Expert Financial Analysis and Reporting

Introduction

This report addresses three issues:

1. The capability of the Sawston UK plant to manufacture Northwest Biotherapeutics’ dendritic cell vaccine in accordance with regulatory requirements and to scale up to manufacture it in substantial quantities. (Note that in the US, this product is referred to as DCVax-L, but may go by a different brand name(s) in foreign markets and perhaps in the US. Hence, I will use the generic term dendritic cell vaccine often in this report.)
2. Thoughts on when and how top line data from the phase 3 trial might be published.
3. The readthrough from GameStop trading on how retail traders might catalyze a short squeeze of NWBO stock if phase 3 results suggest probable approval of the dendritic cell vaccine.

Key Points:

• NWBO has been working for several years to prepare the Sawston UK facility for vaccine production.
• It has been diligently preparing the facility to satisfy CMC requirements that are essential for regulatory compliance and believes that it may be able to apply for certification in 6 to 8 weeks
• At this early stage, I estimate that Sawston could support commercial sales at an annual run rate of $75 million later this year with the first two production suites, but could then over time be scaled up to support $750 million annually. Beyond the latter level, the implementation of the Flaskworks technology and a substantial amount of space still available for expansion at the 88,345 square feet Sawston facility should be able to support demand for the dendritic cell vaccine not only for glioblastoma but potentially for other solid tumors. This production capacity is a very valuable asset often not seen in emerging biotechnology companies.
• Interestingly, NWBO has been treating patients on a compassionate use basis in the UK at a London hospital site for some years. At this point in time, the facility can treat 4 to 5 patients per month. The importance of this is that it has allowed Northwest to deliver the vaccine in situations where there is not the homogeneity of patients seen in clinical trials; it is more real life.
• The status of the Sawston facility and the attitude of UK authorities toward facilitating breakthrough therapies suggests that approval in the UK could be the first in any world market. UK Prime Minister Boris Johnson recently made a speech in which he stated that having left the EU, the UK plans to be a leader in bringing new technologies and innovations to the world. Bear in mind that the UK was the first country to approve Pfizer/ BioNTech’s COVID vaccine
• One of the things that makes an approval decision easier for any regulatory agency is the dendritic cell vaccine’s modest side effect profile. Most cancer drugs are known for their toxicities that can sometimes be life threatening.
• The long time span since the data lock on the phase 3 trial in October 2020 is most likely due to logistical issues stemming from COVID restrictions and preparation for publication of the data in a major medical journal.
• I think that a complete failure in the phase 3 trial can be ruled out and the most probable outcome is that the dendritic cell cancer vaccine represents a medically meaningful advance in standard of care for glioblastoma multiforme. This is based on my reading of the blinded data from the phase 3 trial and phase 1/2 data, see Why I Believe there is a High Probability for Approval of DCVax-L ; anecdotal reports see Five Spectacular Patient Outcomes for Patients Treated with DCVax-L as Reported at ASCO ; and 51 patients whose cancer progressed before they could be enrolled in the trial, see Promising New Data Was Just Presented on DCVax-L in Recurrent Glioblastoma Multiforme.
• Still, the potential remains that there could be a black swan event which makes the data equivocal in some respect. I have no idea what this might be, but this is always a risk in clinical trials. Bulls should not yet be taking victory laps.
• In the case of GameStop, empirical evidence suggests that counterfeit shares created by illegal naked shorting meaningfully exceeded the 63 million legitimate registered shares outstanding. In this report, I also cite the case of Global Links which was an even worse case in which illegal naked shorts may have been ten or twenty times the number of legitimate registered shares. It is entirely conceivable that there are several hundred million counterfeit shares of Northwest Biotherapeutics that have been shorted.

Sawston UK Manufacturing Facility

Northwest recently issued a press release  that describes milestones reached in developing its Sawston UK facility required to meet regulatory requirements for production of its dendritic cell vaccine. Most investors focus almost exclusively on clinical data in judging the potential for a new drug to be approved. However, in regulatory applications there are also the equally important needs to specify the characteristics of a product, how it is to be manufactured and assays to assure that quality can be maintained from patient to patient. In the US, this section of a BLA filing is called Chemistry, Manufacturing and Control (CMC). Different nomenclature is used with foreign regulatory agencies but in this report, I will refer to these elements as CMC regardless of the regulatory agencies involved.

It is all too often the case that emerging biotechnology and even large biopharma companies are overly focused on the clinical trial side and pay less attention to CMC. Even if the clinical data supports approval, not infrequently regulatory agencies find CMC deficiencies that cause them to reject approval until the issues are fixed resulting in delays of a year or more. The press release describes in detail the sophisticated efforts that have been underway at Sawston for several years. It also touches on the problems that COVID caused. The takeaway message for me is that NWBO has carefully gone through the many, many steps needed to submit a thorough CMC section within its regulatory filings. Uncertainty on how Northwest would address CMC in its regulatory filings was one of my greatest worries. I am much relieved. Here is what NWBO stated in the press release.

