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Expert Financial Analysis and Reporting

Northwest Biotherapeutics: New Financing from Woodford was Much Needed (NWBO, $5.44)

Curses, Foiled Again; The Hedge Fund’s Lament

The clear intent of the recent short attack on Northwest was at a minimum to force the Company into a financing at depressed prices. I have seen this strategy successfully implemented many times in the past against companies in similar situations. Here’s how it works. The Company desperately needs money, but legitimate buyers alarmed at the recent sharp drop in the price are afraid to get involved in the offering (as per plan).  The only buyers are (distressingly) the members of the wolfpack (a group of hedge funds working as a group) who spearheaded the short attack.

Gleefully, the wolfpack uses the offering to cover their short positions with stock bought on the offering. It is illegal for an individual investment firm to do this, but acting as a group some members of the wolfpack would not have a short position and could participate in the offering. They then use this stock to allow other wolfpack members who were short the stock to cover and lock in profits. That’s what dark pools are for.

Let me speculate on the terms of an offering if Northwest did not have the backing of Woodford based on numerous prior examples of hedge fund targeted companies forced into distressed financings. Let’s say that Northwest’s management decided they had to raise money when the stock was trading at $4.50. The investment bankers commissioned for the deal would have to approach members of the wolfpack cartel; (remember the wolfpack members are likely to be the only buyers in this situation). These hedge funds are required to sign a confidentiality agreement prohibiting them from disclosing that an offering is in progress. However, an agreement like this with hedge funds has little meaning and the news of an offering is broadly disseminated. This allows members of the wolfpack to start shorting and cause the stock to trade down by perhaps 20% to $3.60. Are you skeptical of this analysis? Just think of your own experience. How many time have you seen a stock trade down significantly without any news event and then shortly thereafter announce they have raised money? This should not happen, but it happens almost every time,

So in this postulated scenario, Northwest decided to raise money at a price of $4.50, but the stock as just described is pressured down to $3.60. Then what happens? As the key (only) buyers, the wolfpack demands another 20% discount so that the deal is priced at $2.88. Moreover they would demand 1:1 warrant coverage with a strike price up 30% or $3.75. To raise $30 million Northwest would have to sell 10 million shares and issue a like amount of 10 million warrants. This would increase the number of outstanding shares from about 78 million to 88 million with the potential for another 10 million of dilution from the warrants. With the Woodford deal, Northwest issued a much lesser 5.5 million shares with no warrants.

Typically, the wolfpack would then run the stock up in the weeks or months after the offering (they manipulate prices up and down), exercise the warrants and then start shorting the stock all over again with the intent of forcing a similar financing down the road at  say $2.00 per share and so onUnless of course, they achieve their Holy Grail and drive the company into bankruptcy. This scheme is a license to steal and happens over and over and over.

Neil Woodford Steps Up Again

As I discussed in my recent report “Northwest: Analysis of a Coordinated Short Selling Attack Against the Stock” Northwest has been perilously close to running out of cash. Neil Woodford has stepped up again and invested $30 million in new stock at $5.50, a premium of 18% to the close on Tuesday and with no warrants. In the first two quarters of 2015, the average cash burn was $22 million so that at this rate, Northwest has cash at least into the 4Q, 2015. This doesn’t solve the cash problem but it certainly buys much needed time and allows the critical phase 3 trials of DCVax-L and phase 2 trials of DCVax Direct to go forward.

In addition to the cash crisis, the recent short attack also capitalized on the uncertainty stemming from the suspension of enrollment in the phase 3 trial of DCVax-L in newly diagnose glioblastoma. I would urge you to read the report I just cited for my thinking on this issue. I am not going to repeat it in this note. I only reiterate that I do not understand the reason for the halt and obviously can’t say when or if it will be lifted. This is a very legitimate concern.

Potential Stock Price Scenarios

I am informed that my recent report has led to attacks on me on both the message boards and Twitter accusing me of being a shill and worse for Northwest. I think that if you read my last report in its entirety  (use the previous link), you will conclude that I am trying to be objective. The technology of Northwest Biotechnology has given encouraging signals of activity in very difficult to treat glioblastomas and inoperable solid tumors. If the signals are confirmed in larger trials, there is enormous upside for the stock. However, there is a very meaningful risk that the clinical trials will not replicate the signals that I find encouraging and that investors could lose all of their investment. This is a classic high risk, high reward investing situation which I characterize as asymmetric. By this I mean that the potential upside is so great that for me (and other investors but by no means all) justifies the risk of losing all our money. See this link for a detailed explanation of asymmetric investing.

Allow me for the moment to speculate on a scenario that could be incredibly positive for investors long the stock and an utter disaster for the shorts. Let me emphasize and then re-emphasize the point that this is the most optimistic of a large number of scenarios, which includes failure of the Company. The optimistic scenario may be no more than a dream, but here’s how it goes. Screening in the phase 3 trial of DCVax-L restarts. It turns out that the FDA was called in to look at interim data from the trial with the purpose of giving approval for recurrent glioblastoma based on data from the information arm of the trial or the trial has already reached the proscribed endpoint in the phase 3 trial of newly diagnosed glioblastoma patients. Next, law enforcement officers move in to arrest certain wolfpack employees for stock manipulation. The stock surges and allows financing on very favorable terms so that finishing the clinical trial programs is assured. The upside would be colossal based on these dreamlike fundamental outcomes and cause one of the most colossal short squeezes in the annals of stock investing. From my lips to God’s ears.

