Expert Financial Analysis and Reporting

Overview

The phase 3 trial of DCVax-L in newly diagnosed glioblastoma is continuing even though it has passed the 248 PFS events (mPFS is a primary endpoint) and has probably surpassed 233 OS events (mOS is an independent co-primary endpoint). Reaching either or both of these events is not an automatic stopping point for the trial. Rather it means that if assumptions on how DCVax-L plus SOC behaves in the trial as compared to SOC are correct, the trial will achieve statistical significance on both endpoints. While trials are often stopped when such event levels are reached, I agree with NWBO management that there are very strong reasons for not stopping and unblinding the trial.

Let me start by providing some important background information. Bristol-Myers Squibb recently presented updated date for Opdivo (nivolumab) from the CHECKMATE-017 and CHECKMATE-057 trials in advanced stage, non-small cell lung cancer (NSCLC) at the European Society for Medical Oncology (ESMO). These trials compared Opdivo to the chemotherapy drug docetaxel which Opdivo and other checkpoint inhibitors have since replaced as standard of care (SOC). The clinical results from checkpoint inhibitors are revolutionizing the treatment of cancer and are ushering in the new era of immunotherapies. The hope is that immunotherapy can largely remove toxic chemotherapy drugs from cancer treatment regimens. Because DCVax-L is also an immunotherapy, there may be some learnings from checkpoint inhibitor results even though the mechanism of action is quite different than DCVax-L.

One purpose of this note is give you an idea of the type of survival data that has so excited oncologists about Opdivo and other checkpoint inhibitors. In some very aggressive, advanced cancers, they provide a long term survival benefit over standard of care in a small but meaningful percentage of patients. I think we can use this as a benchmark to speculate on the type of outcomes that NWBO’s immunotherapy drug DCVax-L might have to achieve in its phase 3 trial in newly diagnosed glioblastoma to be considered a medical breakthrough on a par with the checkpoint inhibitors

I want to make very clear that the mechanism of action of DCVax-L is quite different from Opdivo although both stimulate the immune response to cancer. Also, advanced non-small cell lung cancer that is addressed in the CHECKMATE-017 and CHECKMATE-057 trials and newly diagnosed glioblastoma addressed by DCVax-L are very different diseases. The commonality is that both drugs are immunotherapies and that both cancers are very aggressive with short median overall survival expectations.

Opdivo Results in CHECKMATE-017 and CHECKMATE-057 Trials in Non-Small Cell Lung Cancer

The Opdivo results are what we have come to expect with immunotherapies which achieve therapeutic benefits very differently than chemotherapy drugs. Chemotherapy drugs are much faster acting than immunotherapy drugs. Effects on cancer mPFS usually can be seen in a matter of months and effects on mOS are also much faster. Importantly, there have been cases in which immunotherapy drugs when compared to chemotherapy have failed to show superiority on mPFS but were successful in showing statistical significance in mOS. It is also the case that it takes longer for the survival benefits to be seen. This was true of Provenge, one of the pioneers in immunotherapy drug development and we have seen the same phenomenon with checkpoint inhibitors.

With this in mind, let’s look at the results of CHECKMATE-017 and CHECKMATE-057.

• CM-017 enrolled patients with squamous NSCLC: 16% of Opdivo patients were alive at three years (21/135) versus 6% on docetaxel (8/137) (HR 0.62). Put another way, out of every 100 patients treated, 10 more Opdivo patients would be expected to be alive at three years than if they were treated with docetaxel
• CM-057 enrolled patients with non-squamous NSCLC: 18% of Opdivo patients were alive at three years (49/292) versus 9% of docetaxel patients (26/290) (HR 0.73). Out of every 100 patients treated, 9 more Opdivo patients would be expected to be alive at three years than if they were treated with docetaxel

Probable Reason Why NWBO has not stopped the Phase 3 Trial of DCVax-L

One of the most important takeaways is that the survival curve for Opdivo versus docetaxel widens over time. In CHECKPOINT-057, docetaxel actually showed a survival benefit versus Opdivo in the first 6 to 9 months. However, at three years Opdivo was markedly superior. This dramatically shows the importance of waiting for mature OS data before taking statistical looks and in my opinion explains why NWBO has not yet chosen to close the phase 3 trial of DCVax- and analyze the results. They want to clearly establish the survival tail.

