the aforementioned external control group, which included patients in different disease settings.
The findings for the recurrent group of patients was not a preplanned analysis, as well. Ultimately, the study lost its randomization during conduct. Moreover, progression-free survival actually appeared worse in the DCVax-L arm (6.2 vs 7.6 months), although this was not statistically significant.
And so it has gone for almost 2 years without another data update on DCVax-L, as NWBO has focused on pursuing their plans to get a first approval for the product. After some delays, the company finally accomplished this goal, with their first shot being in the UK, and an MAA was submitted on December 21, 2023.
Despite applying for a rapid review, there have been no major updates on the status of this application. Only one press release related to patent protection and finalizing the design of their manufacturing system called FlaskWorks. With no status update on the state of the filing, it is difficult to know if it has even been accepted by the UK authorities, or if the delay is due to administrative bottlenecks. NWBO has not disclosed receiving a letter of concern (an RFI) that would require more information.
Financial Overview
As of their most recent quarterly filing, NWBO held $2.9 million in cash and equivalents. They held $19.4 million in convertible notes at fair value, and another $16.6 million in notes payable and contingent payable derivative liability. As a note, the company has issued about 1.3 billion of its 1.7 billion authorized shares.
Operating expenses for the quarter reached $15.2 million, offset a bit by $357 thousand in revenues. After realizing other losses due to extinguishing debt, interest expense, and some changes in fair value, the net loss for the quarter was $19.4 million.
NWBO did enter into a loan agreement with an undisclosed holder for $5 million. But this still makes the cash runway basically non-existent, with cash insufficient for even a full quarter at these levels.
Strengths and Risks
Strength - A nominally positive phase 3 trial makes DCVax-L a contender
Despite what the vocal critics of NWBO have said, there's a good reason that DCVax-L is in the conversation here. First, glioblastoma is a major area of unmet need, so every time the needle is moved is worthy of celebrating. And even the academic critics I cited before have conceded that the tech appears to be helping some patients at least, with long-term survivors being observed that would have been unexpected had they received only the standard of care.
I am not in the crowd that thinks that NWBO put on a dog and pony show to submit an MAA to the UK regulators, knowing full well that it would end up rejected. There appears to be a pretty good signal of something going on here, and sometimes that is enough to get approval on some contingent basis.
Risk - No guarantees with the approval
Unfortunately, there are very real questions about the efficacy of DCVax-L, and if it wasn't in glioblastoma, we probably wouldn't be having a conversation about whether the issues related to the phase 3 trial are enough to reconsider. The UK regulators are under no obligation to view these data (and the accumulated evidence associated with DCVax-L tech) as sufficient for approval.
And until we get a press release indicating that they have completed the MAA review, NWBO will continue to face the risk of rejection, at which point it's difficult to imagine much else besides a steep decline in the company's valuation.
Risk - Concerning cash situation
Aside from stringing together small loans, NWBO is sitting on very thin ice for funding its ongoing operations. At a market cap of around $300 million, there certainly is some leverage to pursue an equity raise, so it's doubtful that the company would go belly up. But it is worth noting that they only have so many shares left to potentially sell. And then the liabilities are not going away, either, creating even more drag on finding some kind of financial strength.
It seems like that what NWBO is doing is to hold for news from the UK regulators, under the assumption that they'll be informed that their application was accepted, or even that the review has been finalized in their favor. Then on the basis of that exciting, anticipated news, they could fundraise from a position of relative strength.
Unfortunately, the reality for the company is that they maintain less than 1 quarter's cash on hand. They have been able to continue a shoestring operation by issuing more Series C preferred stock and common shares, but these, especially the latter, are dilutionary vehicles that do not address the cash issues and continue to fuel a downtrend in the stock's price, creating further challenges in the near term.
Bottom-Line Summary
NWBO continues to present a very challenging investment thesis. Despite the delays, despite the cash problems, despite the dilution, despite the debt, despite the controversy around DCVax-L, this company could very well be knocking on the door of an immunotherapy approval in a space where we still have a desperate therapeutic need. The fact that they've managed to keep a fraction of their once-massive market cap (at least in relation to other developmental biotechs) is a testament to this enduring hope for the company.
If they get the approval, and if they're able to raise funds to bring their manufacturing up to snuff, NWBO still has something to offer shareholders. However, there are risks surrounding this thesis from all sides. Dilution is a near inevitability, and possibly dilution on unfavorable terms. Approval has potential, but is far from guaranteed.
NWBO is one binary event away from oblivion at this point, or they could get approval and regain some of their strength. This is a company that rode a market cap above $1 billion, and if they got approved, I don't think it's unreasonable that they could reach for that same valuation in short order.
But at this point, despite the potential here, it's not possible for me to hold anything like a "Buy" sentiment, since it would be gambling on whether the delay in a decision from the UK authorities is due to some serious problem or due to something administrative. However, NWBO has fallen so much from the valuation at the time of my last piece on them that I can't really feel the "Strong Sell" anymore, either, where selling your stock would be far and away the most prudent decision based on what I see. On that basis, my sentiment is upgraded to "Sell," which means I wouldn't be a buyer at these levels, and that I would consider the very real downside risk as a holder of the stock.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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