“The facility is now in the Performance Qualification (PQ) stage, following completion of the Design  Qualification (DQ), Installation Qualification (IQ), and Operations Qualification (OQ) stages. Each  of these stages has taken many months of work. In the PQ stage, practice runs are conducted for  months and the performance data is collected to show that the operations meet all of the applicable  regulatory requirements (sterility, quality control testing, etc.). Those data then form a major part  of the application to MHRA (the British FDA) for certification of the first phase of the facility. The Company currently  anticipates that the PQ stage will be completed and the certification application will be submitted to  MHRA within approximately the next six to eight weeks.”

This disclosure is reassuring that approval probably will not be hung up due to incomplete CMC data. Obviously, there can be no absolute certainty, but it appears that NWBO has been diligent in this regard. Those of us who have followed the evolution of cell therapy understand that the manufacturing process is essential to success because the living cell is the product.

There were some interesting pieces of information in the release that along with a few assumptions allow us to estimate what level of commercial sales Sawston can support initially and in coming years:

• NWBO stated that it will be able to seek MHRA certification of the Sawston facility within six to eight weeks that could provide treatment for 40 to 45 patients per month. Remember that the vaccine is given with six injections in the first year of treatment and followed by an injection every six months thereafter for as long as the patient is benefitting from treatment and the drug is available. All doses are made at one time after surgery and cryopreserved. So what magnitude of sales might this level of production support?
• New cancer therapies routinely are priced at $300,000 to $600,000 or more per year of treatment. Not included in this price is the cost for handling their serious, often life threatening side effects. For example, the CAR-T drugs cost about $300,000 per patient for one year (which is a one-time only infusion of cells) but in some cases, the all-in cost including hospitalization and treating side effects can soar to $1,000,000. In contrast, NWBO has a good safety profile.
• Bear in mind that the vaccine will not cure all patients so it is certain that some percentage of patients will not receive six doses in the first year. NWBO hasn’t commented on its pricing strategy, but it seems possible that it will be priced on a per dose basis. This suggests that revenues per patient treated may vary as some receive all doses and others less.
• In an effort to be conservative although still reasonable, let’s assume an average price of $150,000, for all patients treated. This price level translates into annual sales of about $75 million from just the first two manufacturing suites, which occupy just a very small fraction of the 88,345 square foot building.
• Sawston has significant additional space available for expansion that allow the Company to scale up a large number of production suites beyond the initial two that have been established. NWBO indicated that it has 30 skilled personnel now trained and functioning. With this initial team on board and trained, the recruitment and training are now continuing to expand the team. When the Sawston facility is  fully built out and in full operation, it is estimated that it will employ in excess of 300 highly skilled  personnel, including many who may be trained through apprenticeships in the Sawston facility. Scaling up to 300 could conceivably increase production capacity tenfold allowing for annual revenues of perhaps $750 million.
• As the Flashworks technology is integrated into the manufacturing process in coming years, production can be even further scaled.
• Based on the above assumptions, NWBO should be able to stay abreast of patient needs if the dendritic cell vaccine penetrates much of the glioblastoma market. Also bear in mind that the vaccine technology is applicable to all types of solid tumors so there is the possibility of needing much more production to treat other solid tumors in coming years.
• Here is the bottom line. NWBO has developed a well thought out production plan. It is proceeding in stages or modules to manage the timing of the capital costs and to be flexible for developments such as implementing the Flaskworks system when appropriate. This is an impressive achievement for an emerging biotechnology company.

Here are some other observations based on the press release:

• The Company has been producing dendritic cell vaccine products in a GMP (clean room) facility in a London hospital that has a capacity of about 4 to 5 patients per month. This compassionate use program has been ongoing for perhaps 5 years. Don’t jump to the conclusion that NWBO has been treating 4 to 5 patients every month for 5 years. This is just the current capacity.
• NWBO hasn’t stated how many patients have been treated, but I am guessing that it might be around 50 patients.
• The data from these patients will not be a formal part of the regulatory filings, but regulatory agencies will certainly look at the data to help judge if these “real life” results from compassionate use help support the phase 3 results.
• One of the most important aspects of the compassionate use program is that it has allowed NWBO and physicians to develop real life experience outside the very structured clinical trial setting.
• I believe there is a strong probability that this dendritic cell vaccine will be a medically significant addition to standard of case for glioblastoma multiforme. For my detailed thinking see my report Why I Believe there is a High Probability for Approval of DCVax-L

Waiting for Release of Top Line Data

Since the company locked the data base for the phase 3 trial in October 2020, we have been anxiously waiting for the final data analysis. Like most investors, I thought that the data would be released before now. However, having read the comments on the effect of COVID restrictions on building out Sawston, I think that I very much underestimated the effect of COVID on the time required. This process involves interactions between statisticians, the scientific advisory board, key opinion leaders and certain physician participants in the phase 3 trial. Trying to do this all on ZOOM meetings and resolve differences of opinions would have been challenging. Investors have been presented with three possible, broad based scenarios that span the potential outcomes for the trial.

