Expert Financial Analysis and Reporting

Introduction

This report deals with comments made by President Trump in the State of the Union address in which he indicated that he wants to give terminally ill patients the right to receive experimental drugs, even though they might only be in phase 1 development. This could have positive implications for DCVax-L and DCVax Direct as they begin phase 2 trials in a range of solid tumors beyond glioblastoma multiforme (GBM). Of course, DCVax-L is close to completing a phase 3 trial in GBM

I think that we can also extrapolate President Trump’s  remarks to hypothesize that in the case of life threatening diseases that the FDA may become more pragmatic in considering regulatory approval and not insist on pristine double blinded, placebo controlled statistical analyses to grant approval (actually the FDA has already been moving steadily in this direction.) As I discuss in this note this could be a significant positive when FDA considers a highly likely BLA filing for DCVax-L. This note goes into detail on this in relation to the trial design of the phase 3 GBM trial.

The key conclusions of this report are presented in bullet points at the very end. I would urge you to avoid the temptation to skip directly there. Going through the body of the report is important to understanding my conclusions.

Investment Opinion

The manipulation of the stock by the wolfpack has resulted in NWBO being priced as though there were no chance of success for DCVax-L in its phase 3 trial. A vicious social media campaign has had great success in portraying NWBO as being a stock promotion and a criminal enterprise pumping worthless technology. Against this brutal onslaught, NWBO management has been able to nearly complete the phase 3 trial although for a time, bankruptcy could not be dismissed out of hand. This has been a “David versus wolfpack” accomplishment.

Amazingly (most of all to wolfpackers), investigators in the phase 3 trial have concluded that patients in this trial are living much longer than would be expected if they had received just standard of care. This is suggestive that there is a long term survival tail. It is the long term survival tail in certain other solid tumors that has led to the medical enthusiasm for and great commercial success of checkpoint inhibitors like Opdivo and Keytruda.

The trial is ongoing so that these conclusions are based on blinded data. I am expecting the publication of a manuscript on the blinded data in a peer reviewed journal in a matter of perhaps a month or two. The timing is difficult to predict as the editing process involves a lot of participants. It is co-authored by about 65 investigators in the trial. This manuscript could/ should enhance the argument that DCVax-L is producing a long term survival tail that could represent a major advance in the treatment of glioblastoma. If so, this would be one of the most amazing stories in the history of biotechnology.

The upside in the stock is enormous in the event that the market comes to agree with me and distinguished key opinion leaders involved in the phase 3 trial about the potential for a meaningful long term survival tail in GBM. Based on my analysis of market valuations of other oncology focused companies, I believe that if the investor perception arises that DCVax-L has a reasonable chance to gain approval and has the potential to become a meaningful therapeutic advance in the treatment of glioblastoma, this could result in perhaps a $5 billion market valuation at some point. Please note that I am basing this on the perception. If indeed, DCVax-L is approved for newly diagnosed GBM, I think the valuation could be meaningfully higher. It is also intriguing to note that the mechanism of action of DCVax-L is not unique for targeting GBM. Hypothetically, it might also have efficacy against a broad number of other solid tumors.

There is a lot of guesswork in this and I would strongly urge you to not take this estimate of potential market capitalization as being carved in stone.  Also, this would not be over night.  So how do I get to this $5 billion market capitalization? Puma is poised to launch neratinib into a segment of the highly competitive breast cancer market. I view this opportunity as being smaller than that for DCVax-L if it is approved in GBM. Puma sells at a market capitalization of $2.3 billion. The CAR-T companies Kite and Juno were acquired at valuations of $12 billion and $9 billion respectively. So far the opportunity for these products is in relapsed/ refractory hematological cancers and arguably the commercial potential is not much different from DCVax-L in GBM. One notable difference is that three companies-Kite, Juno and Novartis- are going after this market with what seems to be undifferentiated products.

Right now, the fully diluted share count for NWBO is somewhere around 850 million. It is probable that NWBO will have to issue more shares over the next year although how many and at what price is difficult to estimate. For the sake of illustration let’s assume that NWBO issues 350 million more shares at $0.33 to bring in about $100 million. This would result in 1.2 billion shares outstanding and with a $5 billion market valuation the resultant share price would be $4.15 at some point in the next year or so.

