Expert Financial Analysis and Reporting

Key Points:

• NWBO is approaching unblinding of the critical phase 3 trial of DCVax-L in newly diagnosed glioblastoma (GBM).
• Management let the trial run longer in order to determine if there is a survival tail. This should prove critical to potential regulatory approval and commercialization.
• A meaningful survival tail has been key to the huge commercial successes for the checkpoint inhibitors, Keytruda and Opdivo, which like DCVax-L are immunotherapies.
• Analysis of data from the still blinded phase 3 trial is strongly suggestive that there is a meaningful survival tail in newly diagnosed GBM comparable to that of checkpoint inhibitors in second line, non small cell lung cancer. Both of these cancers are equally aggressive as judged by five year survival
• The two lead investigators for the trial have both stated that they are seeing patients in the trial surviving longer than expected. This seems almost certainly due to DCVax-L but until the trial is unblinded, we can’t know for sure.
• If this trial is successful in showing a meaningful survival tail as discussed in this report, it would be one of the most surprising and important results in the history of cancer therapy.
• There is asymmetric upside as virtually no analysts or major investors on Wall Street are currently involved in the stock.

Evolution of the Phase 3 Trial

Northwest Biotherapeutics began the phase 3 trial of DCVax-L in newly diagnosed glioblastoma over 12 years ago. This was at a time when chemotherapy was the overwhelmingly dominant form of treatment for most cancers and antibody therapies were emerging as complements to chemotherapy. New enrollment was temporarily put on hold from 2008 through 2011 due to the inability to access funding and then restarted. Median enrollment was reached in May 2014 and the last patient was enrolled in November 2015. I am speculating that the trial will be unblinded sometime later this year or early in 2020 with topline data sometime after. This timing estimate is pure speculation on my part. NWBO has not indicated and indeed cannot anticipate the date of unblinding with any precision. For the very last patient enrolled in the trial we will see four years of survival data and we will have greater than four years of data on all others. This will provide unprecedented information about the effect on survival of DCVax-L that is much more meaningful in judging the trial than the traditional endpoints of median progression free survival and median overall survival.

The trial was originally powered for two endpoints- median progression free survival and median overall survival. Those were then traditional endpoints for chemotherapy and antibody regimens in most cancers. At the time the trial was started and well into the trial, the medical community and biopharm industry was cautious or actually skeptical about immunotherapies like DCVax-L. This began to change with the approval of the checkpoint inhibitors: Yervoy was approved in 2012, Keytruda and Opdivo were approved in late 2014.

As experience grew with the checkpoint inhibitors, the medical community became excited about one key aspect of these drugs. It became evident that a small, but significant percentage of patients experienced much longer survival than those treated with chemotherapy. This has come to be known as the survival tail and this has been the most important factor that has led to Keytruda achieving sales of $7.2 billion and Opdivo $4.9 billion in 2018, four years after their introduction.

In addition to the key survival tail observation, it also became apparent that patients on checkpoint inhibitors often appeared (wrongly) to have their cancers progressing early in treatment. This was in part because immune therapies can be slow to manifest their effects, and in part because the immune reaction that is key to the effect of immunotherapies was causing an attack of lymphocytes and chemokines against the tumor and resultant inflammation. Imaging of these tumors seemed to indicate an increase in tumor size, but this turned out not to be a signal that the tumor was actually growing. In fact, such patients often went on to achieve the best outcomes. This phenomenon is known as psuedoprogression. Very importantly, the potential for confusing psuedoprogression with actual progression meant that the endpoint of median progression free survival in the phase 3 DCVax-L trial could be a less than meaningful endpoint.

NWBO Adjusts the Trial Design to Determine the Extent of the Survival Tail

My guess is that NWBO could have unblinded the trial in 2018 if it decided to evaluate the trial on the basis of median progression free survival and median overall survival. However, management recognized that the importance of the survival tail for checkpoint inhibitors was also likely to be true for DCVax-L and that this would be the most critical aspect on which the medical community would evaluate DCVax-L. They made the absolutely correct decision to not unblind the DCVax-L trial and let it run in order to determine if there is a survival tail. An important but somewhat lesser reason may have been to clearly differentiate between psuedoprogression and progression of the cancer. Of course, the endpoints of progression free survival and median overall survival will also be evaluated.

