Expert Financial Analysis and Reporting

Investment Overview

In the 1Q, 2020; 10-Q regulatory release on June 24, there was a section that went into some detail on the pending release of topline data from the phase 3 trial of DCVax-L in newly diagnosed glioblastoma. It describes how Covid created major problems in compiling data from the phase 3 trial that will allow for data lock, followed by statistical analysis of the data and then release of the long awaited results to investors. The 10-Q stated that “the Company is aiming to proceed with data lock at approximately the end of next week”. This would imply data lock by July 3. The Company said that it would then take several weeks for the statisticians to complete their analysis, for the results to be unblinded to the Company and followed by the release of topline data to investors. I would interpret “several” to mean five weeks (about August 3) and possibly/probably more but this is an utter guess.

Previously, management has implied that the topline data release might be more extensive than is ordinarily the case. Oftentimes, companies just state statistical results for the primary and perhaps some secondary endpoints. I would think that there could be significant sub-group analysis and also analysis on the durability of response to DCVax-L. Blinded data from the phase 3 trial is strongly suggestive that there is a meaningful survival tail in the trial. If so, this should be easy to show as there is over four years of data for the last patient enrolled in the trial and more for all others. There will be unprecedented data on patient survival.

So, at long last we will see the data from this important trial. If the results are positive, DCVax-L could become part of standard of care for newly diagnosed glioblastoma. Also, the technology of dendritic cell vaccines would be validated, indicating that it could be effective in treating most solid tumors. This would be a major breakthrough from a medical perspective and a homerun from a commercial standpoint. My analysis leads me to believe that the data will show a meaningful survival tail. However, the only certainty about clinical trial outcomes is that there are no sure things.

If the trial fails, I think it is the end of the line for the Company. It is sometimes the case that following a trial failure, the sponsoring company can analyze the results and plot a new path forward. This would require cash resources far beyond what Northwest could muster. On the other hand, success in the trial could warrant a several billion valuation based on a comparison to peer emerging biotechnology companies.

In the 10-Q, it shows the current share count as about 650 million shares with another 480 million potentially dilutive shares stemming from options and warrants so that if every share is converted, there would be about 1.1 billion shares outstanding. Incidentally, the exercise of the 480 million options and warrants might bring in $100 million or so over time. The current market capitalization based on 1.1 billion shares is about $400 million. I could argue for a market capitalization of $3 billion over time if the phase 3 trial is judged as being successful by investors. The Company will need to raise a cash cushion for its next step in development and this could put a cap on the stock short term. Just for the sake of illustration, let’s hypothesize that the Company sells 200 million shares at $0.50 to give it a cash cushion of $100 million. This would result in 1.3 billion shares outstanding so $3 billion of market capitalization (could be more) would result in a share price of $2.30. This is clearly an asymmetric investment opportunity in which the upside for a clear trial success could be $2.00 ($2.30-$.036)  and the downside is $0.36 ($0.00-$0.36) for an utter failure.

Take the above calculation with a grain of salt. I would be amazed if the situation were to play out like this, but it is a reasonable hypothesis to build around There are many variables that could enter into play whose effect on the stock price could be profound. Some of these are:

• Extensive short positions could result in a huge short squeeze.
• Collaborations with larger companies could bring in significant amounts of non-dilutive capital and capture Wall Street’s attention.
• Northwest could be acquired.

Pertinent Text from 1Q, 2020 10-Q

Here is what the Company said about data lock for the phase 3 trial and subsequent release of topline results.

“As previously reported, the Company is working with the contract research organization (CRO) who has managed the trial and a number of independent service firms to complete the data collection and confirmation, and reach data lock for the Phase III trial. All of the data collection and confirmation is done by the independent firms, with the Company in an oversight role.

As also previously reported, coronavirus-related difficulties have impacted most aspects of the process. Trial site personnel have been unavailable due to being reassigned to COVID-19 patient treatments or otherwise, and the limited site personnel have had to work under restrictions. Committee processes such as Institutional Review Boards and Ethics Committees have been, and continue to be, focused mainly on COVID-19 matters, with other matters significantly delayed. Regulatory processes have been similarly focused on COVID-19 matters and delayed on other matters. Firms such as the ones storing the Phase III trial tissue samples needed for certain final data, and the firms conducting the analytics for that final data (such as IDH mutation status), continue to have only limited operations. Even logistical matters such as the shipping of tissue slides have been, and continue to be, subjected to substantial restrictions and delays.

Despite these difficulties, the CRO has completed the final monitoring visits to the trial sites (including a number of them virtually), and has completed the collection of Case Report Form (CRF) data for all patients in the trial. The CRFs contain most, though not all, of the data required for analyzing the trial.

Since the Company’s prior updates, the CRO has also completed the Source Data Verification (SDV) for all of the data contained in the CRFs. Further, the CRO has completed the resolution of the many queries.

The independent service firms have also collected most of the additional data that is not contained in the CRFs, such as additional MRI scans and certain genetic information. The Company is consulting with its advisers to obtain their support for proceeding with initial data lock without waiting for these additional data, and then to include these additional data in the database when they are available.

The primary focus for reaching data lock now is obtaining the trial sites’ data locks. In order to reach overall data lock for the trial, each site’s data must be locked. Preparatory steps must be completed at each site so that the site is ready for sign-off, and then the lead investigator at the site must personally sign off on the data from that site. To that end, the lead investigator must undergo a brief training on the system, review the site data/CRFs and personally complete the confirmation and submit it.

Since the Company’s prior updates, the CRO and service firms have completed the preparatory steps for all but about ten of the sites to be ready for the investigator’s sign-off. Among the sites who had reached readiness for sign-off, about 33 sites are in varying stages of accomplishing their sign-offs and the rest of the sites have completed theirs.

The independent service firms are pressing to obtain the rest of the site completions and investigator sign-offs. The Company hopes they will be completed by approximately the end of next week. Accordingly, the Company is aiming to proceed with data lock at approximately the end of next week.

As previously reported, upon data lock the independent statisticians will be given access to the clinical trial database containing the raw data, and will undertake the applicable calculations and analyses. As previously reported, the Company will remain blinded until the statisticians have completed these calculations and analyses. That process is expected to take several weeks. The Company will then receive the initial results from the statisticians and become unblinded. Then the Company will consult with its Scientific Advisory Board, trial Steering Committee and expert advisors about the data, and address their questions and/or comments to prepare for announcement of the data.”