Expert Financial Analysis and Reporting

Overview

The naming of five distinguished scientists with extensive knowledge and expertise in immune-oncology to Northwest’s scientific advisory board is the first of what I hope will be a number of steps that Northwest will take to fight back against a massive short selling attack on the Company. This has destroyed the stock price and the short sellers seem intent on driving the Company into bankruptcy. NWBO has been waging a courageous but difficult fight for its survival against an extremely powerful and malevolent group of hedge funds who have banded together to attack the stock. (I refer to this group as the wolfpack.) In this report I provide an overview and speculate on how NWBO may yet against great odds still manage to fund key clinical trials which, if successful, could lead to very meaningful upside for the stock.

My View of Northwest Biotherapeutics Technology

Dr. Raymond Pazdur is Director of the FDA's Office of Oncologic Drugs and one of the most influential people in the world on drug development. In a recent interview with Fortune magazine, he admonished the pharmaceutical industry for spending so much time and money on developing me-too drugs which while they have a very high probability for success in clinical development and resultant regulatory approval offer only modest incremental benefits to cancer treatment. He urged the industry to push the envelope and go for breakthrough paradigm changing treatments.

I couldn’t agree more with Dr. Pazdur, but think of this from the standpoint of people employed in research departments at major pharmaceutical firms. With a me-too strategy, they are likely to develop a drug that will get approved and generate revenues. It is a high risk career decision for them to spend three, four or five years on a really innovative drug knowing that the probability for failure is high. This is why most of the paradigm changing technologies usually (always) come from small biotechs where entrepreneurs are willing to take the risk because the upside is so enormous. The big drug companies will acquire rather than develop breakthrough therapies. A classic example is Bristol-Myers which is now the world leader in developing checkpoint modulators (Opdivo, Yervoy). This technology was obtained by acquiring Medarex.

For those of you who have followed my work on Northwest Biotherapeutics, I hope that you will have come away with two key thoughts. The first is that dendritic call cancer vaccines have the potential to be a major advance in immune therapy as important or more so than checkpoint modulators (Opdivo, Keytruda, et al) and CAR-T therapies under development by Kite, Juno, Novartis, et al. I know that based on the current distressed situation that NWBO finds itself in, this sounds like an outrageous statement, but take a quick conceptual step back.

Northwest’s technology is based on removing monocyte cells from the body, nurturing these cells into dendritic cells, priming them with antigens from a patient’s own tumor and then re-injecting these cells back into the patient. The dendritic cell orchestrates the response of the immune system to cancer mobilizing the key cells of the immune system such as T-cells and B-cells. Investors have become mesmerized by immune drug therapies like the checkpoint modulators Opdivo and Keytruda and the CAR-T products. However, it is very important to understand that these drugs have a more narrow focus in that they only manipulate the immune response of T-cells. Let me use a football analogy to illustrate. The dendritic cell is the quarterback of the immune system and T-cells are something like wide receivers. In football, the offense is built around the quarterback and the success of the wide receivers is based on the actions of the quarterback. The dendritic cell can potentially orchestrate T-cell responses as well as the response of almost all of the cancer fighting cells of the immune system instead of just one component. It seems reasonable to hypothesize that the broadness of effect of the dendritic cell technology could surpass that of the checkpoint modulators and CAR-T cells in treating cancer. This is the type of approach that Dr. Pazdur is encouraging the industry to take.

I have never claimed that NWBO has proven that its DCVax-L and DCVax Direct vaccines have created clinical evidence that establishes that they are effective therapies for certain cancers. This remains to be done, but they have shown extremely promising signals of activity as have dendritic cell vaccines developed by other companies such as Dendreon (actually received approval of Provenge) and ImmunoCellular’s ICT-107 that is in a pivotal phase 3 trial. There is strong evidence of meaningful biological activity of dendritic cell vaccines against certain solid tumors. In addition, these cells have been shown to be benign, without toxic side effects, in comparison to chemotherapy, checkpoint modulators and CAR-T cells.

