Expert Financial Analysis and Reporting

Investment Thesis

This report is an update based on a number of recent events. I discuss encouraging long term survival results for DC Vax-L that is unprecedented in glioblastoma multiforme. I also go over the phase III trial progress for DC Vax-L and the compassionate use program that will proceed abreast of the phase III trial in Europe. For the first time, I analyze the pre-clinical trial results for DC Vax-L and the phase I/II trial that is about to begin. Finally, I go over financial issues.

I am encouraged by the progress made by the Northwest Biotherapeutics (NWBO) over the past year and maintain my Buy recommendation. I first began coverage in July of 2012. At that time it was a bulletin board company with $430,000 of cash on its balance sheet, $31 million of debt and $1 million of assets. Not surprisingly, most investors regarded the Company as being on a path to going out of business. Since the financial crisis of 2008, the Company had survived through doing small offerings nearly on a quarterly basis that resulted in the issuance of a large number of shares and warrants. If the balance sheet was not enough to give pause, Wall Street has had mostly bad experiences with companies involved in cancer vaccine developments and there was almost no institutional interest in the Company. Characterizing the situation as grim might be an understatement.

The catalyst for my interest was research that I was doing on dendritic cell cancer vaccines during which I came across Northwest Biotherapeutics and ImmunoCellular Therapeutics (IMUC). Both were developing dendritic cell cancer vaccines for glioblastoma multiforme, the
most aggressive form of primary brain cancer. In small phase I trials of 20 patients given NWBO's DC Vax-L and 16 patients given IMUC's ICT-107, striking median overall survival and median progression free survival results were achieved. Beyond the fact that both use antigen loaded dendritic cells, these products are actually quite different. That both approaches resulted in impressive results suggested to me that there could very well be something different and powerful in the dendritic cell cancer vaccine approach. This overcame my initial skepticism/ concern that these results were reached in small trial population sizes.

The technology and clinical results intrigued me, but there remained the considerable concern that the Company was teetering on the brink of insolvency. However, NWBO had one thing going for it that most biotechnology companies lack. The CEO, Linda Powers, also manages the Toucan venture capital funds. Over the period 2008 to 2012, she personally, her Toucan funds and a handful of non-traditional investors kept the Company alive. I felt that they would continue to do so if necessary. However, interest in small biotechs was coming back and the financing window was beginning to open. After discussions with the Company, I felt that they had a solid plan to restructure the balance sheet and the opportunity to do so.

As I did due diligence on the Company, I was surprised that the Company through all of its financial turmoil had been able to keep a phase III trial for DC Vax-L alive. It had also achieved partnering agreements with Fraunhofer in Germany and King's College in London that achieved several important things. They provided a third party validation of the technology which bolstered my confidence. Importantly, the prestige and acumen of these two institutions allowed NWBO to develop a strategy to develop and manufacture DC Vax-L in Europe, something that it could not have done on its own. It also set the stage for a compassionate use program for DV Vax-L that could broaden clinical experience and potentially create revenues and operating income that could help in financing the Company.

Management has made some impressive moves on the financial side over the past year. Through a restructuring, it eliminated all of the debt on its balance sheet and also was able to achieve listing on NASDAQ. I estimate that it currently has about $9 million of cash on its balance sheet and combined with a $5.5 million grant from the German government for DC Vax-L development in that country has enough cash fund operations through 3Q, 2013. The balance sheet is not a tower of strength, but compared to what it looked like when I started covering the Company, the improvement is extremely dramatic. NWBO will almost certainly have to finance again in 2013, but its access to capital through its NASDAQ listing and an S-3 shelf registration that allows for the issuance of up to $90 million makes it much easier to raise capital.

