Expert Financial Analysis and Reporting

Introduction

Please read this report very carefully. This is the first time that any systemic drug has been approved under the new (two years old) German hospital exemption early access program and there is more that we don’t know about this program than we know.

 

What Is Hospital Exemption Early Access?

The Paul Ehrlich Institute (PEI) which is the German equivalent of the FDA has just approved a hospital exemption early access program (similar to compassionate use) for DCVax-L to treat all glioma patients. This Hospital Exemption approval was issued under section 4 (b) of the German Medicines Law in which PEI has the authority to provide an exemption from the requirement that a product must complete clinical trials establishing safety and efficacy and then gain regulatory approval before the product can be made available to patients.

 

DCVax-L can now be provided (it cannot be marketed under this exemption) by Northwest Biotherapeutics (NWBO) for the treatment of any glioma brain cancers (both glioblastoma multiforme and lower grade gliomas), both newly diagnosed and recurrent. The patients may be from Germany or elsewhere. This approval has a term of five years, and can be re-applied for and re-issued at the end of that period.

 

This early access approval goes substantially beyond the scope of the ongoing phase 3 trial which is studying DCVax-L only in newly diagnosed glioblastoma multiforme (grade IV glioma) patients. The exemption allows DCVax-L to be provided not only for this indication, but also for lower grade (less malignant) gliomas. It also extends beyond newly diagnosed gliomas (actually glioblastoma multiform) that are the focus of the phase 3 to include recurrent gliomas. The early access to DCVax allows patients to receive DCVax-L for all cases of glioma. This is stunning.

 

DCVax-L is Also Eligible for Reimbursement

Not only has the product been approved for Hospital Exemption early access, the German reimbursement authority in a separate evaluation has made DCVax-L eligible for reimbursement. This decision was made by the Institut Für Das Entgeltsystem Im Krankenhaus (InEK) which each January provides a list of products which are eligible for reimbursement.

 

The next step in the process is for NWBO to negotiate with regional health plans for the amount of reimbursement; the hospitals may or may not participate in the reimbursement negotiation. In the meantime, patients may self-pay for DCVax-L.

 

We can only guess at the level of reimbursement as there is no precedent for a product like DCVax approved through this hospital exemption early access program. The reimbursement negotiations have not yet taken place and NWBO naturally will not provide any guidance until negotiations are concluded with the individual medical funds.

 

My speculation is that the price of the drug will be in line with that of breakthrough cancer drugs or roughly $50,000 to $100,000 per year. I want to re-emphasize that the Company absolutely refuses to make any comment on my price estimate until reimbursement negotiations are concluded. There is also a complication in pricing in that DCVax-L treatment is given through a series of injections often given over more than one year. There is a question as to whether it will be priced for a course of treatment or per injection.

 

How The Paul Ehrlich Institute Reached its Decision; How Big of a Deal Is It?

The approval is the culmination of nearly two years of regulatory processes and scrutiny, starting with a Scientific Advice process during 2012, and followed by an application for Hospital Exemption in December, 2012. The evaluation of NWBO’s application by the German regulatory authorities included comprehensive and detailed scrutiny of all aspects of the DCVax-L technology, all DCVax-L clinical data to date, all manufacturing processes, all product characteristics (including potency, composition, sterility and other aspects), all frozen storage of DCVax-L and frozen shelf life, and all distribution and handling of the DCVax-L products.

 

The scrutiny of data appears to have included not only that for the phase 1/2 glioblastoma trials of 20 newly diagnosed GBM patients who received DCVax-L  but also patients given the drug  in the phase 1/2 prostate cancer and phase 1/2 ovarian cancer trials as well as patients treated with compassionate use.

 

The Section 4b exemption was implemented in the German drug laws in July 2011.  The approval for DCVax-L is the first such approval granted by the German regulatory authorities in multiple key ways. Only two prior approvals have been given in the more than 2-1/2 years since the law was put in place, and those were for two German companies with tissue engineered products which had already been on the market commercially under prior laws and were grandfathered for regulatory purposes, and which did not have pharmacological (i.e., drug-like) effects in the patient’s body.

 

Only the German regulator knows the exact number of applications that have been filed seeking a hospital exemption, but I think that several dozen applications for early access approval have been filed.  At least a dozen or so have probably been filed by companies that had cell therapy products on the market commercially before the new law went into effect, and were grandfathered for a period (which expired at the end of 2012).  Further applications probably have been filed by companies with new products that have not yet been on the market commercially.

 

DCVax-L is the first product of its kind to receive Hospital Exemption early access approval from the German regulators, in the following key ways:

•        the first immunotherapy;

•        the first product which exerts pharmacological (drug-like) effects in the patient’s body;

•        the first product that has never previously been on the market commercially;

•        the first product developed by a non-German company, not previously under the German regulators’ oversight; and

•        the first “somatic” cell therapy product (a somatic cell is any cell of the body other than a reproductive or embryonic cell).