I know that it is often the case that pioneers in an emerging field like NWBO are not always the winners. It often takes many years or decades to solve the complexities of a biological approach. Pioneers such as NWBO are sometimes the foundation on which major advancements are made. Biology is bewilderingly complex and new technologies almost always run up against unexpected and formidable technical challenges. This was certainly the case with monoclonal antibodies that stumbled in the 1970s and 1980s before becoming the driving force behind world biopharma industry today. It has even more so been the case with gene therapy which is only now returning to research prominence following a decade long hiatus resulting from the death in September 1999 of a patient (Jesse Gelsinger) in a gene therapy trial. There is a real risk for Northwest that it blazes the trail for a major advance in dendritic cell cancer vaccine therapy that paves the way for others.

One other very important thing I would add is that in the case of cell based therapies such as dendritic cell cancer vaccines and CAR-T cells, the product is a living cell. For drugs based on organic molecules that we are most familiar with, manufacturing is just a technical step(s) needed to make the molecule in large quantities. In the case of living cell therapies, the manufacturing process for a living cell is the product. Herein, NWBO has developed very important manufacturing technology and expertise that affords an important competitive advantage.

The point of all of the previous arguments is that this is a technology that needs and warrants nurture, support, respect and financial support. Developing paradigm changing technologies is the essence of what has enabled biotechnology to produce many dramatic new products to the market and the promise of many more.

The Short Selling Attack on Northwest

It is a paradox that investors have showered way over $1 billion of capital and awarded market capitalizations of billions to the CAR-T companies like Kite and Juno and have disdained investments in Northwest and ImmunoCellular Therapeutics. In my mind, the signals of activity seen in the data created by the dendritic cell vaccines of NWBO and IMUC warrants the same type of respect and support, but they have been the subject of investor indifference or disdain. Why is that?

The second thing that you will have come to understand if you have followed my work is that I believe there is massive manipulation of stocks by hedge funds; the market is rigged. Sometimes the scam is to drive stock prices higher as was the case with Marin Shrkeli’s Kalo Bios escapade. However, most of the manipulation is on the short side. I believe that manipulation of stock prices by wolfpacks (groups of hedge funds working in concert to drive the stock price down) is a large and highly profitable criminal scheme that adversely affects hundreds of small and medium sized companies. I think that wolfpack profits are measured in the tens of billions of dollars annually.

-Resources of Hedge Funds are Staggering

The hedge funds active in this criminal scheme have tremendous resources that enable them to use sophisticated trading tools for stock price manipulation. Using illegal naked shorting, high frequency trading and dark pools, they can often dictate the price of a stock. Hedge fund managers sitting in their offices in Connecticut and in New York City are in fact, often the determinants of stock price as their trading tactics eclipse fundamental issues affecting the Company. Ominously, they have huge technological advantages relative to the SEC and Justice Department so that the enforcement agencies have difficulty understanding or even monitoring what is going on. Although this scheme is widely recognized by investors, there has been no governmental move to stop it.

In addition to a huge technological advantage, the wolfpack is expert at manipulating public opinion to create fear, uncertainty and doubt. I think that they can control prices with their trading power alone, but shaping sentiment negatively is synergistic and creates a cover for their illegal trading activities. The wolfpack has the resources to hire very bright people or consultants with great technological expertise. We all understand that new technologies and drugs have uncertainties so that a sophisticated person can spin a positive outcome negatively if it is in the self-interest of the wolfpack. Their aim is to fashion seemingly compelling counter-arguments that undercut the arguments of supporters of a stock. Commonly, they make blatantly false statements. They are expert at making good news appear to be bad. Hiring sophisticated employees and consultants extends beyond science to areas such as statistics, accounting, law etc.