On the clinical trial front, the Company is recruiting patients in the phase III trial for DC Vax-L in the US, about to begin recruitment in the UK and awaiting regulatory approval to begin in Germany. It has given guidance that recruitment will complete in 2Q, 2014 and that topline results will be available in 4Q, 2014. Somewhat unexpectedly, the Company has a new dendritic cell cancer vaccine, DC Vax Direct that is beginning a phase I/II trial in inoperable solid tumors. This is an open label trial so that tumor regression data may be available on a number of patients in 2H, 2013. Ths Company has FDA approval, assuming positive outcomes in phase I, to proceed seamlessly into a 24 colorectal cancer patient phase II stage of trial in 1H, 2014. DC Vax Direct adds a new dimension to the investment outlook.

Long Term Survival Results for DC Vax-L Are Encouraging

Northwest Biotherapeutics recently announced that a second patient of the 20 treated in the phase I/II trial of DC Vax-L had passed the ten year cancer free survival endpoint. The other patient has passed 11 years. Beyond these two 10-plus year survivors, the long-term follow-up data on other patients from the Phase I/II trials shows a long tail of survival. The median survival of the 20 glioblastoma multiforme patients treated with DCVax-L was 3 years (in contrast to only 15 to 18 months median overall survival expected with standard of care). Seven of these patients reached or exceeded 4 years of survival, and five have reached or exceeded 6 years of survival. The expected five year survival for glioblastoma is 3% so that based on historical data only one patient of these twenty might have been expected to survive for five years.

These long term survival results are what has so intrigued me and caused me to be positive on Northwest Biotherapeutics' chances of success in its phase III trial despite the uncertainty arising from the small number of patients treated so far. I believe that there is a need for new approaches to cancer. I am always struck by press releases from oncology companies touting small increases in overall survival. Indeed, four to five months improvements in median overall survival for patients with metastatic disease are considered quite clinically significant and can lead to large blockbusters products. Johnson and Johnson's (JNJ) Zytiga and Medivation's (MDVN) Xtandi in metastatic prostate cancer are two recent examples. Roche/ Genentech's Avastin for colorectal cancer also comes to mind. In glioblastoma, Avastin was approved for second line therapy on the basis of progression free survival only and with no survival benefit.

Let me hypothesize why these newer drugs and older chemotherapy drugs don't produce more striking survival results. First of all, the chemotherapy drugs are essentially poisons. Indeed, one of the major classes of chemotherapy is alkylating agents. Mustard gas, which was used in chemical warfare during World War I, belongs in this class. Widely used and related alkylating agents are cyclophosphamide, melphalan, chlorambucil, ifosfamide and carmustine. In the late 1940s, drugs of this class produced striking but temporary positive results in childhood leukemias and ushered in the age of chemotherapy. The mechanism of action is to obstruct dividing DNA so that they hone in on and kill rapidly dividing cells like those found in cancer although they also attack normal cells in the body. The therapeutic aim is to give the maximum dose that will kill as many cancer cells as possible without killing the patient.

Drugs like the monoclonals (Avastin and Rituxan are examples) and other targeted therapeutic drugs which target a particular cellular pathway of involved in cell division or an essential cell function are the overwhelming focus of current drug development. Their goal is to target and shutdown a mechanism of action that is essential to cancer cell division or function. This can lead to a short term regression or slowing of the tumor. However, cellular signaling pathways that result in the rapid division of cancer cells are characterized by numerous parallel and redundant pathways. Even as cancer cell growth can be temporarily slowed by knocking out one pathway or function, cancer cells that are less dependent on that pathway or function survive and begin to re-establish the cancer. This is one type is what is called a cancer escape variant.

What so interests me about dendritic cell cancer vaccines is that they may be able to suppress cancer for much longer periods of time or potentially cure it. We have limited data to look at, but both Northwest's DC Vax-L in 20 patients and ImmunoCellular's ICT-107 in 16 glioblastoma patients have produced striking survival benefits. These products both use dendritic cells loaded with cancer antigens although the number and types of antigens that are loaded into the dendritic cells are quite different. ICT-107 loads six pre-selected antigens while DC Vax-L is exposed to tumor lysate (ground up tumor tissue) which presumably loads it with the specific antigens produced by the tumor. I regard these as two different products that are linked by the overriding technology of dendritic cell vaccine therapy. That such different products produce comparable results lends validation to the hope that autologous dendritic cell vaccines may be a new approach to treating cancer.