Does it make Sense to Compare the Possible Survival Tail of DCVax-L in Newly Diagnosed Glioblastoma to that of Opdivo in Second Line Non-Small Cell Lung Cancer?

Bristol-Myers Squibb just released some important data defining the survival tail for Opdivo used as a single therapy in treating second line (previously treated with chemo) non-small cell lung cancer. They reported pooled survival results from two phase 3 trials, CheckMate-017 and CheckMate-057 which showed that 13.4% of patients treated with Opdivo were alive at five years as compared to 2.6% with the chemotherapy drug docetaxel which previously had been standard of care. This means that 13.4 out of every 100 patients treated with Opdivo could be expected to be alive at five years versus 2.6 patients for docetaxel. This difference of 10.8 is the survival tail.

Obviously, second line non-small cell lung cancer and newly diagnosed glioblastoma are very different cancers so why discuss Opdivo results? My reason is that they are comparably aggressive cancers. We can see from the CheckMate trials data that about 3% of patients with non-small cell lung cancer that was previously treated with chemotherapy live for five years. There is less precise five year survival data for newly diagnosed glioblastoma treated with chemotherapy, but data from other GBM trials and the general opinion of most key opinion leaders indicates that the five year survival is less than 5%. It is my hypothesis that if DCVax-L shows five year survival around 15%, that the response and acceptance of the medical community could be as dramatic as it was with Opdivo in second line metastatic non-small cell lung cancer!

So What Can We Conjecture about the Possible Survival Tail of DCVax-L in Newly Diagnosed Glioblastoma?

We know that the two lead investigators on the trial, Drs. Linda Liau and Keyoumars Ashkan believe that patients in the trial are living meaningfully longer than expected. See this link. We also have a valuable insight into the trial based on an analysis of the blinded data from the trial. There were 331 patients treated in the trial; they were randomized 2:1 to DCVax-L plus SOC versus SOC. Patients started on SOC were allowed to crossover to DCVax-L if their cancer progressed. Also, patients who progressed on DCVax-L were allowed to stay on the drug. The Company has reported that ultimately about 90% of the patients received DCVax-L either initially or after crossover. So, about 232 patients were started with DCVax-L plus SOC, about 66 were started with SOC and were then given DCVax-L if their cancer progressed and roughly 33 received just SOC. Standard of care is surgical resection followed by radiation and the chemotherapy drug temozolomide.

The trial remains blinded so that investigators and others (including the Company) don’t know how patients treated with DCVax-L plus SOC fared versus those treated with just SOC. However, blinded data released on November 19, 2018 provided some very encouraging data. It was reported that for the 100 longest survivors in the trial, the Kaplan Meier estimate of median overall survival was 58.4 months or 4.9 years (let’s call it 5 years) from time of surgery. The Kaplan Meier algorithm is used universally throughout the pharma and biotech industry. It incorporates both the actual data on patients who have already reached a certain time point (in this case 58.4 months) and also predictive data on the patients who have not yet reached that time point. The Kaplan Meier median overall survival estimate indicates that at least 50 (15%) of patients in the trial have survived or are projected to survive to at least 5 years.  We don’t know how many of these 50 patients were started on DCVax-L plus SOC, how many were started on SOC and had DCVax-L added when their cancer progressed and how many received only SOC. Also, as the Company has expressly pointed out in each of its announcements about interim clinical trial data, the Kaplan Meier data could get either better or worse as they continue to mature.

How Do We Interpret The Kaplan Meier Data?