More on the Woodford Deal and Tidbits from the Press Release

The deal will close on October 22. It brings Woodford’s holdings to 26 million shares or 28% of the Company. The hedge funds are attributing this to his investment naiveté. There seems to be a note of desperation in this view.

Northwest also announced that it has engaged Ondra Partners, a London-based corporate finance firm with a focus on value creation and an integrated approach to medium and long term financing and related initiatives. The choice of a European firm is interesting. It may be easier to raise money in Europe; because of the pre-eminent reputation of Woodford; he may have a number of institutions eager to invest alongside him. Also, the inclusion of DCVax-L in early access programs in both the UK and Germany could be a major selling point. The wolfpack has been pretty successful in the US in convincing investors that these approvals are meaningless. They may have less impact in Europe and investors could see this as major product validation by regulatory agencies which reasonably seems to be the actual case.

Northwest went out of its way in the press release to say that it had reported encouraging interim clinical data from both its DCVax-L and DCVax-Direct clinical programs, both last spring and recently, with patient survival exceeding expectations.  With this new funding from Woodford we look forward to moving these clinical programs ahead vigorously while continuing to build our organization. This may not mean anything, but it could be interpreted as suggesting that the suspension of enrollment could be due to something that could ultimately proves to be positive in line with my optimistic scenario presented above.


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  1. Larry, could you give us your thoughts about how much flexibility the “wolf pack” might have with a continued shorting champaign against NWBO. Is regulatory oversight the only answer to curb their excesses? Or, is it possible the “house of cards” created by all the phantom shares and “dark pools” could collapse over it’s own weight? Any thoughts appreciated, and keep up the great reporting.

  2. Larry,

    1. How long will this cash amount last for NWBO before they need another capital raise?

    2. How much more money do you think NWBO we need to raise to finish enrollment and get results for DC Vax L? (Assuming the screening restarts again for the trial.)

    I know these will be estimated guesses on your part, but would like to hear your thoughts. Thank you

  3. Larry: Thanks very much for these past two articles on NWBO. I like the way you have been laying out how the wolfpack makes money. I’ll paraphrase:

    1. By driving the stock price down, the wolfpack damages the target company and blocks the target’s access to conventional financing forcing the company into the arms of distressed financing specialists. In addition to getting the business they get it on exceptionally favorable terms as you describe. They then use the shares from the offering to cover their shorts.
    2. If they can drive the target into bankruptcy then they never have to cover their short-bets and thus get to keep all the proceeds from their short sales.

    To me, it seems that Option 2 is the preferred option for the wolf pack because it is relatively neat and can be pretty fast. However, Option 1 followed by option 2 would give them two bites at the apple.

    It seems to me that even if the target doesn’t go bankrupt, the naked short sales never really have to be unwound. Which would further seem to mean that these hedge funds are literally printing money (currency) and that there really is no limit at all on the number of shares they can print (except a total lack of buyers at any price). Therefore, us passive investors (those who purchase shares on the open market rather than directly from the company) don’t really help the situation, we just enable the wolfpack to make more money by soaking up the additional shares they print.

    Therefore, it would seem that NWBO, by finding Woodford, has been able to avoid using the “loan shark”, frustrating option 1 for the third time. However, because Woodford has only provided 4+ months of capital (more time if the Phase 3 trial is winding down as would be expected) it would seem the hedge fund wolf pack likely won’t be dissuaded unless Woodford has bought enough time for the company to raise “real money” (say $100m+) and/or announce unambiguously positive news. The only hope for the latter would seem to be that the German sickness funds are actually paying NWBO a substantial price for DCVAX-L, like $100k/patient.

    I bought a few more shares on Friday and again today after the news when the shares were slow to revert to the $5.50 price. Nevertheless, I’m pretty nervous about my investment. I’m also profoundly disturbed and ashamed by the corruption and ineffectiveness of our Federal Government.

    Just venting.

  4. Larry,

    Its funny that your last paragraph, you seemed to also highlight that remark on the interim clinical data for both trials. This coupled with the fact that the fundraising only moves NWBO to one more quarter isn’t enough to push the company to next year’s estimated, late 2016 original estimate of the trial reaching its endpoint. This also tells me that NWBO may be using this financing for 2 purposes, help stop the near term bleeding from short selling, but also, the fact that they are perhaps waiting for news from an interim analysis, and optimistic from the information arm data so far (or maybe even interim analysis results) that are awaiting FDA review. Now I do not profess the exact steps in analyzing interim results and how these results are given to the FDA for accelerated approval, but I do know that after analyzing the datasets from the information arm, and the phase I/II, if there is 30 – 40% of the GBM patients seeing a 3 year survival rate, it will take less than 100 vaccinated patients to show statistical significance. However, not sure how the FDA evaluates this, if the rest of the patients haven’t been included in the data, as one could argue that they could all die at month 1 and change the results.