Why might dendritic cell cancer vaccines produce more durable results than chemotherapy, monoclonal antibodies and targeted therapy? The immune system of the human body in addition to fighting off infections caused by pathogens also attacks and destroys aberrant cells like those of cancer. Cancer takes hold when it finds a way of evading the immune response or the immune response otherwise becomes ineffective. Dendritic cell cancer vaccines may restore the ability of the immune system to identify and destroy cancer cells. An important difference between dendritic cancer cell vaccines and other cancer therapies may be that memory immune cells are created during the initial treatment that recognize the cancer if it begins to regrow and launch a new immune response. This might be the reason that we are seeing these long term survival in some patients.

Phase III Trial Enrollment of DC Vax-L

Northwest Biotherapeutics is now enrolling a 312 patient phase III trial in glioblastoma multiforme. The Company will enroll patients in the US, Germany and the UK. Interestingly, 33 patients in the US began the trial in the 2008 before enrollment in the ongoing trial was temporarily suspended due to the financial crisis. With the recent financial restructuring and capital infusions, the trial has now been restarted. Anticipating your question, the results for these 33 patients remain blinded.

The US part of the trial is now enrolling and the immediate focus is on getting the UK phase III trial enrollment started. It appears that phase III trial enrollment could begin soon. The Company recently announced that the National Institute for Health Research (NIHR), which is part of the UK's National Health System, has designated the phase III trial of DC Vax-L as a national priority. This means that the trial sites will receive both financial and operational support, such as funding for additional staff such as nurses, to accelerate the trial. The NIHR also oversees the performance of the sites, and imposes penalties on sites if there are shortfalls such as lags in enrollment.

The Company is hopeful that approval from the German government for the Phase III trial to proceed in Germany could also occur soon. With the help of Fraunhofer, it has put together a prominent list of hospitals that are ready to start the trial as soon as regulatory approval has been received. Manufacturing has already completed the lengthy regulatory process in Germany to become certified and enrollment will begin as soon as regulatory approval is granted. Management notes that there are a large number of US trials enrolling glioblastoma patients creating competition for patients. It is much less competitive in Europe even though there are an equal number of glioblastoma patients.

The Company has given guidance that enrollment in the trial is expected to complete by 2Q, 2014. After that, the trigger for stopping the trial will be the occurrence of 110 events which are defined as disease progression (i.e., tumor recurrence) or death. Northwest believes that this stoppage point will be reached 3 to 5 months after the completion of enrollment or by 4Q, 2014. Topline data on the study's primary endpoint of median progression free survival will be published shortly thereafter. This study has an interesting design feature in that all patients who progress, including those on drug, will be started on a new course of DC Vax-L therapy as if they were beginning the trial. In essence, the treatment schedule "reboots" and starts over again when any patient experiences tumor recurrence, regardless of whether they are in the treated arm or they are in the control arm of the trial and cross over to receiving the treatment after the recurrence. This prevents the unblinding of the control patients who have failed and also keeps them in the trial as opposed to going to some rescue therapy.

The gold standard primary endpoint of cancer drug trials is median overall survival and some investors ask if median progression free survival will be sufficient for approval of DC Vax-L. The FDA has accepted progression free survival as a registration endpoint for drugs dealing with rapidly progressing disease and this could be the case with glioblastoma multiforme. I would point out that there is a secondary endpoint in the trial of overall survival and that the Company has indicated that the trial is powered for the overall survival endpoint as well as the progression free survival endpoint.