-Clearly Illegal Activity Has Been Brought to My Attention

The technical trading and intellectual skills that the wolfpack brings into play are formidable, but are only part of what goes on. Because of my writing on this manipulation scheme, I have become somewhat of a poster board for companies who have been attacked by the wolfpack and some of their stories are chilling as shown below. I have heard allegations that:

• Management e-mails have been hacked to get inside information.
• Confidential data held by CROs pertaining to results in clinical trials has been hacked.
• One CEO reported that he went in to work over a weekend and watched incredulously as some unknown person moved the cursor over his computer screen opening files and e-mails.
• Scientists involved in clinical trials have been bribed to get inside knowledge on clinical trials.
• It was alleged to me by more than one company that the data in a clinical trial was manipulated so that data in the control arm of a clinical trial was altered so that the control group performed much better than expected. In these cases, the drug performed as expected but the trial failed because of the unexpectedly good results in the control arm. One CEO actually told me that a hedge fund manager actually bragged about doing this.
• The FDA is sometimes compromised. An FDA employee involved in the review of a drug made negative tweets about a drug while it was under FDA review. These were intended to reinforce negative tweets on the drug from a prominent blogger with close ties to the wolfpack community. The motive is unknown, but certainly was inappropriate and probably illegal. Working in such close concert with the blogger on Twitter raises questions as to whether some FDA employees have been compromised.
• Alarmingly, a former FDA supervisor was just found guilty of insider trading. He obtained information from a former colleague and passed it on to a hedge fund. This is a shocking example of hedge fund practices.

-Social Media is an Important Hedge Fund Tool

The wolfpack is very expert at using the internet and social media to shape public opinion. I believe that in the case of many bloggers with significant followings that much of their content comes from short sellers and in many cases, their reports are cut and pasted from reports written by the short sellers. The wolfpack invariably assigns one or more persons to chat room message boards to plant negative arguments and to try to unfailingly spin comments from other participants in a negative way. The broadly followed Seeking Alpha website has been a great boon for short sellers. Its editorial policy allows anonymous short sellers to issue reports that attack a wolfpack company target without sophisticated editing of the reports or making an effort to allow companies to counter serious allegations concomitant with or even after publishing of the report.

-The Strategic Plan for a Wolfpack Attack

There seems to be a standard playbook that hedge funds follow.

1. In selecting a target, they prefer small companies that are not well covered by Wall Street analysts and not broadly held by large institutions.
2. They look for a negative issue or uncertainty to exploit. A company that has experienced a setback in a clinical trial or in marketing a drug attracts their attention as does a weak cash position that indicates that the Company will need to finance.
3. Having selected a target, they begin the trading manipulation of the stock and also bring their associated blogger and social media strategies into play. There results a non-stop string of negative reports and the concomitant weakness in the stock from the trading component of the scheme reinforces the negatives raised even as is so often the case that they are contrived and spurious.
4. Sometimes sophisticated and arcane arguments are made. At other times, the report makes a ridiculous statement. For example, it was alleged that the immune response and signal of possible activity against inoperable solid tumors seen from the phase 1 DCVax Direct trials, resulted from sticking the needle in a tumor and not the cells in the vaccine. The argument was that the syringe was responsible, not the vaccine. The truth or even elegance of arguments doesn’t really matter, it is the stream of unending negative reports that is key.
5. No matter what kind of news is press released, it is portrayed as negative. Making good news appear to be bad is a particular skill set. Invariably, heavy shorting to drive the stock price down is used to reinforce the negative spin.
6. Ferocious attacks are made on managements in an effort to make the managements appear to be defrauding shareholders. This is kind of like John Dillinger making Melvin Purvis the bad guy. Linda Powers has been the subject of numerous such allegations.
7. Next come the securities and tort lawyers who seem to coordinate with the attack to launch class action suits against the Company. They oftentimes cite the writing of bloggers associated with the wolfpack as a reason for the class action. In one case that I recall, an attack article from a blogger was published in the morning and an effort to initiate a class action suit based on it was filed in the afternoon. These suits seldom go to trial. The law firms essentially extort a settlement from the company because it is cheaper to settle than to absorb the legal fees that would be necessary to defend the suit
8. The wolfpack petitions the FDA and SEC with serious allegations about the target Company; their expertise in doing so is such that the FDA and SEC question the actions of a Company. I suspect that the halt in screening in the DCVax-L phase 3 trial that has so devastated the stock may have been caused by this tactic although I have no objective evidence to support this hypothesis.

