Expert Financial Analysis and Reporting

Reason for Stock Weakness

The stock of Northwest Biotherapeutics (NWBO) has been under pressure that appears largely to have been caused by two recent, scathing articles in The Street.com written by Adam Feuerstein. F-stein has been recommending shorting the stock for over a year and had previously written two other articles that also caused stock weakness at the time. Investors should note that he is deeply committed to the position that DCVax-L is ineffective.

F-stein has written that there is no credible evidence that DCVax-L has any efficacy. In his latest article he has suggested that it may have effects comparable to a placebo. He has also made scathing remarks about management of Northwest Biotherapeutics with the implication that they are misleading investors. We are not dealing with Themis, the Greek goddess of justice, who seeks to offer a balanced view of DCVax-L and NWBO. This is a person on a mission. His articles are short, two or three paragraphs, in which he states his conclusions with negligible context in regard to how he reached the conclusion. F-stein is a master at constructing a straw man of his own making and then knocking it down and this is evident in his articles.

F-stein Raises Concern about Delay in Interim Look at DCVax-L Phase 3 Trial

The first of the two recent articles was published on March 2, 2014 and highlighted an expected report from the Data Monitoring Board (DMB) on the first interim look at the phase 3 trial of DCVax-L. Linda Powers, CEO of Northwest, had previously indicated at the BIOCEO conference that she thought that the first interim look would be completed and a recommendation issued toward the end of February. Based on that time schedule, there was a delay. F-stein concluded that this delay signaled major problems for the trial and the stock.

Let me make a number of points to help put this issue in context. The interim look on a clinical trial is conducted by a Data Monitoring Board that operates independently of the Company. Northwest is blinded to the data and is effectively a bystander to the analysis, like investors. The DMB can make one of three decisions. It can conclude that the results are so statistically significantly positive that it is unethical to continue the trial and withhold the drug from patients in the control group. Given the limited number of events that triggered the interim look, this was very unlikely. I wasn’t expecting the trial to be halted for efficacy nor was Northwest management; in virtually every clinical trial that I have followed, the recommendation of the DMB at the first interim look is to continue the trial. The second reason for stopping the trial would be for safety reasons. This is unlikely because the side effect profile of DCVax-l has been relatively benign in the phase I trials in glioblastoma and ovarian cancer and the phase 2 trial in prostate cancer.

This leaves a third possibility and that would be a decision by the DMB to stop the trial for futility, i.e.: the DMB believes that based on the data it would be futile to continue the trial because it believes that there would be no chance for the trial to successfully reach the endpoint. Again, I think this is unlikely. Immunotherapy is known to take longer than other drugs to produce an effect. Consequently, I believe that even if data suggested that the median PFS or median OS endpoint was not going to be achieved, the DMB would still want to look at the long term survival curves. After all, there is only one median patient and there could be a subset of patients that would show benefit even if median endpoints weren’t hit.

Let me give you an example. In the case of Bristol-Myers’ (BMY) Yervoy in metastatic cancer, the survival curves for Yervoy and the control group are not that different for the initial period of therapy. However, Yervoy has exhibited one remarkable result. After three years, one of four patients remains alive whereas most control patients have died. This suggests that Yervoy is perhaps curative for about 25% of patients. DCVax-L behaved similarly in its phase 1 trial as roughly half of patients have survived for five years versus expected survival rates of 5% or so at that time. Based on this line of reasoning, I think the DMB would want the trial to run its full course in the event that DCVax-L has a similar effect to Yervoy. I think that the probability of the DMB stopping the trial for futility was almost nil so that completing the efficacy analysis wasn’t crucial to their recommendation to continue the trial.

Announcement That DCVax-L Trial is Continuing Doesn’t Daunt F-stein; He Switches Arguments

In the vast majority of trials, the first interim look and indeed for almost all subsequent interim looks, the DMB simply recommends that the trial continue. F-stein had constructed the straw man idea that the delay in the announcement signaled a major problem in the trial that left me scratching my head as to what he was thinking. On Friday, March 8, 2014, NWBO announced that the DMB had completed its safety review but not its efficacy review and recommended that the trial continue. Please recall my previous argument in regard to the slow onset of activity of immunotherapy and the argument that the DMB would want to continue the trial regardless of efficacy results at this point in the trial. If safety was not an issue, the DMB would not need to complete an efficacy analysis to issue a recommendation to continue the trial.