The question is if the results are good, will the regulatory agencies in the EU and US approve the drug and of course the answer depends on how good are the results. The phase III study is powered to show statistical significance if the difference in progression free survival of DCVax-L added to standard and care versus standard of care is one third of the seventeen to nineteen months shown in phase I. The company hasn't disclosed the p value that would result from this size of trial if the difference in median progression free survival is six months as the powering assumes. My guess based on other cancer drug trials is that this would produce a p value of about 0.01. It is possible that the FDA would grant approval based on one phase III trial. It is also possible that the FDA would want to see overall survival data and delay action on approval until the data matures to the point that an effect on survival can be determined. They might also want a confirmatory phase III trial.

There is another critical element to gaining approval for a new drug and this is the Chemistry, Manufacturing and Control ("CMC") Section of the BLA (the application for product approval). The FDA wants the manufacturing process used in the Phase III clinical trial to be virtually the same as the one that will be used in commercialization. This means that the manufacturing facility, the product ingredients, the production processes and methods and all of the quality control measures must all be the same in the Phase III trial as they will be in commercialization. This is especially the case with the complex products such DC Vax-L and ICT-107 that are based on living cells.

Northwest Biotherapeutics has placed major emphasis on manufacturing through its sister company Cognate BioServices. Investors can draw some comfort from a couple of factors. One is that the CMC aspects have passed muster at the Phase III trial level of rigor by regulators in two countries: the US and UK. A second factor is that there has been third party validation of the manufacturing process at both King's College in London and Fraunhofer in Germany. Fraunhofer has completed all of the regulatory certifications in Germany, and Kings College has nearly completed all in the UK as well. This is a strong indicator that the manufacturing process will support regulatory approval.

Those of you who have followed my past work on ImmunoCellular and Northwest know that I have not taken the approach that one drug will be the winner and the other the loser. Their two drugs produced nearly identical results on overall survival in the phase I trials which were the basis of the current phase III trial of DC Vax-L and the phase II trial of ICT-107. Northwest's Phase I trial did show considerably longer progression free survival than did IMUC's Phase I trial but median overall survival was comparable. However, I do think that Northwest has a significant edge on manufacturing. In its current ongoing phase II trial, ICT-107 was produced until sometime in 2H, 2012 in a GMP facility at the University of Pennsylvania and then production was switched to a facility at the NeoStem (NBS) subsidiary PCT.

In the event that ICT-107 shows impressive results in the 120 patient phase II trial now underway and that is scheduled to report results in 4Q, 2013, could it be approved at that time? I think that there could be a problem on the manufacturing side. The FDA would have an issue that the phase II trials results were based on production by two different parties (initially a university, and then a contract manufacturer) at two different GMP sites, especially if there were any process changes or other changes in connection with transfer of the manufacturing from the academic to the commercial party. For most products this situation would almost certainly result in the need for a phase III trial in which all of the manufacturing is done in the same way, by the same party using one GMP facility. I also think that NWBO has moved significantly ahead of IMUC on setting the stage for European approval with its establishing manufacturing capability in the UK and Germany. NWBO has been implementing its two continent strategy for nearly three years while IMUC has focused clinical development in the US.

Compassionate Use in Europe

Because of its two continent strategy, NWBO is able to provide DC Vax L on a compassionate use basis in the UK to patients with brain cancer who are not eligible for the trial can self-pay for the drug. Compassionate use in the UK has been open since last year and some initial patients have apparently been enrolled. The Company is waiting or a decision from the German regulatory authorities. The regulatory decision to enable the Phase III brain cancer trial and this approval will may allow compassionate are based on separate data submissions and could be resolved months apart.

DC Vax-L has been given on a compassionate basis to a small number of individuals over the course of the last few years in several types of cancers in addition to glioblastoma. Northwest has taken a very low profile on discussing compassionate use as it did not want to give the impression that it was somehow skirting around the formal clinical trial pathway. I have heard a report, not from the Company, that indicated a striking result for DC Vax-L in Merkel's cell carcinoma, a skin cancer more aggressive than melanoma. Assuming approval of the Company's compassionate use program in the UK and Germany, I think we will hear a good deal more on compassionate use experience and also on the number of patients on compassionate use. This could also lead to a revenue line for DC Vax-L on the income statement, beginning sometime in 2013.