 

What is the Investment Importance of This?

This is a stunning coup for Northwest Biotherapeutics. While the phase 3 trial will still need to be completed and be successful in order for Northwest to obtain a full approval and marketing authorization for DCVax-L, it is extremely encouraging that one of the world’s premier regulatory agencies believes that clinical data created before the phase 3 trial is sufficiently convincing to make DCVax-L available on an early access basis for all glioma patients. This is an extremely positive validation of the product and also of the manufacturing and infrastructure that is in place for producing, handling and distributing the product.

 

Stock Market is Uncertain

The early market reaction to the news shows confusion and lack of understanding of the importance of this news. This is the first time that investors have had to evaluate a product made available to patients in this way. Also, there is no counterpart to this Hospital Exemption approval in the US system.  It is a totally new experience and its importance has not yet sunk in.

 

As we all know, NWBO has been the subject of ongoing bear raids led by bloggers who have claimed that there is no credible evidence that DCVax-L is effective. One particularly negative blogger stated that the drug is no better than placebo. This action by PEI shatters their investment conclusions. The bears have feverishly been tweeting today that this is not important new information and trying to create negative spin.

 

What Is The Commercial Opportunity?

Germany has a population of about 82 million which is nearly 25% of the US population. The incidence of glioblastoma in the German population is beleived to be the same as in the US. Using the common estimate that there are 12,000 newly diagnosed glioblastomas per year in the US, this implies that there are about 3, 000 in Germany. At a price of $50,000 to $100,000 per year (again this price is speculation on my part as reimbursement negotiations have not yet started), this would represent an annual addressable market of $150 to $300 million if DCVax-L could be directly promoted to all physicians (which it can’t under a Hospital Exemption). It is extremely important to understand that the glioblastoma market addressed through the hospital exemption will be less; I don’t have an estimate at this time.

 

There are additional patients with other forms of glioma and recurrent glioma patients that could increase the addressable hospital exemption market beyond the estimate for glioblastoma; I don’t have an estimate at this time. The Company is emphasizing that the importance of this hospital exemption approval is the validation it provides and the opportunity to practice now for future commercialization; investors should not , repeat should not, expect a rapid ramp in revenues.

 

Obviously, there is no historical precedent to gage the ramp of revenues as this is the first systemic drug approved under the section 4 (b) exemption. It will certainly be quite different from (and much lower than) the sales trajectory of a drug receiving a normal approval. There are perhaps two divergent and salient points to consider: (1) a new drug to treat glioblastoma and other gliomas is urgently needed and patients are desperate for any new therapy that might help them and (2) there may be greater caution by hospitals because the drug has not gained access to the market under the normal approval process and DCVax-L cannot be directly promoted ; again no estimate at this time.

 

My uninformed judgment is that the sales ramp will be slow and gradual in 2014. The reimbursement negotiations will slow the uptake in the early phases until negotiated prices are in place. In addition, NWBO cannot market DCVax at all under the Hospital Exemption, and cannot promote the pluses and minuses of DCVax-L (although of course patients and physicians can spread the word). Also, because DCVax-L is an autologous product, there are considerable logistics issues for the Company to handle. Remember the problems that Provenge encountered. I think this will cause NWBO to move slowly; they don’t want any glitches in the manufacturing and delivery of the product. They will want to move slowly and methodically to make sure their logistics processes are dependable.

 

So what is my guess for 2014 German revenues? I would note that each patient treated could lead to $50,000 to $100,000 of gross revenues if my speculation on price is correct. I want to re-emphasize that management absolutely refuses to comment on the potential price. If my guess is correct, in order to reach $1,000,000 of sales 10 to 20 patients would have to be treated. My guess is that there will be perhaps $1+ million of sales in 2014. I have minimal confidence in this estimate.

 

There is an argument that uptake could be more rapid in 2015 as the initial kinks with the introduction of the product under the hospital exemption early access approval are worked out. Let’s imagine that you are a newly diagnosed glioblastoma patient speaking with your doctor who can prescribe DCVax-L under the hospital exemption early access program. You are told that your life expectancy is about 14 to 18 months with standard of care. There is one other option that can be offered to you and that is DCVax-L. The only data available is from two small phase 1/2 trials that showed that about half of patients in that trial lived four years or more. The drug is administered through a series of sub-cutaneous injections and the side effects are relatively benign and in no way resemble those of chemotherapy. This is a pretty compelling proposition.

 

Investment Conclusion

I remain a buyer around the current price of $7.90. I think that it is going to take some time for analysts and the investment community to get up to speed on this for reasons that I have detailed. As this happens, I think that the current valuation expands.

 

There was considerable shorting of the stock last week and one source I checked shows that there are 4.6 million shares short. I can see a short squeeze developing as investors analyze and understand the significance of this news.

Tagged as DCVax-L, NWBO + Categorized as Smith On Stocks Blog