I have to emphasize that that there is no assurance of this upside case and there remain scenarios in which an investor could lose all or most of his money. Nevertheless, the reward/ risk is extraordinary in this stock in my opinion. This is why I have devoted so much time to research on NWBO.

Catalyst for This Report was the State of the Union Address

President Trump had some brief remarks about the biopharma industry in his State of the Union address that caught my attention. He has been quiet on drug pricing and many investors thought that reducing drug prices had slipped to the backwaters of his agenda. However, he spoke strongly about the need to reduce prescription drug prices citing lower prices prevailing in many foreign markets. He vowed to reduce prices of both generic and branded drugs. This obviously had negative implications for the biopharma industry and indeed shares of major drug manufacturers in the short term were hit with moderate price declines, but this is not the reason for this report.

More importantly for NWBO, President Trump also made other remarks that, in my opinion, are quite meaningful and positive for companies like NWBO that are developing potentially paradigm changing drugs. He said:

To speed access to breakthrough cures and affordable generic drugs, last year the FDA approved more new and generic drugs and medical devices than ever before in our history.

We also believe that patients with terminal conditions should have access to experimental treatments that could potentially save their lives.

People who are terminally ill should not have to go from country to country to seek a cure -- I want to give them a chance right here at home. It is time for the Congress to give these wonderful Americans the "right to try."

This right to try emphasis could have a very meaningful benefit to Northwest although President Trump is not actually proposing a radical new program. There are already 38 states with laws pertaining to right to try. Also, European countries like the UK and Germany are very far along with a comparable approach. I understand that at various times Northwest has treated small numbers of patients in the UK and Germany under terms resembling versions of right to try state programs.

Right-to-try laws are intended to let terminally ill patients try experimental therapies (drugs, biologics, and devices) that have completed Phase 1 testing but have not been approved by the FDA. The current state laws in the US have not yet taken hold in the face of the uncertainty over the FDA’s position on this issue. Also, they do not have the power to force physicians to prescribe the drugs, drug companies to supply them or insurance companies to pay for them.

The FDA already has a process in place for providing experimental drugs to terminally ill patients called the compassionate use program. However this requires the filing of a treatment IND for each patient as if it were a phase 1 clinical trial. Needless to say, this is a time consuming process that can take weeks to complete for each individual patient. Just as an aside, I went through this process with a good friend’s son who had an advanced sarcoma. We had to find a state-Florida in this case- that had a right to try law and a doctor who would participate with the company in writing an IND. It took a great deal of their time for this process which was exacerbated because they were besieged with many similar requests. After some weeks, we moved to the top of the list just as my friend’s son died. I don’t know if the drug would have helped, but it was our only hope.

The state right to try laws have faced many questions in regard to how they may conflict with FDA policy and if there is a conflict, which party has precedence. Perhaps, the quickest way to implement a right to try program on a national basis (much faster than Federal legislation) could involve some Executive action. This could take the form of an all-purpose IND that would allow quick action by physicians; I understand that this is essentially what is now done in the UK. The current FDA commissioner has extensive industry experience and is likely to be more inclined to agree with President Trump that we should make it easier for patients with terminal illnesses to gain access to experimental drugs. I would not expect much pushback from the FDA if President Trump were to take executive action.

I am not sure how the payor issue might be addressed as most payors put up huge hurdles to gaining reimbursement for approved drugs and recently approved drugs in particular. They would be very hesitant to pay for unapproved drugs. If payors do refuse to pay, this could create an ethical problem requiring patients to pay out of pocket. Obviously only the rich would have access. The pharma companies would generally go along with whatever the FDA decides to do. Their only concern would be if this interfered with the conduct of registrational trials.

