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Overview

Northwest Biotherapeutics CEO Linda Powers made a presentation yesterday in which she addressed the bear case that has resulted in significant pressure on the stock in the last two weeks in particular and for the last two years in general. In my opinion, she effectively debunked a weak bear argument, but you be the judge. This note is based on copious notes taken from her presentation.

The Bear Case Examined and Debunked

The core of the bear case is based on several arguments. The first is that dendritic cell cancer vaccines are “weak” and can’t work. This argument probably stems from the long line of failed phase 3 trials in cancer vaccines, the most recent being the failure of Glaxo’s (GSK) MAGE-A3 cancer vaccine in non-small cell lung cancer. However, there has only been one phase 3 trial for a dendritic cell cancer vaccine like DCVax-L and that was for Dendreon’s (DNDN) Provenge. That trial was successful and led to approval.

There have been no other phase 3 trials completed with dendritic cell cancer vaccines and hence no failures. ImmunoCellular’s (IMUC) ICT-107 recently reported results from a small and underpowered, exploratory phase 2 trial which involved 124 patients. In that trial, ICT-107 did not achieve statistical significance in overall survival. However, the trial did achieve statistical significance for progression free survival of 2.0 months on an intent to treat basis. For patients who received at least four injections of ICT-107, progression free survival was 3.0 months. ICT-107 and DCVax-L are different (probably quite different) products but this seems encouraging. Bear in mind that the end point of the phase 3 trial of DCVax-L which is three times larger than the ICT-107 trial and much more strongly powered, is progression free survival of 6.0 months. Based on the Provenge and ICT-107 trials, there is reason to think that the phase 3 trial of DCVax-L trial could be successful.

The basis for beginning the phase 3 trial of DCVax-L was a phase 1/2 trial involving 20 newly diagnosed glioblastoma patients. The results in this trial were encouraging. With standard of care, half of patients die within 17 months. Of these 20 patients treated with DCVax-L, 90% lived more than 17 months, 55% beyond three years and two patients are still alive after ten years. The bears argue that it is risky to go from a small phase 1 trial to a phase 3 trial and they are correct in this argument. This is the strongest point in their case. However, this was a powerful signal of efficacy. In addition, DCVax-L has produced encouraging signals of efficacy in 33 prostate cancer patients in a phase 1/2 trial, 11 patents in a phase 1/2 ovarian cancer trial and perhaps 10 or more compassionate use patients. All in, some 75 patients have been treated with DCVax-L prior to phase 3.

The bears argue that no credible person or institution believes that DCVax-L could work and in fact have stated that it is probably no better than a placebo. This is clearly wrong. The Paul Ehrlich Institute (the German equivalent of the FDA) has just granted approval for DCVax-L to be prescribed for all patients with gliomas, both newly diagnosed and recurrent. This was done under a law passed in 2011 and referred to as the hospital exemption that gives PEI the right to make available promising drugs before they complete phase 3 trials. This was an extremely important validation for DCVax-L.

In a separate decision, the German agency that decides which drugs are eligible for reimbursement under the German health care system, approved DCVax-L for reimbursement. I would note that the PEI approval was for all gliomas, both newly diagnosed and recurrent; this goes substantially beyond the scope of the phase 3 trial which is newly diagnosed glioblastoma patients. In the UK, the phase 3 trial of DCVax-l has been designated a national priority. It seems that credible regulatory agencies do believe that DCVax-L could be successful in phase 3.

Another component of the bear attack and one that is frequently employed in situations like this is to slander management. They maintain that management is incompetent, lies and can’t be trusted. I think that the extraordinary coup in gaining approval in Germany under hospital exemption debunks this argument without the need for further discussion.

The German approval was a landmark event for DCVax-L and effectively exploded the key elements of the bear case. After this approval on March 10, the stock began to move rapidly higher as one would have expected. The bears responded with a counter attack that was intended to obscure and obfuscate this extraordinary approval. Obviously, balanced research is not part of their repertoire. They quickly tweeted “compassionate use approval, who cares”. They suggested that this approval was nothing more than an older compassionate use program called named patients. This is wrong; it is much, much more. In her presentation, Ms. Powers clearly delineated the very substantial differences between hospital exemption and named patient compassionate use. I urge you to read her remarks carefully.

Faced with an extraordinary and unexpected positive in the PEI approval, the bears tried and for the last two weeks have been successful in shifting the argument to another point. They focused on the first interim look at the DCVax-L trial. The independent data monitoring board has found that there are no safety issues with the trial and recommended that the trial continue, which is of course what most objective observers expected. However, the DMB announced that it had not completed its efficacy analysis.