Let me first reiterate that the Kaplan Meier data is an estimate, albeit a very important one that is broadly embraced by the medical community and regulators. Based on historical data from other GBM clinical trials and clinical experience of key opinion leaders like Linda Liau, there is a general consensus that roughly 5% of patients treated with SOC will survive 5 years. If the phase 3 trial data continue to remain approximately the same as they mature, there would be 50 patients or 15% of the 331 enrolled in the trial that survived for five years or more. Remember, this includes all patients including those who were started on SOC. The expectation is that for patients who receive only SOC, 5% would be alive at 5 years so that of the 99 patients started on SOC only 5 would be expected to survive for 5 years. Of course, 66 of these 99 patients were given DCVax-L when their cancer progressed. I think that we can reasonably infer that these 66 patients might do less well than those started on DCVax-L plus SOC. If these two premises are correct, this would mean that more than 15% of patients started on DCVax-L plus SOC have survived or are expected to survive longer than 5 years. This indicates a robust survival tail for DCVax-L in this trial that is comparable to that seen with Opdivo in second line non-small cell lung cancer.

We can take this analysis further by again assuming that the five year survival for patients treated with SOC is 5%. If so, 5 of the 99 patients who started on SOC might would be expected to survive for 5 years. Remember that about 66 of these patients received DCVax-L when their cancer progressed. Some of these might also reach 5 years survival. With this assumption, we can assume that 45 of the 50 patients who have survived or who are projected to survive for 5 years received DCVax-L at some time in their treatment. This would mean that 45 patients came from the 232 patients who received DCVax-L at the start of the trial and the 66 patients who were started on SOC and had DCVax-L added when their cancer progressed. Of these 298 patients who received DCVax-L at some point in the trial, 15% have survived or are expected to survive for 5 years. If we attribute the 45 survivors only to the 232 who started on DCVax-L then the five year survival rate would be 19%. It is reasonable to infer that the 66 patients for whom DCVax-L was added when their cancer progressed would do less well than those started on DCVax-L.

I Know that this is a complex argument so let me summarize the key details.

• In the CheckMate trials in second line non-small cell lung cancer, 13.4% of patients treated with the checkpoint inhibitor Opdivo survived for 5 years versus 2.6% for the previous standard of care, the chemotherapy drug, docetaxel. This delta of 10.8% is the survival tail and these types of results in aggressive cancers were the driving force that resulted in the enormous commercial success of Opdivo and the nearly identical product Keytruda.
• The five year survival rate for current standard of care in newly diagnosed GBM is estimated at 5%. This indicates that newly diagnosed GBM and second line non-small cell lung cancer are comparably aggressive. If 15% of newly diagnosed GBM patients treated with DCVax-L are alive at 5 years, it would have a delta of 10% that would be a survival tail of comparable to Opdivo in second line non-small cell lung. I would consider this as a home run result.
• Based on Kaplan-Meier projections, 15% of all 331 patients treated in the phase 3 trial of DCVax-L in newly diagnosed GBM have survived or are projected to survive for 5 years. Relative to the 5% that would be expected to survive for 5 years, the delta is 10%. Hence, there appears to be an impressive survival tail for the trial as a whole. This also would mean that the delta for DCVax-L would be greater than 10%, but how much ?
• My assumptions indicate that 45 of the 50 patients projected to survive five years recived DCVax-L at some point in the trial.
• If all 45 patients came from the 232 patients that received DCVax-L plus SOC at the start of the trial, this would indicate a 5 year survival rate of 19% and a highly impressive delta of 14%.
• If these 45 patients came from the 298 patients who received DCVax-L at some point in the trial, the five year survival would be 15% for a delta of 10%.
• Before you chalk up a staggeringly impressive win for DCVax-L, let me remind you that the Kaplan Meier data could get either better or worse as they continue to mature. I would also point out that one of my most critical assumptions is that 5 year survival for SOC will be less than 5%. Most KOLs agree with this assumption, but this is primarily based on their clinical experience. There is only sparse data from clinical trials.

My Hopes, Expectations and Concerns

I hope the trial will be successful. Only truly malevolent characters could hope for a negative outcome. I think that when the data is unblinded that we will see a very meaningful survival tail for DCVax-L. In any event we will know without question how many of the 232 patients initially treated with DCVax-L remained alive at four years as well as the 66 patients who were treated with SOC initially and then crossed over to DCVax-L and the 33 patients treated only with SOC. This survival tail data is enormously more important than median progression free survival and median overall survival. The decision of management to let the trial continue longer before unblinding means that we should have a clear understanding of the survival tail of DCVax-L.