F-stein quickly seized on the comment that the efficacy review had not been completed to quickly launch another article and a new argument that once again put pressure on the stock. Here was his new argument.

"The DSMB's review of the efficacy data is still pending." Oh my. How do independent monitors analyze patient scans for safety but not efficacy? Impossible. Also, how can Northwest Bio claim the trigger event for the first interim analysis was reached last December based on the required number of progression events, but tell us today that the review of those scans is still pending?

Does not compute.

What's likely going on here? At best, Northwest Bio has so botched the DCVax study given all the delays and changes made over the years that patients have been lost and their data (scans, etc.) are unreliable. Worst case, DCVax is just a placebo and today's press release is another stalling tactic.”

This conclusion is, of course, another straw man argument. The work of the DMB is all done in secret so unless F-stein has material inside information, this is nothing more than rank conjecture on his part. It is also a one-sided catastrophic scenario that ignores any other possible explanation. He has seized on the statement that the efficacy review is not yet finished to renew his attack.

Unless the DMB decides to stop the trial, it just issues a terse statement recommending that the trial continue. It is important to understand that it cannot give any indication on efficacy. Statisticians and regulatory agencies consider any information released on efficacy during the trial to have the potential to prejudice physicians on the conduct and interpretation of the trial. It would immediately invalidate the results of the trial. Hence, no one should be expecting that at some point in the next few weeks that the DMB will make a comment on efficacy.

Does F-stein raise any issues at all that have merit? Possibly. The statement that there is a delay on the DMB evaluation of efficacy does raise questions that can be interpreted as either negative or positive. Also, it is unusual for the DMB to say that it has completed the safety but not the efficacy review. Usually, it just says that the trial should continue. I want to discuss this in more detail, but first let me give you some background.

The Phase 3 Trial of DCVax-L

Based on very encouraging phase 1 results, the company designed and began a phase 2 study in 2007. Originally in 2007, the trial was designed as a randomized 140 patient trial to compare DCVax-L added to SOC versus SOC alone. However, the trial was not effectively blinded because the placebo injection given to the control arm was sometimes distinguishable from DCVax-L. Consequently, physicians and patients might know a patient was receiving placebo and this caused a high dropout rate in the control arm. The decision was made to delay the trial until Northwest could develop a placebo that would allow proper blinding. However, there were 33 patients enrolled, some on drug and some on SOC, before the trial was halted to develop a placebo.

Placebos for pills are relatively easy to develop, and have been commonplace for decades, but creating a placebo that is indistinguishable from living cells in a vial presented a new and difficult challenge. After considerable work, Northwest was successful in developing a placebo. The company obtained new FDA clearance and re-approvals by all the clinical sites, and was ready to restart the phase II trial in 2008. The size of the trial was also enlarged from 140 to 240 patients at that time.

Trial enrollment was once again delayed as the company entered a period of financial distress due to the great recession and didn’t have the resources to keep enrolling. However, Northwest managed to keep the trial itself going, and the patients already enrolled continued through the treatment regimen and follow-up. The trial was finally able to resume new patient enrollment in early 2011. It was expanded again to enroll 312 patients to create the power needed to be a registrational phase 3 trial.

F-stein suggests that the delay in completing the efficacy analysis was due to the starts and stops creating confusion in conduct of the trial and causing records to be inaccurately kept. He states that the results of scans that were taken periodically during the trial to see if the cancer had progressed were lost or misplaced. He presents this as the only possibility; his is a catastrophic scenario.

It is certainly conceivable that the data on the first 33 patients treated in the trial might be more difficult to gather than for patients more recently enrolled. However, we are dealing with glioblastoma multiforme in which patients are under very close care of their physicians and I find it difficult to believe that the data was somehow lost as F-stein implies. I can’t see glioblastoma patients not being closely monitored during the course of their disease. His implication that some patients might have walked away from the trial and are lost to follow-up also seems implausible.

Investment Conclusion

I think that the chances that F-stein’s arguments have any implications for the outcome of DCVax-L trial are not zero, but are quite small. It has no effect on my buy recommendation.