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Northwest Biotherapeutics (NWBO, Buy, $7.59) What the 2014 10-K Had to Say about the Approval of DCVax-L under the German Early Access Program

Purpose of This Blog

The approval of DCVax-L under the hospital exemption early access program was a stunning positive in my judgment. However, this is the first product made by an American company that has gained approval under this new law that was just passed in 2011. Because of this, there is obviously no prior experience and to many investors, this just appears to be too good to be true. There has also been confusion that this is nothing more than the named patient compassionate use program that has been existent in Germany for some time. f-stein predictably tweeted “Compassionate use, who cares.” This is not named patient; it is dramatically different.

I think that SmithOnStocks is out on front on this issue, but there is a lot that I don’t yet know. Hence, I was curious to see what management had to say about this in the 2014 10-K which was just published. I have copied and pasted two paragraphs that describe this program from the 10-K; they are as shown in the following paragraphs. I would urge you to read them and I will then follow with my thought on the key points. Here are the 10-K paragraphs.

Paragraphs from the 10-K

In March 2014, we announced that DCVax-L had received approval from the Paul Ehrlich Institute, or PEI, which is the equivalent of the FDA in Germany, of a "Hospital Exemption" early access program under Section 4b of the German Drug Law.  Under this Hospital Exemption, we may provide DCVax-L to patients for the treatment of any glioma brain cancers (both Glioblastoma multiforme and lower grade gliomas), both newly diagnosed and recurrent, outside of our clinical trial, and charge full price. This approval has a term of five years, and can be re-applied for and re-issued at the end of that period. DCVax-L products that are to be covered by the Hospital Exemption in Germany must be manufactured in Germany, but can be administered in Germany to patients from anywhere.  As in our clinical trial, DCVax-L will be administered under the Hospital Exemption as an adjuvant treatment after surgical removal of the tumor and radiation/chemotherapy where applicable.  We will provide annual data reports to the German regulatory authority during the five-year term of the Hospital Exemption.  We expect to activate this program over the coming months.

We also announced in March 2014 that the German reimbursement authority, the Institut Fur Das Entgeltsystem Im Krankenhaus, or InEK, has determined that DCVax-L treatments for glioma brain cancers are eligible to obtain reimbursement from the Sickness Funds (health insurers) of the German healthcare system.  Applications for such reimbursement eligibility may only be submitted to InEK by German hospitals, not by a company.  Six major hospital centers across Germany applied for such reimbursement eligibility for DCVax-L for glioma brain cancers.  We plan to negotiate the amount and terms for such reimbursement with the hospitals and the Sickness Funds, which we expect will be applied to patients case by case.  In the meantime, patients may self-pay for DCVax-L.

My Thoughts

These comments pretty much coincide with my current understanding of the terms of the early access program. The key points are:

  • NWBO can provide DCVax-L to patients for the treatment of any glioma brain cancers (both glioblastoma multiforme and lower grade gliomas), both newly diagnosed and recurrent. This goes far beyond the scope of the phase 3 trial in which the target population is only newly diagnosed glioblastoma multiforme
  • The approval is for five years. NWBO can submit another application at that time to renew the approval.
  • It appears that all glioma patients in Germany are eligible for reimbursement. NWBO can charge full price and hence make a profit on these sales.
  • DCVax-L must be manufactured in Germany, but can be provided to patients from anywhere. This means that patients from other countries of Europe can come to Germany and be treated. I would think that they would have to pay for the treatment out of pocket.

This program has the potential to result in meaningful revenues. Here is the way I think of it. Patients with glioblastoma multiforme have a disease in which the average patient has a life expectancy of about 17 months. They are desperate for any hope of a treatment that may help them and with the internet, they will quickly learn of DCVax-L. Given that the side effects of treatment are very mild, nothing like chemotherapy, the only deterrent to their trying the drug is availability of treatment and cost. Put yourself in the position of having glioblastoma multiforme. What would you do? I know I would make every effort to gain access to the product. While NWBO cannot directly promote DCVax-L, I don’t think they will need to. The word will quickly get out to both physicians and patients.

Just from a logistics standpoint, it is going to take NWBO some time to set up the logistics that go with an autologous cancer vaccine product. Remember that the patient has to provide blood from which the precursors to the dendritic cells in DCVax-L are made and tumor tissue from the resected tumor. These have to be sent to the manufacturing site and processed and then sent back to a site at which DCVax-L can be administered to the patient. This is not a trivial exercise in logistics and NWBO can’t afford to make any mistakes in the early going. Look for the company to move slowly in 2014.

I am still uncertain on the reimbursement situation in Germany. As I read it, there is the potential for all patients in Germany to be reimbursed. If so, this could be a noticeable cost for the German health care system. 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 believed 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. This number could be even bigger if other gliomas (milder forms of primary brain cancers) were to be included. It is hard to imagine that the health care system will not try to control the use of DCVax-L in some meaningful way.

I have considerable uncertainty on how the sales ramp of DCVax-L may unfold. I think that sales in 2014 will be modest for the logistics reasons that I previously discussed. However, I think that revenues in 2015 could be meaningful. Because DCVax-L is given in a series of injections over three years, the price might also be spread. For example if the overall cost of therapy is $50,000, revenues in the first year might be some percentage of this; my guess might be 50% or $25,000. If so, DCVax-L would have to treat 40 patients to create $1 million of sales.

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