The bears seized upon this delay in the efficacy analysis to claim that the phase 3 trial was in trouble. They obviously had no facts to argue, but this didn’t keep them from coming up with a theory based on pure speculation. They attributed the delay as being due to poor record keeping by NWBO of patients records so that the trial data was impossibly screwed up and the trial was doomed to failure and suggested that the trial might be halted because of this. I would point out that the data management on the trial is not being done by Northwest Bio, but by a contract research organization that specializes in running phase 3 trials. I would also point out that the DMB would not have recommended that the trial continue if there was a screw up in the data management.

Despite the action of the Paul Ehrlich Institute in approving DCVax-L, the bears clung to the belief that DCVax-L is ineffective or a placebo. They argued that the delay in reporting the efficacy analysis could signal another problem. Again, this is based on a speculative theory; there are no objective facts that they can point to. The efficacy analysis can broadly lead to three outcomes. The DMB can simply recommend that the trial continue without any statement on efficacy results; releasing interim efficacy results at this point would unblind the trial and invalidate any future conclusions. This is almost certainly going to be the case.

There are two other possibilities for the DMB. They could upon analysis of the data find that it is futile to continue the trial because the efficacy analysis shows that there is no chance that the trial can reach its proscribed endpoint. The second possibity is that they can find that the trial has already successfully reached its end point and that DCVax-L should be filed for regulatory approval. By making the delay in the efficacy analysis the central point in their argument, the bears can only be looking for the DMB to recommend that the trial be stopped for futility.

I think that the chances for the DCVax-L trial being stopped for either futility or efficacy are effectively nil. However, the bears will counter why the delay in efficacy? I don’t know and I admit that this is unusual. However, let me speculate. NWBO has built into the trial design the option to expand the number of patients in the trial which would increase the chances for success. This might be the cause of the delay. In any event, we are going to know within a matter of weeks or perhaps days the outcome of the efficacy analysis. I am extremely confident that the trial will continue and that the bear argument that the trial will be stopped for futility will be decimated.

There is one other component of the NWBO pipeline that has caught the attention of objective observers. The second product in the pipeline is DCVax Direct which is in a phase 1/2 trial in inoperable tumors. The bears have either ignored the product or cast it in a negative light as with DCVax-L. Ms. Powers announced that an abstract on the trial will be presented at ASCO in May. This should give us an insight into the potential of this product.

The following sections are essentially notes taken almost verbatim from Ms. Powers’ presentation.

German Hospital Exemption is an Extremely Important Positive

Northwest Biotherapeutics has been granted a hospital exemption in Germany. This allows DCVax-L to be used to treat patients for five years who have any grade of glioma, not just glioblastoma multiforme. It also allows treatment of lower grade gliomas, both newly diagnosed and recurrent. This is a major validation of the promise of the technology.

The applicable law for the hospital exemption program went into effect in the summer of 2011. For 2 ½ years there have been numerous applications submitted. However the Paul Ehrlich Institute (the German equivalent of the FDA) has only approved three products. Two were products which were on the market prior to the passage of the hospital exemption and were grandfathered. These were non-systemic products used in regenerative medicine. DCVax-L is the first product to be approved that was not grandfathered. It is the first immune therapy approved by PEI, the first systemic therapy (the two German products were regenerative medicine products) the first cell therapy product, and the first product approved for a non-German company.

DCVax-L also received a separate and quite favorable approval form the central reimbursement authority in the German system. This is another validation of the technology. Under the hospital exemption, NWBO is not allowed to request reimbursement, only hospitals can apply. The investment significance and still another validation of the DCVax-L technology is that six major hospital centers applied for reimbursement of DCVax-L.

It is extraordinary for a product that is still in clinical trials to be approved for reimbursement. It is unheard of for a product to get reimbursement while still in clinical trials. The usual reimbursement path is to finish the clinical trial, gain regulatory approval, introduce the product and then seek reimbursement. This is  a process that takes one to two years.

Before reimbursement is gained the hospital has to request and negotiate reimbursement on a patient by patient basis. With reimbursement, each patient treated is reimbursed at a set price negotiated with the payor. With the hospital requesting reimbursement, NWBO can now negotiate the price with the health care plans. This is all while the phase 3 trial is not completed. This process is tantamount to receiving full approval and full reimbursement as would be the case with a newly approved drug. The only difference is that NWBO cannot directly promote the drug, but with the high awareness of glioblastoma patients and physicians, not much promotion will be needed.

Some bloggers have stated that this is just compassionate use and on tweeted “compassionate use, who cares”. This reflects lack of understanding of the German system. The first difference between the older compassionate use system (commonly referred to as named patients) is the number of patients that can be treated. With named patient compassionate use, only one patient can be treated at a time. The specific patient has to be named and the physician or hospital has to prepare a regulatory document comparable to an IND. Moreover, it is usually restricted to patients who are ineligible for approved drugs or drugs in clinical trials.