DC Vax Direct

DC Vax Direct is a new pipeline opportunity that has popped rather suddenly on the investment scene and I know that along with many other investors, I have paid limited attention to the product. As I began to do some basic research on the product, I have become more interested. This product is based on injecting a patient's partially mature dendritic cells directly into a tumor lesion where they pick up tumor antigens in vivo. This differs from DC Vax-L in which antigens are loaded into dendritic cells ex vivo before the product is intra-dermally injected back into the body.

Past experience with products using a similar concept to DC Vax Direct, i.e. introducing dendritic cells not pre-loaded with antigens, have produced disappointing results. Dendritic cells in the body go through a maturation process in which they differentiate from monocyte precursors through various stages of maturation until they become mature dendritic cells. During the maturation process, immature dendritic cells pick up antigens from the tumor (in the case of cancer). They then differentiate into mature dendritic cells that are capable of displaying the antigens to other agents of the immune system.

The Company believes that it understands the reasons for past failures. Northwest believes that the key to efficacy is identifying at what point the immature dendritic cells are most capable of both taking up antigens and displaying them. The cells in DC Vax Direct are partially mature dendritic cells somewhere in the maturation stage between monocytes and mature dendritic cells. The Company believes that prior development efforts used cells that were either too immature or too mature. It believes that it has identified a dendritic cell maturation stage that will work. This requires both precision and control of the manufacturing process in order to consistently replicate this batch after batch.

DC Vax Direct will begin a multi-center phase I/II trial in 2Q, 2013. This is an open label trial and efficacy will be measured in terms of tumor regression (shrinkage or elimination) that is expected to occur fairly rapidly (within a month or two following administration) if it is going to occur. Since the trial is not blinded, the Company can release data from this trial in any way that it determines -- even on a patient by patient basis. This may mean that there will be some meaningful, if anecdotal, data released in 2H, 2013

This is a phase I/II trial which will begin with a phase I component that will escalate the dose of DC Vax Direct. For most oncology drugs, phase I is intended to determine the maximum tolerable dose that can be given before unacceptable, dose limiting side effects occur. If DC Vax Direct is comparable to the three other dendritic cell therapies- Dendreon's (DNDN) Provenge, ImmunoCellular's ICT-107 and Northwest's DC Vax-L, it will have very modest side effects so that the evaluation of different dose levels will be mainly focused on determining therapeutic efficacy rather than the maximum tolerated dose.

The primary goal of phase I will be to determine the correct number of cells to administer. Dosing will start at 2 million cells per dose and will subsequently be escalated to 6 million and finally 15 million cells. In conventional drugs, there is usually an increase in efficacy with increased dose, but this may or may not be the case with immune therapies. In the case of DC Vax-L, doses of 1 million, 5 million and 10 million cells were tested. Efficacy resembled half of a bell shaped curve in which the 1 and 5 million doses were about equally effective and efficacy actually decreased at 10 million cells. There are several views about why this may be the case, including that administration of larger numbers of cells all at once creates a crowding effect in the area of the injection site, which interferes with optimal functioning of the cells.

Phase I will enroll patients having a number of different types of inoperable solid tumors and will go through cohorts of about six patients each. Many of these patients will be ones whose cancers have metastasized to the point that surgical excision is not feasible or is thought to be futile. These patients will be given escalating doses of cells going from 2 million to 6 million and then 15 million. The treatment regimen calls for treatment on day 0, week 1, week 2, week 16 and potentially week 32 depending on patent response. The Company believes results in most patients will be seen by week 8 or 16.

The Company has indicated that it is aiming to enroll at least a minimum number of patients for each of four cancers, plus an additional group of patients with miscellaneous diverse cancers. So, the trial will aim to treat six patients with liver cancer, six with melanoma, six with pancreatic cancer, and twelve with colon cancer plus six miscellaneous. There will be two key variables in the trial, the number of cells received by the patients and the type of cancer they have. The dose of dendritic cells given for each cancer will have a degree of randomness.