Scenario 1: If successful, the phase 3 trial is a landmark study in glioblastoma that would change standard of care, medical practice in glioblastoma. The Company would want the data to be validated and widely disseminated by publishing it in a peer reviewed major medical journal like the New England Journal of Medicine (NEJM) or Journal of the American Medical Association (JAMA). This would be a gold stamp of approval by leaders in the medical community. These journals will not publish a clinical study if the results were previously revealed in a press release. Hence, NWBO is likely diligently working with a medical journal to prepare a thorough article before making a press release commenting in an abbreviated form on top line results. I think this is the most likely scenario. If so, I would hope to see this article in April.

Scenario 2: The hedge funds who are heavily shorting the stock claim that the trial clearly failed and NWBO for some reason has not acknowledged this. Hedge fund trolls deluge investor chat rooms on a daily basis with this allegation. I give this virtually no chance of being the case. NWBO management has a legal requirement to release material information in regulatory filings. In this dour scenario, there is no incentive for them to delay release of the data.

Scenario 3: There could be a case in which there is compelling evidence of efficacy but for some reason, the data is not clear cut. This would be some type of black swan event. In this case, NWBO would go to great lengths to present the data in the most favorable way to regulatory agencies to show that there is still a very positive benefit to risk. I don’t think this will be the case, but it can’t be ruled out.

The GameStop Angle

For those of you who have followed my work, you will know that I firmly believe that certain hedge funds (the wolfpack) band together to launch short selling attacks on companies that can span several years. Northwest has been one of the most heavily attacked companies by this wolfpack. Key to this stock manipulation scheme is the use of illegal naked shorting that allows the wolfpack to counterfeit shares that in the case of NWBO could number in the hundreds of millions. I wrote a series of ten articles on illegal naked shorting that you may want to refer to in order to understand how Wall Street can create shares out of thin air without the knowledge and certainly without the approval of the affected company. See this link.

So you are probably asking how can I be so sure if the companies themselves can’t really track the creation of counterfeit shares. Well, it is based on a lot of anecdotal situations, each of which alone would just be curious, but in the aggregate provide a powerful indication that hedge funds and Wall Street trading desks routinely act in concert to exert considerable power (even control) over the price of a stock by overwhelming the market through selling counterfeit shares. There is one example that I would like to share with you that does show the power of this unholy alliance to create counterfeit shares. This is the case of Global Links.

Global Links was a company that provided computer services to the real estate industry. In early 2005, its stock price had dropped to a fraction of a cent. It had 1,158,064 shares registered and outstanding. At that point, an investor, Robert Simpson, decided to purchase all outstanding shares, He bought 1,158,064 shares in the open market at the prevailing price of $0.00434 for a purchase price of $5,205. He immediately took delivery of his shares and filed the appropriate forms with the SEC, disclosing he owned all of the company's stock. The day after he supposedly had acquired all of the company's shares, the volume on the over-the-counter market was 37 million shares and the following day saw 22 million shares change hands. This was all without Simpson trading a single share.

The wolfpack has brazenly operated for more than two decades without concern that anyone or anything could or would interfere with their stock manipulation schemes. This appears to have ended with the GameStop situation. Retail investors trading on Robinhood and communicating through Reddit combined with predatory hedge funds (I think the latter were more responsible than retail investors) to create a huge short squeeze in GameStop. The hedge fund Melvin Capital got butchered in this short squeeze. It suffered a 53% decrease in assets which had been about $12 billion before the squeeze. This indicates a $6.4 billion or more loss in January 2021 with an enormous short position in GameStop being cited as a primary reason.

There are 63 million registered and outstanding shares of GameStop. Melvin Capital has not released the data that would allow us to understand how many share of GameStop they were short. However, much of the $6.4 billion loss was attributable to this short position. It was widely reported in the media that the number of shares shorted was 140% of registered shares or 88 million shares, but I don’t know how this number was calculated. I have run scenarios that hypothesize that Melvin Capital might have been short 63 million shares, the equivalent of all registered shares outstanding, or possibly even more. If this hypothesis is correct, it could only happen if illegal naked shorting was heavily involved.

The wolfpack is no longer running free and wild on the plains of the stock market with no fear of predators. They have now become the hunted. The Robinhood crowd flush with eviscerating Melvin Capital and fellow hedge fund travelers of many millions and indeed billions of dollars are now stalking the wolfpack. If the phase 3 trial is successful, we could see a similar phenomenon with Northwest as with GameStop where frantic hedge funds are forced to cover at incredibly high stock prices. This would be poetic justice for the wolfpack.