NorthWest Biotherapeutics Inc (NWBO)

[BioGuy2014]

Intersting article on Seeking Alpha

http://seekingalpha.com/article/1727622-recent-developments-with-northwest-bio-hint-at-big-move-in-3-to-4-months?source=feed_f

http://t.co/SO9askfbxx

Recent Developments With Northwest Bio Hint At Big Move In 3 To 4 Months
Oct 3 2013, 11:48 by: Alberto Savrieno | about: NWBO
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
The debate continues to rage as to the future of Northwest Biotherapeutics (NWBO). The latest volley has come in the form of a public apology to Adam Feuerstein, an NWBO bear, who claims that DCVax-L will fail, citing the evidence that successful phase III drugs usually leak by now , and DCVax-L results are still hermetically sealed and have been for years. The trial commenced in 2006.
For the last seven months NWBO has gone nowhere, pingponging between $3.15 and $4.64 since its last financing in December as news has slowed to a trickle and everyone wonders what's going on with DCVax-L and DCVax-Direct. RSI is totally flat. In technicals nomenclature, this is a coil. It means that neither side is budging, despite the heated debate.

After a long period of coiling, there is almost always a resolution when the stock turns hard one way or the other, releasing months of energy. In terms of human action, the coil can be explained as investors evenly split and unwilling to outbid the other side of the trade too far out of range, because nobody is sure what will happen. If a bull came in low, he sells at the top of the range because he is unsure if DCVax-L or Direct will succeed and just takes the short term profit. Too far below range and buyers step in because of high risk/reward ratios at the lower boundaries if DCVax-L or DCVax-Direct succeed.
It is my contention that the current round of bull/bear debate over NWBO will come to an end by January/February, and NWBO will find a new medium term trading range at pre-December levels. Before I explain why, background is necessary for those new to the stock.
NWBO
NWBO is a biotech company that focuses on the development and manufacture of cancer treatments. The company has developed its own patented technology, DCVax, which it uses to target and treat tumors. Its specific focus is on two types of cancer: brain cancer and prostate cancer.
DCVax is a system through which an immune response to the cancers in question is stimulated. It works by using a patient's dendritic cells to activate their immune system and instruct it to target tumors. In an ordinary immune response, the dendritic cell would encounter the pathogen in the body. It would engulf it, break it down, and carry it to the lymph nodes. From the lymph nodes, the now-activated dendritic cell elicits an immune response, which causes the immune system to attack any cells that are similar to that which the dendritic cell first encountered. It is a highly concentrated and a highly targeted approach to pathogen control.
Traditionally, these sorts of immune responses are initiated by introducing a form of the pathogen to the immune system, and waiting for a dendritic cell to pick it up and start the process. NWBO on the other hand takes a dendritic cell from the patient and combines it with a sample of tumor externally. This activated dendritic cell is then reintroduced into the patient, and the immune response is stimulated.
DCVax-L and DCVax-Direct
NWBO's lead candidate is DCVax-L, which is designed to treat a deadly form of brain cancer called Glioblastoma Multiforme (GBM). DCVax-L is currently undergoing phase III clinical trials. Phase I/II clinical trials for the treatment showed positive results, with median overall survival rate (OS) from the time of initial diagnosis of recorded at 31.4 months for those treated wit DCVax-L, compared to 14.6 months for those treated with current standard of care (SOC). Progression free survival also improved, from 6.9 months for those that underwent current SOC treatment to 25 months for those treated with DCVax-L.
A phase III trial, which is actually a continuation of the phase I whose results will be included in the final analysis, is ongoing since 2006. Primary and secondary endpoints for the trial are OS and PGS respectively. Enrollment for the trial is expected to be complete by 2Q14.
On that front, on September 16, regulators in Germany approved the phase III trial and enrollment is now active in that country. NWBO plans to enroll at 20 German hospitals. That will bring total sites to 75, plus one in the UK. This means that each center needs to enroll only 4 to 5 GBM patients on average to complete enrollment.
The company's second pipeline product is DCVax-Direct. The treatment is billed as being able to target all inoperable solid tumors. The reason it can be used to treat inoperable tumors (and one of the treatment's biggest selling points) is that it involves injection directly into the tumor via ultrasound guidance. This means the treatment can be administered anywhere in the human body.