Is There Any Way That Northwest Biotherapeutics Can Work Its Way Out of this Mess?

The screening halt on the phase 3 trial of DCVax-L that occurred last August was devastating as the stock declined from a high of $11.10 to $0.65 in the aftermath. It is more than interesting that a particularly, unbalanced report appeared on Seeking Alpha a few weeks after the screening halt. The report was written by an anonymous short seller group that called themselves Phase Five Research. One of my subscriber sources has traced IP addresses and used other resources that suggest that it is a front for the wolfpack. Interestingly, an Israeli hedge fund whose principals have been extensively linked to stock manipulation have been linked to Phase Five as have prominent hedge funds in the US who are widely believed to be members of the wolfpack. I find it interesting that Seeking Alpha has deep Israeli ties.

These events occurred (curiously) just as Northwest seemed to be in a position to raise the large amounts of capital needed to finish the phase 3 trial of DCVax-L and to begin phase 2 trials of DCVax-L combined with checkpoint modulators and phase 2 trials of DCVax Direct in inoperable tumors. Because these phase 2 trials were to be conducted in cancers without viable therapeutic options, these trials if successful could be the basis for regulatory approval. The well-known English investor Neil Woodford had invested $180 million in the Company which greatly bolstered investor confidence. The stock was trading at about $11 per share and the market was very receptive to biotechnology equity offerings. I think the Company could have raised $150 million or more last August that would have been adequate to fund all of the planned clinical trials. This would have been devastating to the shorts and there is every appearance that they pulled out all the stops to go after Northwest.

The wolfpack has been extremely successful. It appears that the screening halt in the phase 3 trial of DCVax-L has been a gating factor that has prevented the announcement of plans to begin phase 2 trials of DCVax-L in combination with checkpoint modulators and DCVax Direct in inoperable tumors. Unfortunately, Neil Woodford drew extensive attention to the Phase Five report, which had initially not received much attention, and pressed for an investigation of management. I find it simply amazing that the wolfpack was able to get an investor with $180 million invested in NWBO to help them attack the credibility of management. These guys are evil but very expert at what they do.

Northwest Is Fighting Back

The attack on Northwest can be compared to a situation in World War II when Russia brought massive military power against Finland with the intent of subjugating the tiny country. This can be compared to the aim of the wolfpack as it seeks to drive NWBO into bankruptcy. The tenacious Finns held their ground against staggering odds and eventually forced the Russians to back away. Faced with a fight for its life, NWBO hopes it can emulate the success of the Finns as it too faces a sinister and much better armed foe. The heightened attack on the company that began last summer, the disastrous halt in screening of enrollment in the DCVax-L trial, and the Phase Five anonymous attack report in October have paralyzed the Company. There has literally been no meaningful news flow since August 2015. There could be no more perfect a scenario for the wolfpack to decimate the stock price and this is exactly what they did.

-Key Opinion Leaders Believe the Technology is Promising

I think that the announcement of the forming of the Scientific Advisory Board is the first of what could be a number of steps for NWBO to fight back. The wolfpack has consistently propagandized that no serious scientists are associated with NWBO and they argue that this shows that key opinion leaders are skeptical or negative on dendritic cell vaccine technology. The recent press release announcing the formation of a five member scientific advisory board pretty much shatters this argument, As described in the biographies of these five members in the press release, it can be seen that these are respected, key opinion leaders in immune-oncology. This could give investors confidence that this technology is promising, as I believe it is.

