Expert Financial Analysis and Reporting

 

I am starting my coverage of Northwest Biotherapeutics (NWBO.OB) with a Buy. I became interested in this small bulletin board company based on research that I did on Dendreon (DNDN) whose prostate cancer vaccine Provenge is the first approved cancer therapeutic that uses living dendritic cells. I came to believe that this technology had the potential to significantly improve cancer outcomes over current regimens based on chemotherapy, monoclonal antibodies and targeted therapies. A have published a detailed report on my website.

Northwest has a compelling technology platform and products. It is a pioneer and industry leader in using living cells as the basis for therapeutic products. In the case of living cell therapy, the manufacturing process is the product and through its collaboration with Cognate BioServices, it has developed sophisticated manufacturing technology. It is in phase III development with DCVax-L for glioblastoma multiforme and has another product DCVax Prostate that is waiting for funding to begin a phase III trial.

The approach I have used to gauge potential upside for Northwest is to compare it to two other cancer targeted biotechnology companies that have drugs in similar stages of development. If the phase I results for DCVax-L are repeated in the phase III trial, it will be a great breakthrough for treating glioblastoma multiforme. In addition, it will validate the dendritic cell approach for the treatment of most solid tumors. I believe that the market would respond to this event in the same way that it has reacted to Pharmacyclics (PCYC) results with ibrutinib in hematological cancers which has resulted in an increase in market capitalization from $500 million to $4 billion over the last year. With the 431 million fully diluted shares for Northwest that I project for 2014, this would result in a price of over $9.00.

This is an obvious best case. In the event that the results are positive, but show more modest improvements, I think that the example of Threshold Pharmaceutical (THLD) with TH-302 might be a good model, When results showed modest objective responses and modest improvement in progression free survival in pancreatic cancer, the market capitalization jumped from $77 million to $450 million. At $450 million, Northwest would sell for over $1.00 per share.

Of course, the phase III trial could fail. There is ample precedence for trial failures in biotechnology and especially in cancer vaccines in which very promising phase I results were not replicated in phase III trials. There is a very real risk that if this occurs with DCVax-L that Northwest would fail. Anyone investing in Northwest must be prepared to lose all of their money. My asymmetric analysis suggests that an investor is risking at most $0.22 to see an upside of as much as $9.00 in an optimistic case and perhaps $1.00 in a positive but more subdued case. Don’t ask me to assign odds for each scenario. I just think that there is a reasonable chance for success in which case the upside is so significant that this risk is justified.