While I have high hopes for success based on the blinded data and the enthusiasm of the two lead investigators in the trial, there are no sure things in drug development. I worry that the number of patients treated with just SOC to compare to DCVax-L patients may not be large enough for a meaningful statistical analysis of survival. Hence, we may have to rely on results from other trials to compare the DCVax-L patients to SOC. One always worries that there might be an imbalance of risk factors such as degree of surgical resection, methylation status etc., that favored DCVax-L. However, data released so far suggests that for the trial as a whole the patient demographics and risk factors on all key characteristics were well balanced and consistent with the patient population in other recent newly diagnosed GBM trials. I worry that there may be some other issues that will affect how regulators view the trial. It was carried on over 12 years by a small, virtually unknown company and during this time there could have been changes in imaging, manufacturing or other factors that could result in regulatory scrutiny or concern. I have no idea that this will be the case, but this is biotechnology.

Investment Thinking

So here we are after a wait that has been seven years for me as I started covering NWBO in 2012. Those of you who have followed my work know that I believe that manipulation of stock prices of small companies is standard business practice on Wall Street and that NWBO has been the subject of one of the most vicious of these attacks. I would refer you to ten blogs on SmithOnStocks that I have written that show how illegal naked shorting is at the heart of this stock manipulation. The perpetrators have done their best to drive NWBO into bankruptcy or financial distress that would have prevented completion of the trial. They have failed. We will see the results.

I think that there is almost no awareness on the Street about the potential of DCVax-L and no awareness that we are so close to seeing the results of the phase 3 trial. There are 12,000 newly diagnosed glioblastoma patients each year in the US and there has been no new drug approval since 2005. (A medical device called Optune developed by Novocure, was approved in October 2015.) There is a desperate unmet medical need for improved therapy and if my musing about the survival tail proves correct, DCVax-L would constitute a dramatic advance. The price of therapy based on comparison to other cancer therapies could be anywhere from $200,000 to $350,000 per year. Hence the US addressable market is in the range of $2.5 billion to $4.2 billion and the addressable market in the rest of the world would be as great.

The investment implications of success in the phase 3 trial and regulatory approval would be staggering. We all recognize that many (most) biotechnology trials fail and often for totally unanticipated reasons. Based on the data we have seen on DCVax-L so far, I think that there is a good chance that the trial will be successful. I am encouraged that the two lead investigators in the trial, Drs. Linda Liau and Keyoumars Ashkan, agree with me. However, neither they nor I have a crystal ball.

The stock price of $0.27 or a fully diluted market capitalization of about $200 million clearly incorporates almost no chance for success in the trial. So for the moment, let’s hypothesize that the trial does show a survival tail in newly diagnosed GBM similar to the checkpoint inhibitors in second line non-small cell lung cancer which leads regulatory authorities to approve DCVax-L as part of SOC for newly diagnosed GBM. I think that the medical community would quickly and broadly utilize DCVax-L in this cancer. I would note that the side effects of DCVax-L in clinical trials have been shown to be amazingly trivial which would further increase physician acceptance.

In the optimistic case just outlined. I think that DCVax-L could achieve sales of well over $1 billion in the US and as much abroad. However, the story does not end with newly diagnosed GBM. The mechanism of action of DCVax-L could be effective in many types of solid tumors. If so, the potential would be beyond staggering. It would far surpass the medical and commercial potential of checkpoint inhibitors and CAR-T therapies.

NWBO is a small company with no commercial experience or infrastructure, but I think that it could pick almost any biopharma company with such expertise to partner with in this scenario. Given the limited resources of NWBO from a research and commercial standpoint, even with a partner it would take some years for full blown commercialization, perhaps five years or more. However, at that point I would expect a market capitalization to sales ratio of 15 times or more based on an analysis of peer companies. This suggests that each $1 billion of sales would lead to $15 billion of market capitalization. If fully diluted shares were 1 billion, each $1 billion of sales would translate into $15.00 of stock price.