Northwest Biotherapeutics Gets Called Out: Should Investors Worry?


Northwest Biotherapeutics plummets more than 17% for touting positive interim results.

Is the market responding appropriately?.

To answer this question, here are several important things investors need to know.

Shares of Northwest Biotherapeutics (NASDAQ:NWBO), a clinical stage biopharmaceutical company focused on the development of personalized cancer vaccines for a wide spectrum of solid tumor cancers, plunged more than 17% on Thursday after the company was called out by MD Anderson Cancer Center for announcing encouraging preliminary data from the ongoing early stage clinical trial of DC-Vax Direct, a novel cancer vaccine.

Is the market overreacting to this event or is this steep drop warranted? Here are three things you need to know.

Legitimacy of vaccines in question

On February 10, Northwest Bio CEO Linda Powers stated that results from the interim analysis of the ongoing DCVax Phase III clinical trial were expected early that month. The trial compares the vaccine to placebo in subjects newly diagnosed with glioblastoma mutliformae (GBM). However, it has been 5 months since that original announcement, and results from the trial have yet to be disclosed. Clearly, interim analysis of Northwest Bio's brain cancer vaccine DCVax is way overdue, thereby casting doubt among investors that the study yields promising findings.

The failure to produce such findings from the DCVax trial sets the backdrop for recent events, which have ultimately left Northwest Bio in a questionable state. Specifically, the company appears to have attempted to divert attention away from DCVax by announcing "promising" 8-week interim results from the ongoing Phase I/II trial of another novel cancer vaccine called DC-Vax Direct. The problem is that the content of the release is debatable, since the company was called out by MD Anderson Cancer Center for touting preliminary results that could very well be unsupported as more data from the trial is released.

The interim results featured a single patient that appears to have benefited from four DCVax-Direct injections. "At that time, this patient's MRI scan showed extensive necrosis and partial collapse of the injected large tumor mass, and a CT scan showed some early indication of shrinkage of one of the non-injected metastasized tumors," according to Northwest Bio. While this "case study" appears to validate pre-clinical findings, important data, such as the safety and efficacy of DCVax-Direct, are not fully disclosed at this time. Instead, the company stated that the patient benefited from tumor growth stabilization, which is a relatively ambiguous term.

Breaking down the data (or lack thereof)

According to RECIST criteria, which is the standardized criteria for measuring tumor response, tumor growth must not grow 20% or more by size or shrink by 30% or more in order to constitute tumor stabilization. Thus, the announcement is clearly ambiguous, since it's possible that the nine patients administered with the DCVax-Direct injections could have experienced an increase in tumor size by 20% or less, as opposed to actual tumor reduction. I suspect that it's also possible that by using tumor growth stabilization as an indicator of positive clinical findings, Northwest Bio is able to mislead investors into thinking that the vaccine actually shows efficacy in inoperable tumors when that data clearly isn't available at this time.

Another concerning element of the latest announcement is the lack of safety/tolerability data, which is the primary endpoint of the ongoing clinical trial. It isn't inconceivable that the absence of such data in the interim report could suggest that DCVax-Direct has an unfavorable safety profile. Regardless, given the ambiguity of the available data, important questions concerning the legitimacy of Northwest Bio's novel cancer vaccines remain unanswered, and if the 5-month delay for the interim report on DCVax is any indication, it doesn't appear that management intends to address this concern any time soon.

Weak financials don't help

It surely doesn't help that Northwest Bio is running relatively low on cash. Indeed, after raising $15 million from an institutional investor in April on top of the $12 million in the bank, the company's overall financial position improved. However, given its high cash burn of approximately $20 million, I suspect it will likely necessitate additional capital to advance its Phase III trial in the near future. Is it possible that management tried to inflate the share price via the interim data release on DCVax-Direct ahead of a public offering?

Given the lack of transparency exhibited in the latest announcement, I think it isn't far fetched to assume so. Regardless, investors should be aware that additional capital is required for continued R&D, and it will likely result in the further dilution of current shareholders.

Final thoughts

If a research institute conducting a clinical trial on a novel medicine casts doubt on positive results taken from their own trial, I think it's an obvious red flag that investors cannot ignore. Unfortunately, this is exactly what is happening to investors in Northwest Bio's case, as MD Anderson Cancer Center, which is conducting the ongoing DCVax-Direct Phase I/II trial, harshly criticized the company's positive take on the interim findings.

Given the apparent need for additional capital, as well as the lack of transparency shown by management, I think investors should sit on the sidelines until a more comprehensive report on the safety and efficacy of DCVax-Direct is released, and additional capital for R&D is acquired. At that point, I would reconsider an investment in Northwest Bio, but for now, the company stands in murky waters and sure has a lot of explaining to do.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.