Then you have to seek regulatory approval for just that one patient and for each subsequent patient the process has to be repeated. In contrast, the hospital exemption allows the treatment of all patients with newly diagnosed and recurrent gliomas (not just newly diagnosed glioblastoma). Hospitals do not have to prepare paperwork for each individual patient. Moreover, the hospital exemption allows them to do this for five years. At the end of five years, they can apply for another five years.

The second difference is that under compassionate or named patient use, the payor, hospital or patient cannot be charged. Under some conditions, the drug sponsor can seek reimbursement for cost incurred. Very importantly, NWBO will be paid a price which is in line with that usually given for important new cancer drugs; they are usually priced at $50,000 to $100,000 per course of therapy. And of course, DCVax-L will receive reimbursement in the same way as a drug approved through the normal regulatory process.

Update on DCVax-L Trial

The phase 3 trial is a 312 patient, double blinded, randomized placebo controlled trial. The primary endpoint is progression free survival which is recurrence of the disease. NWBO feels the trial is robustly designed. One of the frequent mistakes made by small biotechnology companies is under powering of their trials.

NWBO used conservative assumptions for phase 3. In the phase 1/2 trial, the progression free survival was 18 months. The phase 3 trial should be successful if it shows only six months of progression free survival, which is of course only one-third of the eighteen months that was seen in phase 1/2. This was made in cognizance that phase 1/2 results are almost always better than phase 3. NWBO recognized this and is trying to be conservative.

The trial is powered robustly. Regulators usually require a p-value of 0.05 for a trial to be called a success for regulatory approval. If the six month progression free survival of six months is achieved, the p value would be a robust 0.02.This provides a cushion so that if the progression free survival is less than six months, say five months or maybe less, the trial might still be deemed a success with a p value of 0.05 or less. The trial is also well powered for the secondary endpoint of overall survival.

There is also another feature of this trial that allows NWBO to enlarge the size of the trial. The larger the number of patients, the more robust the powering and this increases the chance of hitting p=0.05 or less. Even though the trial seems robustly powered, this would give even more of a cushion for success. Instead of needing to show six months of overall survival to hit a p value of 0.02, they might only need to show 4 or 5 months. The company hasn’t decided whether to do this but my guess is that they will.

Linda Powers addressed speculation that is not factually based but rather is based on theories that the trial is in trouble, has serious problems and is about to be halted. She pointed out that the independent data monitoring board has reviewed the safety data of the trial and recommended that the trial continue. The DMB could not and would not recommend continuation of the trial if there were problems.

Linda Powers was adamant that the phase 3 trial is on track. She pointed out that the phase 3 trial in Europe is being expanded to several new centers of excellence. These are scheduled to begin in the next month or two. To state the obvious, these centers of excellence would not join a trial that is in trouble, has serious problem and is on the verge of being stopped.

DCVax Direct Looks Encouraging

NWBO in collaboration with M.D. Anderson is in a phase 1/2 trial with this product. DCVax Direct is injected into primary tumors or metastases of inoperable tumors. When a tumor is inoperable, the treatment is usually limited to palliative care; these are desperate patients without viable treatment options. The tumor can be inoperable because it can’t be reached without unacceptable damage to surrounding tissue as in the case of pancreatic cancer or the tumor has just too broadly metastasized.

This trial is approved for 60 patients, which is unusually large for a first in human trial; a more usual size is 15 to 20 patients. This is a signal that the FDA has no safety concerns and is intrigued by the robust results seen in animal models. DCVax Direct has been given clearance to be used in all types of solid tumors.

NWBO and M,D. Anderson submitted an abstract to ASCO. For a trial at this stage, it is unusual for an abstract to be submitted and approved. The Company is excited that ASCO just accepted the abstract for presentation at the upcoming May conference. This means that NWBO can’t comment on results until they are presented. However Linda Powers said that “I can tell you that we are quite encouraged by what we are seeing, quite encouraged.”

What are they looking for in the trial? They have grouped patients according to solid tumors that are most prevalent: metastatic colon cancer, breast cancer with brain metastases, lung cancer and pancreatic cancer. They will have at least six patients with each of these types of cancers in the trial, which is enough to give some signal of efficacy.

They are looking for tumor response, especially tumor necrosis and cell death at the location of injection. If this is seen, they can go seamlessly into phase 2. They don’t have to go back to the FDA for approval to launch phase 2 trials. If they see signals of efficacy in one or more solid tumors, they can go right into a phase 2 trial in a solid tumor(s) with about 24 patients.