DCVax-L would be a perfect candidate for a federal right to try program. It is much more advanced than most experimental drugs that would be considered for a right to try program. There is efficacy data in glioblastoma and also prostate cancer and about 10 other solid tumor types have been addressed in compassionate use programs. The great worry of any right to try program would be safety. Dangerous side effects in the face of unestablished efficacy would not be acceptable. Very importantly, in this regard DCVax-L has a great safety profile. The most frequent side effects are a fever after injection that can be treated with Tylenol and mild pain and irritation at the site of intradermal injection. As of June 2017, out of 2,000 intradermal injections given to well over 400 patients, there had only been 7 patients who experienced “serious adverse events” that investigators deemed to be related or possibly related to the DCVax-L treatment. Five of these were seizures and it is important to note that because GBM is growing rapidly in the confined area of the skull that the disease itself can cause seizures.

One of the key considerations in using an experimental drug is whether side effects with the drug might produce great harm with uncertain efficacy. It is much easier to make the decision to use an unproven drug if there is no great safety issue. For example, the highly touted CAR-T drug cause grade 3 or 4 central nervous system side effects in 20% to 30% of patients and grade 3 or 4 hematological side effect in 30% to 40% of patients. A grade 3 side effect markedly reduces daily activity and usually requires medical intervention or possibly hospitalization. A grade 4 side effect is potentially life threatening and almost certainly will require medical intervention and hospitalization. Contrast this with the amazingly mild side effects described for DCVax-L as described in the previous paragraph. The side effect profile for DCVax Direct appears comparable to DCVax-L although there is much less patient experience

Perspective on the Phase 3 Trial of DCVax-L in Newly Diagnosed Glioblastoma

The President’s comments indicate that he wants the FDA to take a much more flexible and pragmatic approach to making available drugs that are not yet approved for terminally ill patients who have no remaining viable options. I am extrapolating on his comments to conclude that he also wants the FDA to take a more pragmatic approach to interpreting results from clinical trials. If so, this only adds impetus to a trend already underway at the FDA. This could significantly increase the potential for approval of DCVax-L based on data from the phase 3 trial in newly diagnosed glioblastoma. This report explains why.

Immunotherapy Drugs Act Differently from Chemotherapy and Targeted Therapy

The DCVax-L clinical trial was started in 2007. At the time, chemotherapy and targeted therapy were the main drivers of oncology drug development.  This meant that the endpoints of clinical trials in cancer were based on mechanisms of actions that characterize these older approaches. These types of drugs, when they are effective, work fairly quickly to shrink the tumor (as measured by the clinical endpoint of objective response) and halt for a time the progression of the tumor (as measured by progression free survival). Of course the gold standard endpoint for any type of cancer drug is overall survival. As a result, the co-primary endpoints chosen for the phase 3 DCVax-L trial were median progression free survival (mPFS) and median overall survival (mOS).

DCVax-L and DCVax Direct are immunotherapy drugs and in the last five years or so we have learned a lot about immunotherapy based on the experience with checkpoint inhibitors like Opdivo and Keytruda. These drugs work differently from chemotherapy and targeted therapy. Objective response rate and progression free survival are not as important in predicting whether an immunotherapy drug will improve survival. The exciting hallmark of these drugs is what is referred to as a long term survival tail.  As a broad generalization based on results in metastatic melanoma and non-small cell lung cancer, checkpoint inhibitors result in perhaps 15 to 20% of patients treated being alive at three years as opposed to perhaps 5 to 10% with chemotherapy. It is this long survival tail that has so excited key opinion leaders, i.e. around 10 more patients out of every 100 patients treated with checkpoint inhibitors will be alive at three years as compared to chemotherapy.

We have also learned from trials of checkpoint inhibitors that even if tumors progress and grow in size, continuing treatment with immunotherapy can still produce a favorable effect on overall survival. This is in contrast to chemotherapy and targeted therapy.

Immunotherapy drugs can result in cytokine activity at the site of the tumor that results in inflammation. This cytokine activity is the result of an immune response which is exactly the goal of therapy. However, this inflammation can be confused with tumor progression even though it is the result of a significant immune response underway. This is termed psuedoprogression. In the case of the DCVax-L phase 3 trial, this could confuse interpretation of progression free survival. It is possible that some of the best responding patients based on immune response could be mistaken for patients whose tumors have progressed. Of course, investigators are well aware of psuedoprogression and have developed techniques to differentiate it from real tumor progression, but these are not foolproof.