I also want to reiterate that it is not infrequent that immunotherapy drugs when compared to chemotherapy fail to succeed on the endpoint of mPFS, but are successful in mOS. A primary endpoint of the DCVax-L trial is mPFS and the second primary endpoint is mOS; importantly both are statistically powered to show significance. This trial was designed over ten years ago and used a trial design that was tailored for chemotherapy drugs. Dr. Linda Liau, the lead investigator on this trial has said that this is probably not the correct trial design for immunotherapy drugs. It may not capture the long term survival tail that is the hallmark of these drugs as demonstrated in CM-017 and CM-057. This type of trial design can result in the trial being stopped before the survival tail is defined.

The design of the trial has another complication. The trial was randomized 2:1 for DCVax-L plus SOC versus SOC. This means that 221 patients initially received DCVax-L plus SOC and 110 initially received SOC. The trial design allowed SOC patients to cross over to DCVax-L if their cancer progressed. Importantly, it also allowed patients to remain on DCVax-L even if it was judged that their cancer had progressed. Overall in the trial 90% or more of patients received DCVax-L indicating that 76 or more of the patients who started on SOC were crossed over to DCVax-L and that only 34 or less patients in the trial received only SOC. I have been told that there are statistical ways of handling this cross over. I am not a statistician but this suggests to me that the calculation of mOS in the trial could be complicated and not clear.

NWBO management is blinded on the trial and has no more information on trial results for mPFS and mOS than you or I. However, they almost certainly recognize the uncertainty on mPFS outcomes in immunotherapy drug trials and the statistical issues with mOS. They also understand the importance of letting the OS data mature as was shown in CHECKMATE-057. I believe that NWBO is letting the trial run because they want to have firm data on the long term survival outcomes at three years or more for both patients initially treated with DCVax-L and those who crossed over to DCVax-L from SOC. Indeed, this could be the most important data set that the FDA looks at in their decision to approve the drug, probably carrying more weight than the mPFS and mOS endpoints.

What Would Be A Dramatically Positive Result for DCVax-L in the Phase 3 Trial?

I want to emphasize that until the phase 3 trial is unblinded that we have very limited insight into the trial results. Based on results from the phase 1/2 trial and the information arm of the phase 3 trial there is good reason to hope that the trial will be successful. Moreover, Dr. Liau has publicly commented that patients in the phase 3 trial appear to be living longer than would be expected had they received only SOC. Still, there is the real possibility that the trial could fail. The gods of clinical trials are cruel and sometimes trials fail due to unanticipated results or because of the conduct of the trial.

With these caveats in mind, what kind of results can we hope for in terms of the survival tail? The standard of care in newly diagnosed glioblastoma is surgery followed by radiation and the chemotherapy drug temozolomide. There is a good amount of data from other trials that shows that about 10-15% of patients are alive at three years. Remember that about 6% to 9% of advanced NSCLC patient treated with docetaxel were alive at three years. This suggests that newly diagnosed glioblastoma is roughly as aggressive as advanced NSCLC. Remember that about 9 to 10 more NSCLC patents out of every 100 treated were alive at three years than would be expected if they were treated with docetaxel. For DCVax-L to have a comparable effect in newly diagnosed glioblastoma the percentage of DCVax-L treated patients alive at three years would have to be 19% to 25%.

Could 19% to 25% of DCVax-L Patients Remain Alive at Three Years in the Phase 3 Trial?

I would remind you that in the phase 1/2 trial of DCVax-L in newly diagnosed glioblastoma that out of 20 patients treated, 10 (50%) were alive at three years. Also in the information arm of the phase 3 trial, of the 25 patients treated who were judged by independent review to not be rapid progressors or psuedoprogressors, 10 (40%) were alive at three years. These are small data sets, but they are encouraging that 19% to 25% or more of DCVax-L patients could survive at three years. If so, this would have to be judged as a medical breakthrough in newly diagnosed glioblastoma comparable or better than checkpoint inhibitors in other solid tumor types. Like the checkpoint inhibitors, the mechanism of action of DCVax-L could be effective in multiple (all) solid tumor types, not just glioblastoma.

It is also encouraging, as I previously noted, that investigators in the trial have indicated that patients in this trial appear to be living longer than would be expected. At ASCO in June, NWBO released unblinded data on the trial that supported this assertion. See my report, "Northwest Biotherapeutics: Why I Believe That the Phase 3 Trial of DCVax-L in Newly Diagnosed Glioblastoma Patients Has a Very Good Chance for Success."