The phase II stage of the trial will proceed as soon as the Phase I stage is done - the Company does not have to go back to FDA to start phase II. The Phase II stage as now planned will focus on 24 patients with colon cancer who will be given the most effective dose as determined in phase I. The endpoint of the trial will be tumor regression which has been the most frequent basis upon which accelerated product approvals have been given by FDA. The injection of cells is image-guided directly into a lesion of the cancer. Bear in mind that these tumors are inoperable so that they may have widely metastasized throughout the body, including to the brain. The injection can be given at sites of primary tumors or at metastases or both. There will be two valuable observations that can be made at the end of the trial. One will give a glimpse into or perhaps proof of principal as to whether DC Vax Direct works in various solid tumors. The other will be a meaningful amount of data in 36 colon cancer patients that could be the basis for a phase III trial design.

The Company believes that it will see some initial patient results on an ongoing basis in Q3 and Q4 of this year from the phase I component of the trial and could have results for the phase II component by 2Q, 2014. Enrollment of patients with inoperable tumors is expected to be relatively rapid. Indeed, the Company says that it has been flooded with patient and physician requests to participate in the phase I stage. They anticipate rapid enrollment and tumor shrinkage could be seen a month or two after treatment begins.

The Company is very excited about results seen in pre-clinical mouse studies, but there have been no studies as of yet in humans. Based on past experience, investors are very cautious or even cynical about extrapolating animal data into humans. As the Company readily acknowledges, curing cancer in mice has been much easier than curing cancer in men. Skeptics and even optimists will ask why the experience with DC Vax Direct could be different.

The pre-clinical studies were done in mice which were injected with tumor cells to cause cancers. When treated with DC Vax Direct, very consistent and impressive performance was seen across multiple tumor types; 80% to 100% of the animals in the various test groups eradicated all of the tumors in their body. These included large tumors relative to body weight. After these mice were successfully treated, 60 days later they were re-injected with tumor cells and interestingly the cancers did not re-establish which suggests that there was immune memory. If human results approach what was seen in pre-clinical, it would be extremely encouraging.

Financial Issues

The Company recently raised $9.3 million net, in a registered direct deal with one healthcare dedicated institutional buyer. There were 2,343,421 million shares sold at $3.90 along with 937,368 warrants exercisable at $4.29. The buyer has not been disclosed but a subsequent SC 13-G filing showed that Sabby Management owned 2,564,103 shares, which is 8.6% of the 29,704,520 shares that are outstanding exclusive of warrants and options. This suggests that Sabby was the buyer in the deal and has accumulated an additional 220,682 share exclusive of the offering. This deal was a quickly executed, overnight registered direct offering from the S-3 shelf registration. It was executed without the disruption that invariably results from a marketed deal. The offering was done at $3.90 on April 17 and the stock closed at $3.77 on April 18 and $3.84 on April 19. There remains $90 million outstanding on this shelf.

NWBO ended 2012 with $7.3 million of cash plus $5.5 million of funding to be drawn from a grant by the German government, giving it effective cash resources of $12.8 million for 2013. The Company has not released 1Q, 2013 results but I estimate that it will show less than $1 million of cash which assumes a 1Q, 2013 burn of about $6.5 million. This $9.3 million infusion will give the Company about $10 million of cash and taking into account the $5.5 million, Northwest is estimated to currently have total cash resources of about $15.5 million. Again assuming a $6.5 million burn rate in future quarters, this will carry the Company until sometime in 3Q, 2012, depending on the extent to which the Company chooses to accelerate its clinical trial programs. It will almost certainly have to raise more cash in 2H, 2013. The Company could have raised substantially more money at the recent offering, but did not want to issue more shares than were necessary to initiate the DC Vax Direct trial (the focus of that recent financing). It believes that the large number of upcoming catalysts as described previously in this report will support the current price and hopefully lead to a price increase.