Key Points about the Statistical Plan Used in the Phase 3 Trial

The statistical plan for the phase 3 trial had two primary endpoints, median progression free survival (mPFS) and median overall survival (mOS). These were not co-primary endpoint in which events for each would be combined. Instead the trial was statistically powered separately for each endpoint and was powered for significance at 248 progression events and 233 deaths in accordance with trial assumptions about how DCVax-L will compare to standard of care.

A potential complication in the final interpretation of the phase 3 data is that this trial was designed as a two armed trial randomized about 2:1. This meant that of the 331 patients enrolled in the trial about 221 were given DCVax-L plus standard of care and perhaps 110 were started on standard of care. The trial design was somewhat unusual in that any patient who progressed was given the option to be given DCVax-L. This meant that if patients were on standard of care, they would now receive DCVax-L. Importantly, patients who from the start were on DCVax-L and progressed could also continue to receive DCVax-L. Of course no patient would know in which arm of the trial they had started. This was all done in a blinded manner as no patient who progressed nor did their physicians know if they had previously been receiving DCVax-L.

In the end, in addition to the roughly 221 patients who were started on DCVax-L plus standard of care, about 76 others who were started on standard of care exercised the option to receive DCVax-L. Only some 34 patients received just standard of care. There could also be some patients who started on DCVax-L and experienced progression who elected to not continue to receive DCVax-L. However, I think that this would be a very small number as these are desperate patients who would grasp at any hope, however small. Also, there is no meaningful side effect price to be paid for continuing DCVax-L. Finally, I think that physicians would encourage patients to continue.

The analysis of the trial is based on comparing the median overall survival and median progression free survival in DCVax-L patients to those who received only standard of care. There is some complexity in comparing those who throughout the trial received DCVax-L and those who were given DCVax-L later in the trial. There may also be an issue in the imbalance of numbers given that only around 34 patients received just standard of care. We are comparing results in around 297 patients who received DCVax-L for various periods of time to 34 on standard of care.

Key Takeaways:

• I believe that there is strong evidence that DCVax-L has a long survival tail in newly diagnosed glioblastoma patients. It is the long survival tail in various solid tumors that has excited key opinion leaders about checkpoint inhibitors like Opdivo and Keytruda. My optimism stems in large part from blinded data from the phase 3 trial as well as data from the phase 1/2 trials and the information arm of the phase 3 trial. See my report Issues to Focus on in Pending Manuscript Dealing with Blinded Data from Phase 3 Trial of DCVax-L in Newly Diagnosed Glioblastoma for more detail.
• I am not alone in my belief that there may be a very meaningful long term survival tail. If that were the case, I would be concerned. The distinguished lead investigator on the phase 3 trial, Dr. Linda Liau, and the distinguished lead investigator on the European part of the trial, Dr. Keyoumers Ashkan, also believe there is a long survival tail. See my report Two Lead Investigators on DCVax-L Phase 3 Trial Believe That It Could be a Major Therapeutic Advance in Treating Glioblastoma Multiforme.
• I am awaiting the publication of a manuscript in a peer reviewed journal co-authored by around 65 site investigators in the phase 3 study which I believe may add further support to the hypothesis of a long survival tail. See my report Issues to Focus on in Pending Manuscript Dealing with Blinded Data from Phase 3 Trial of DCVax-L in Newly Diagnosed Glioblastoma for more detail.
• However, there could be perplexing issues with the interpretation of phase 3 results when they are finally unblinded. One of the two co-primary endpoints in the phase 3 trial is median progression free survival (mPFS). For reasons explained in this report, this may not be a good endpoint for an immunotherapy drug. I have no way of knowing because the data is blinded and as of March 2017 about 100 patients were still alive, but it could be the case that data on mPFS in the trial is equivocal as has been seen in some other oncology trials with checkpoint inhibitors. The relationship between mPFS and mOS has been inconsistent in checkpoint inhibitor trials. This is not to say that DCVax-L will not hit this endpoint. I am just trying to present as balanced of a view as possible.
• The other key (co-primary) endpoint is median overall survival and there could be a complication in interpreting data because of the crossover design of the trial. This resulted in approximately 221 patients starting on DCVax-L and staying on it even if their tumor progressed, roughly 76 patients who started on standard who were later given DCVax-L when their cancer progressed and something like 34 patients who only received standard of care.
• In essence, the phase 3 trial is very close to being a single arm blinded trial. In the end, the analysis will compare about 297 patients who received DCVax-L with only around 34 who didn’t. These numbers could be slightly less as most trials enroll patients who are lost to follow-up. This could present issues in comparing median overall survival for DCVax-L plus standard of care to standard of care alone. The 34 patients in the standard of care arm may not be enough for a traditional statistical analysis designed to evaluate chemotherapy drugs.
• I think that there is some reasonable possibility that the two co-primary endpoints of median progression free survival (mPFS) and median overall (mOS) survival may not meet the pristine statistical requirements needed to show that one or both of these endpoints were met.
• However, the long running nature of this trial means that we will have incredible data on length of survival of each patient. I believe that this data is far more meaningful than mPFS and mOS. What we really want to know is how long each of the patients survive, not what happened to the median enrollee in the trial. This trial is extremely unique in providing that perspective because it has been going on so long. Most other oncology trials only run for two or three years which means that they can produce data on objective response, mPFS and mOS but not long term survival. What we really want to know is how long each patient survived and the DCVax-L phase 3 trial will have a wealth of such long term data.
• The first patient in the trial was enrolled in 2007 and the last in November 2015. Half of patients were enrolled before May of 2014 (three years and eight months ago) and half after. Extensive historical data suggests that 85% of patients given standard of care are dead at three years and perhaps 92+% at four years. At this point in time, the last patient enrolled in the trial about two years and three months ago. All others were enrolled much longer ago with perhaps 90 to 95% enrolled over three years ago. There will be extremely clear data that will allow the comparison of survival for most patients at three years and many at four years. This is with the exception of a few who are lost to follow-up. This will give great insight into whether there is a long term survival tail.
• The potential problem with this interpretation of data is that this trial was not originally proscribed to be what it turned out to be- a single armed, blinded trial that establishes a survival tail based on comparison to historical data. If the FDA insists on a pristine statistical analysis, a case can be made for not approving the drug even if there is strong evidence that it meaningfully extends survival in a deadly disease. However, this would be contrary to the intention of President Trump and indeed to recent actions by the FDA.
• It has been my position all along that the FDA will approve the drug if the final unblinded data shows a clear survival tail versus historical data regardless of the statistical outcome for median progression free survival and median overall survival. As previously discussed, I think that President Trump’s remarks provide added support to my hypothesis.
• I also think that if FDA were faced with strong evidence of a meaningful survival tail and procrastinated on approval that the agency could come under incredible pressure from the medical and patient community, Congress and President Trump. I think that this could still ultimately result in approval.
• I want to emphasize that at this point, I am only speculating (although with good reasons) that there will be impressive data on a long term survival tail for DCVax-L in newly diagnosed glioblastoma multiforme. While there are strong reasons to believe I am correct, until the data is unblinded there is no certainty that I am right. The fat lady has yet to sing.
• While I have spent the bulk of this report on DCVax-L, there is probably more significance for DCVax Direct if right to try becomes accepted. We have seen encouraging data from the phase 1/2 trial suggesting that there could be a meaningful therapeutic effect in a variety of inoperable solid tumors which have no viable treatment options. If the encouraging data of phase 1 is replicated in phase 2 studies, DCVax Direct could be a poster child for the President’s “right to try” program and approval could be expedited off of phase 2 data if it is positive.
• The same argument applies to the combination in upcoming phase 2 trials of DCVax-L and checkpoint inhibitors like Opdivo in other solid tumors. Positive phase 2 data could lead to approval in certain solid tumors in which treatment options have been exhausted.