Potential Key Catalyst is Upcoming

NWBO indicated at ASCO in early June and reiterated in a presentation on September 1 that investigators in the trial are preparing a paper discussing unblinded data from the phase 3 trial. I surmise that this would deal with how long patients in the trial are surviving. Because the data is blinded, we wouldn’t know if the patients received DCVax-L initially, crossed over to DCVax-L from SOC or were just on SOC. However because over 90% of patients in the trial received DCVax-L, we could reasonably conclude that if there is a meaningful increase in survival over what might be expected with historical SOC, that DCVax-L was likely responsible. The timing of this article is uncertain, but it is likely weeks from now.

Conclusion

I believe that the key data to look at in the DCVax-L trial is three year survival data. If the phase 3 data indicates that 19% to 25% of DCVax-L patients are alive at three years, it would be as dramatically positive as the results seen with Opdivo in advanced non-small cell lung cancer. It is my contention that the FDA could approve DCVax-L even if it failed to reach the mPFS endpoint and results for mOS were not clear. I think that if three year survival data shows that 9 to 10 more patients treated with DCVax-L are alive at three years than what has been seen with historical SOC results (remember this is what was seen with Opdivo in advanced NSCLC), that the FDA could approve the drug.

This is not to say that the primary endpoints of mPFS and mOS will not be achieved. Certainly, the phase 1/2 trials and the information arm crushed these endpoints. It is to say that the true measure of clinical effectiveness for DCVax-L is survival at three or so years. NWBO has decided to let the trial continue in order to have a clear insight into the survival tail. In this trial of 331 patients, the median time of enrollment was May of 2014 and the last patient was enrolled in November of 2015. This means that even the last person enrolled will have two plus year survival data when the trial is stopped and the data analyzed and the overwhelming majority will three years or more.

The FDA has shown much greater flexibility in approving new cancer drugs in the last few years. It has approved the checkpoint inhibitors Opdivo and Keytruda on the basis of small studies with end points of objective response or mPFS with no data on survival in some aggressive cancers. The data set for DCVax-L will be large and will have much data on survival. In the event of ambiguities in the two separate primary endpoints of mPFS and mOS, the long term survival that I am hypothesizing might be compared to historical SOC results and could be a key factor in the FDA’s decision on approval.

Investment Thesis

I continue to feel that the phase 3 trial of DCVax-L has a reasonable chance for success. So why is the stock selling at $0.18, has a market capitalization of $65 million and is teetering on the edge of bankruptcy? I have previously pointed out that I believe that NWBO has been the subject of a massive stock manipulation scheme as described in my report" Illegal Naked Short Selling Appears to lie at the Heart of an Extensive Stock Manipulation Scheme."I used to write on Seeking Alpha and I remember a hedge fund shill posting a comment on one of my NWBO articles saying that the wolfpack would make NWBO and its management so toxic that no one would touch the stock. They largely succeeded.

I pointed out in a recent article "Northwest Biotherapeutics: How Does DCVax-L Clinical Data Compare to the CAR-T Therapy Axi-Cel? (NWBO, $0.18, Buy)" that I believe that an unbiased observer in looking at the available clinical data would conclude that the data for DCVax-L is as promising as that for the CAR-T cells. However, the stock price is indicating that the phase 3 trial will almost certainly fail.

If DCVax-L is successful in the phase 3 trial, it will be one of the biggest surprises in the history of biopharma and we could expect an enormous turnaround in investor attitudes and stock price. I would point out that KITE was just purchased for $11 billion by Gilead and that Juno which is the number three player in CAR-T therapy has a $5 billion market value. It is reasonable to expect the market capitalization of NWBO to increase from $65 million with success in the trial. Perhaps further adding to the upside is a massive short position both legal and illegal. Some observers who have looked closely at trading in NWBO speculate that there may be 100 million naked shorts.

Once again, I want to point out that there is a reasonable chance that the phase 3 trial will fail and it is likely that NWBO would go bankrupt. The failure rate of phase 3 trials for both small and large companies is high and particularly so for paradigm changing products like DCVax-L. Hence, the downside in the stock is zero. If you choose to invest in NWBO, you must recognize that you could lose all of your investment. However, success in the trial could lead to a $5 billion (Juno like) or more market valuation. There are roughly 280 million shares and 90 million warrants outstanding so that a $5 billion market capitalization would lead to a stock price of $13 per share. A $1 billion market capitalization would result in $2.60 per share and $11 billion in $29 per share .Hence my buy recommendation.