    Moreover, the only additional caveate is that if the vaccine works too well, and ends up shifting the placebo patients that move over to the vaccine after tumor regression to have a longer OS as well, then it could take more patients to reach this. However, the primary PFS results might easily reach statistical significance. So that’s my question to the FDA. If the primary PFS endpoint shows statistical significance prior to the enrollment being completed, but the OS does not, but it shows mean OS values of placebo and vaccinated patients that are elevated (in that placebo patients that move to the vaccine end up living longer and moving the mean OS), does the FDA decide to accelerate approval, due to the diseases aggressive nature.

  5. Check this out, it has striking similarities to DCVax-L’s phase III trial:

    Bevacizumab for Breast Cancer achieved accelerated approval by the FDA. The trial’s primary endpoint was PFS, which showed a statistical significant improvement of PFS of 5.5 months, however the secondary endpoint, OS did not reach statistical significance. However, nonetheless the FDA provided it accelerated approval status.

    The FDA official himself said “that delaying the progression of a life-threatening disease “may be a direct clinical benefit in itself.”

  6. Larry:

    I do not have enough words in my vocabulary that can convey my thanks to you for your work. This is succinct, precise and clear for any lay person to understand. Your objective perspective and clearly articulated risks are an immense help in this confounding and confusing landscape that investors in NWBO are currently experiencing. Not that it has any impact, but believing that even one single voice in support of the company on message boards could give heart to retail investors, I have made time in recent days to post nasty messages to these short bashers. But the fact of the matter is that such dark pools that employ such ruthless and greedy strategies still prevail. And this even after debacle of 2001 and 2008, where there has been ample evidence to show clear cases of outright cheating by many financial institutions. There is a willingness on the part of regulatory bodies to NOT see or hear and disregard these manipulations. It is disheartening to say the least. What can common people do have these hedge funds and people operating them be brought to account? This is not just about investors losing money, it is more about patients losing opportunities to avail better treatment options. I would, for my part, be more than willing to lay on the line whatever it takes. The next step would be for someone to lead such effort.

    Again, my heartfelt appreciation for your work ! Wish you the very best.


  7. Larry,

    Again great analysis and reporting. Regarding enrollment is it possible that it has been suspended because the company learnt or believed that the data from the trials was and had been negatively manipulated by hackers? I assume they would have to notify the FDA about this and then would have to review the treatment of every patient at every site. Under this scenario it is easily understandable how two weeks could become two months plus as it would have to involve both the DCVax-L and Direct trials. Such an investigation would of course not only involve all the doctors and hospitals, FDA, U.K. and German authorities but also most likely require the involvement of the FBI and other domestic and international authorities. As survival is the ultimate proof of the efficacy of cancer drugs I assume the overall results of the trials are still excellent. If this is indeed the case then your dream scenario may come true. Hopefully, you will find you have a better relationship with God then you thought.

  8. A safety event would be a material event and all investigators would have to be notified.

    Immunotherapy trials are not stopped at first interim due to the long tails and
    recent press releases (after the screening halt) have touted the success of DCVaxL in the information arm. And NWBO also stated recently “NW Bio is not aware of any fundamental reason for the substantial decline in the price of the Company’s stock on Friday, October 16.” If the screening was stopped for futility, NWBO would be overwhelmed with law suits when the news was made public.

    Northwest Biotherapeutics – Linda Powers’ Speech Transcript at the Oppenheimer 25th Annual Health Conference on 12-10-14
    Linda Powers interrupts: “No, no, no, no. No, well, if you know if the patients, umm, depending on the patients, of course. No, we think it is more like close to the turn of the year. Like the beginning of 2016, not the middle.” which refers to when data would be available.

    NWBO has stated that over three hundred participants have been enrolled so it is possible the trial is fully enrolled (348 is more than 300 after all) or the trial has enough patients already screened to reach full enrollment. Therefore the first interim analysis could have occurred.

    “Once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth.” – Sherlock Holmes

  9. The above post seems really logical to me….JMHO, I think the “screening” has been halted and enrollment of the patients who are already screened is continueing, because we have finally reached the 348 patients we need for full enrollment….So, I will sleep at night with that as the “final answer” on what is happening and what might be happening and “stay tuned” if Les ever gives out a press release that ever gives better answers to all the questions surround this company and its science, plans, and various “tid-bites” that have left open questions for quite some time now….Thank you, whoever made the above post and I sure hope you got it right, because I think you did…. cheers

  10. Just an FYI. Today, I was able to sell NWBO Put options expiring in November with a strike price of $5 for $.85 (stock price at $5.20). I’m surprised that the SP hasn’t recovered to the $5.50 that Woodford paid, but I really think it is unlikely (famous last words!) the stock goes below $4.15 in the next month.

    I think investors are underestimating Woodford.


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