-Potential Collaborations with Large BioPharma

A key wolfpack argument has also been that no pharmaceutical companies have sought to study combinations of their drugs with NWBO’s DCVax vaccines. NWBO for the last year has suggested in its press releases that such trials are in the planning stages. I think that the screening halt may have somehow played a part in delaying the announcement of phase 2 trials of DCVax vaccines in combination with drugs of other companies. If such announcements are made in coming months, this would provide validation to the promise of NWBO’s technology and shatter this wolfpack argument that no major companies are interested in dendritic cell cancer vaccines.

-Restoring the Reputation of Management

A key strategy of the wolfpack has been to try to destroy the credibility of CEO Linda Powers. In particular, they have alleged that she has siphoned hundreds of millions of dollars out of NWBO, into Cognate and then somehow into her own pockets. This was a central focus of the Phase Five report. In response to this and also to Neil Woodford’s unfortunate reaction to that report, the Company initiated action to appoint an independent committee to investigate the Phase Five allegations. At some point in coming months, I think that we will see the findings of that committee. I think that it will rebuke the allegations of the anonymously written Phase Five report.

-The DCVax-L Trial will Complete and Report Results

Investors should not forget that the phase 3 trial of DCVax-L in newly diagnosed glioblastoma will complete and report results either later this year or next year. The halt in screening for enrollment did not affect the treatment of patients already enrolled. The trial had planned to enroll 348 patients and based on management statements more than 300 and less than 348 patients have been enrolled. If we were to split the difference it would suggest that 324 patients were enrolled. This should provide more than enough data to draw meaningful conclusions.

I see three possible outcomes for the trial with success being one and outright failure being another. The third outcome would be that the trial does not reach the primary endpoint of the trial, but subset analysis on specific populations is encouraging. It is often the case with breakthrough therapies that an initial trial, while unsuccessful, points the path forward for trials that then lead to successful clinical development.

Can Northwest Access the Capital Needed to Execute its Clinical Trial Program?

The wolfpack has had the obvious objective of preventing NWBO from executing phase 2 trial plans by decimating the share price and blocking access to capital. Their ultimate goal is to drive the Company into bankruptcy. Their chances for success are unfortunately good. NWBO over the last nine months has made small capital raises just to keep the Company afloat and not enough to begin phase 2 trials. I would roughly estimate that that it may need to raise over $100 million to fund phase 2 trials. How can a Company whose business and management has been so maligned and whose stock is selling at $0.65 do this?

The first steps are the ones that we now see emerging with the announcement of the scientific advisory board the first one taken. If collaborations with other big companies are announced to d,evelop DCVax vaccines in combination with their drugs, another key step will have been made. If the independent committee absolves management of any wrong doing, still another major advance will have been achieved. These will make very apparent the scam that the wolfpack has executed against NWBO.

Even if these steps establish credibility for the technology and management, there still remains the critical issue of bringing in capital. I would expect the wolfpack to intensify their attack on the price of the stock. This could block access to the capital markets and achieve their ultimate goal of bankrupting the Company. They can celebrate their victory by buying a new beach house in the Hamptons.

I do see some chance for a successful “hail Mary” that would result in a somewhat better outcome for NWBO. Perhaps the Company will be able to fund at least part of their Phase 2 clinical trials with grants.  The Company has obtained multi-million dollar grants in the past, and now has more data indicating the potential of its dendritic cell technology to provide a basis for potential grants.

Also, the Company could continue to do ongoing fundraisings as needed.  If the Company is able to achieve some of the milestones mentioned above, such as combination trials with big pharma, it is possible that the Company’s share price could begin to rise and allow the Company’s to raise funds. Or perhaps venture capitalists or other institutions with large amounts of money could view the Company in the same way as I do, they might perceive this as outstanding opportunity to invest in a promising cutting edge technology with products in late stage development at a very low valuation. This should all come clear in coming months.

 

Tagged as dcvax direct, DCVax-L, Northwest Biotherapeutics Inc., NWBO, Stock manipulation + Categorized as Company Reports, LinkedIn