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Expert Financial Analysis and Reporting

Northwest Biotherapeutics: The Perfect Storm May Be Brewing for Short Sellers (NWBO, $7.66, Buy, Free Content)

I wrote on June 12th  that NWBO stockholders may be seeing a changing in the tide of investor opinion. The release of an update on interim data on the phase 1 trial of DCVax Direct has had a major impact as the stock has increased 20% in the week since that release. Today, the Company announced that it has been added to the Russell Global and Russell 2000 Indexes which are benchmarks for an estimated $5.2 trillion of assets. This usually (always) results in significant buying for stocks added to the index.

Short sellers are extremely exposed to this stock with nearly 6.5 million shares sold short and I have heard that there may be an additional 2.0 million of naked short sales. The strong reaction to positive news on DCVax Direct and the addition to the Russell indexes have to be a major cause of concern and could lead to short covering and potentially a short squeeze.

More ominous clouds on the horizon for short sellers are a number of positive catalysts that could potentially arise through the balance of 2014. The largest drag on the stock has been speculation as to why there has been no mention of an interim efficacy analysis having been completed in the DCVax-L trial. The bears have suggested that this was because NWBO had seen the results, that they were negative and they were being purposely withheld from investors to prop up the stock price. This is ridiculous because NWBO is blinded and could only see the results if the trial were stopped for futility or for efficacy. Both are material events that would require an immediate press release.

It seems to me that the reason for this is that the Data Safety and Monitoring Board has not performed the analysis. The Company has suggested on several occasions that it might enlarge the trial of DCVax-L. I think if this was done that the DSMB would defer the interim analysis until the regulatory approvals for expansion were cleared. I think that the reason there has been no announcement on the efficacy analysis is that it hasn’t been done. My opinion seems to be a minority view but for me this seems the only logical conclusion. If I am right, we should hear in days, weeks or a month or two about this and the major pillar of the bear argument would be swept away.

We have not heard an update on the German hospital exemption early access program since the announcement in early March that DCVax-L had received approval from PEI (the German equivalent of FDA) and that it also had been placed on the list of drugs that are eligible for reimbursement. The logistics in preparing supplies of DCVax-L and seeking reimbursement are not matters that can be done in a few days or weeks.

I think that later in the year we will hear that the first patient(s) has been treated and that reimbursement has been negotiated with one of the regional health care providors. There has been some confusion among investors that this program is no more than an older compassionate use program that has been used in Europe for many years that usually requires an IND to be filed for each patient and sharply limits the number of patients that can be treated. The hospital exemption is very different and is not that different from a full approval. As this becomes clear to investors, I think that this will be seen widely for what it is: an extraordinarily positive event.

The Company has an approval for selling DCVax-L in the UK that is similar to that in Germany except that there is no potential for reimbursement from the UK national health insurance program. We may hear more about the UK once Germany begins to get up and running. Patients with adequate resources can pay for and gain access to DCVax-L in the UK.

The German and UK programs could result in a product sales revenue line this year. For an emerging biotechnology firm, realizing revenues is a major positive event.

The Company will continue to release interim data on the open label phase 1 trial of DCVax Direct. If the initial results which have been so encouraging are durable, this could also be a significant positive. There seems little question that we are seeing a biological effect with the drug, but the issue will be whether the effect is lasting.

I think that there is the potential for a major short squeeze given all of these events and how strung out the shorts are. I would also add that hedge funds are like sharks in a feeding frenzy and if other hedge funds see the hedge funds currently short the stock getting squeezed, they will jump in and exacerbate the squeeze. This is why I see a perfect storm building that could cause the stock to over react on the upside. This could create a difficult decision for long term investors but I will cross that bridge when we get to it.

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  1. Larry, thank you for the update. A few other possible catalysts over the short-term may include an announcement regarding full enrollment this month for Direct phase 1, an announcement over the next couple months regarding the cancer type selected for Direct phase 2, and perhaps a second separate Direct phase 2b trial announcement for multi-tumor injections. In early June, Linda Powers
    indicated the latter may happen “quite soon indeed.” Exciting times ahead.

  2. Lawrence Braverman says:

    AGEN was also included into the Russell today…

    Agenus, Inc. (AGEN), an immuno-oncology company developing a portfolio of checkpoint modulators (CPMs), heat shock protein vaccines and adjuvants, announced that it has been selected for inclusion in the broad-market Russell 3000Index and Russell Global Index when Russell Investments reconstitutes its comprehensive set of U.S. and global equity indexes on June 27, 2014, according to a preliminary list of additions on

  3. sentiment stocks says:

    Thanks Larry – after months of short selling this tumor killing stock, the shorts are in for a world of hurt coming full steam ahead at them. They can all thank Adam for that.

    You may or may not be right about the DMC analysis – in the end, it doesn’t matter to me what the reason is as I am confident (as I’m sure you are too), that ultimately and relatively soon – L will be approved here by the FDA and in Europe by the EMA and many cancer patient lives will be improved.

    Thanks for your support and analysis! 🙂

  4. Larry,

    I know AGEN has a drug therapy that is very simlar to what DC Vax L is. If DC Vax L works and gets approval. Does AGEN have to wait 7 to 10 years in America and Europe to sell their product because of the orphan drug status given to DC Vax L?

  5. The technology used by Agenus is quite different from that of Northwest Biotherapeutics. There is no problem for Agenus.


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