Phase I/II clinical trials of DCVax-Direct are underway, with initial results expected by the end of this year being that the primary endpoint is tumor regression, which happens either quickly or not at all. The news on this front is that a second site has opened in Orlando as of last week.
When the coil breaks
Back to my original contention, the DCVax-Direct initial results, expected at the end of the year, will be the reason the coil will finally break, either up or down. While press releases from the company estimate initial results at the end of the year, due to a history of delays an announcement of initial results by January-February seems reasonable. NWBO will take off in one of two directions when those initial results are announced.
We are talking about a treatment for all solid tumor cancers after all. If there is any tumor regression, NWBO's price will find a new coiling range until final results are released, which are expected by midyear 2015 according to clinicaltrials.gov.
The market for DCVax-L alone if successful will be quite large monetarily, though small in terms of patient base. A recent analysis conducted by Summer Street Research Partners suggests the market for the treatment is 12,000 in the US and EU. The same analysis reports the price for the treatment at being approximately $140K. At a 10% penetration, DCVax-L could generate over $160M for the company. Assuming steady increase in penetration over the next five years, this could grow to just short of $1B at just over 50%. By 2020, the DCVax-L could become a $2B treatment.
DCVax-Direct, if successful, will be much bigger.
Pricing Comparisons
While projections can be useful in gaining some insight into the potential market, there must be some fundamental reasoning behind them if they are to be used to justify a company's potential value. In this case, the reasoning lay in the success of similar (currently available) treatments.
The two notable immunotherapies that have gained approval over the past few years are Provenge; developed by Dendreon (DNDN) and aimed at prostate cancer, and Yervoy; developed by Bristol-Myers Squibb (BMY) and aimed at melanoma. Provenge is priced at $93K and Yervoy at $120K. Summer Street reports that DCVax-L and NWBO's other "personalized vaccines have the potential to add substantial survival benefit with minimal side effects."
Company Valuation
The market currently values NWBO at just over $115M based on approximately 33.8M shares outstanding. Again referring to the Summer Street analysis, the research organization puts a price target on NWBO of $10.33. This target is based on an estimated EPS in 2016 of $1.02, using a 25 multiple and a discount rate of 35%. This target suggests the market currently undervalues NWBO by just under $200M.
Partnerships
One of the major driving factors in the advancement of NWBO's treatments is the partnerships the company has formed with a number of leading cancer centers worldwide. In January this year, the company received a $5.5M grant from the German government through its partnership with the Fraunhofer Society, a German research organization.
The company is also in partnership with a range of leading hospitals and university research centers across the UK, including Kings College London, which in May, became the first active trial site for DCVax-L in Europe. Both of these partnerships give NWBO access to regional manufacturing facilities, as well as industry specific expertise.
Risks
NWBO will need further financing in order to achieve success in bringing DCVax-L to market. Without the metrics on which the aforementioned valuation is based become invalid. Mitigating this risk is the fact that DCVax-L is in Phase III trials, which, if successful, could open up the product to a multi-billion dollar market. Further mitigation lies in the fact that the company is in a relatively strong financial position, with a little over $10M in cash holdings and zero debt.
Further risk lies in the nature of the cancer DCVax-L is looking to target. GBM is notoriously difficult to treat and, as a result, the outcome of the clinical trials is far from assured. While phase I/II results were positive, the unpredictable nature of invasive brain cancer means they are by no means indicative of phase III success.
But the more immediate catalyst for NWBO will be the announcement of initial results for DCVax-Direct. If there is no tumor regression for initial patients, the coil will break down. If there is, it will break out. It's not the bulls or bears that will convince anyone, leaks or no leaks aside. It's that announcement, and the stock, and its investors, are waiting for it.
Conclusion
The volley back and forth over NWBO's valuation has not broken the bulls or the bears as the recent coil continues since February. It will most likely continue until initial results for DCVax-Direct are announced. If there is any tumor regression, look for Summer Street's target of $10.33 to be within reach long term, but short to medium term traders should place a more conservative target of the pre-December dilution high of $6.40.
And if you don't want to pick a side in the debate, one can always use options to straddle the January 2014 $5 strike, assuming the initial announcement will be made by then.