NWBO - Northwest Bio: Data Is Great But Nothing Else Is

2023-04-30 04:06:29 ET

Summary

• NWBO continues to slog away, with no definite date of a BLA submission.
• They recently made provisions for a large dilution, took a "toxic" loan, and got a manufacturing approval in the UK.
• There's progress, but it is agonizingly slow, and the stock keeps falling.

I would like to begin this article about Northwest Biotherapeutics ( OTCQB:NWBO ) by quoting the very first paragraph of my February coverage :

I cover NWBO because I appreciate the engagement with (NWBO followers). Enthusiasm, however, cuts both ways. Enthusiasm can make you very knowledgeable about something, but it can also produce tunnel vision. If there was no such tunnel vision, we would realize that Northwest Bio, being a public company, has a duty to keep its investors informed about the company in a timely, clear and dialogic manner, like other companies do with earnings calls. Northwest Bio has never had an earnings call in living memory.

The stock is down 30% since that time, and exactly because of this - no further information from the company since they published those outstanding results last year.

To be precise, that is not exactly true - it did publish stuff, just not what investors wanted to know. On January 6, the company published details about the Annual Shareholders Meeting held on December 30, 2022. A few key points relevant to our discussion are:

1. Authorization to issue 500 million additional common shares, which increases the number of authorized common shares by 50%.

2. Review of progress in 2022, which includes data, JAMA publication, and lawsuit - I have discussed each of these in my previous coverages.

3. Obtained regulatory approval of a Pediatric Investigation Plan ((PIP)) to support the use of DVax-L in children.

4. Progress on preparing the Trial Master File to be inspection-ready for regulators.

5. Preparation for application for commercial manufacturing license for the Sawston facility, a prerequisite for approval.

6. About the BLA, all that they said was that they are working on an application package, and plans to submit an application "as soon as possible" - this is probably what is eating away at the value of the stock, because normal companies do not take years to submit a BLA, and they generally indicate a timeline.

With reference to item 5, the company received a commercial manufacturing license in the UK in March, for its Sawston facility. The license to manufacture a cell therapy is rare, with only two others given so far. The license allows them to import products such as immune cells, and manufacture and globally export cell therapy products manufactured at their GMP facility in Sawston. In their latest 10-K, they give some details about capacity . They claim that they have the "potential capacity to produce dendritic cell vaccines for up to 40 to 45 patients per month, or approximately 450 to 500 patients annually."

With respect to item 1, I have noted again and again that this $528mn company with supposedly/apparently excellent data has no cash. Since they issued 500 million additional common shares, that is a big concern because that means potential dilution to a very large extent. In March, they signed a $11mn loan deal with John M. Fife's Streeterville Capital. The deal has a maturity of 22 months, and debt repayments will begin from November 02, when the loan will be amortized in 14 equal monthly installments of principal plus interest. That means, from November, NWBO will have to start paying approximately $1mn per month for 14 months to the lender. Two years back, NWBO took a similar loan from the same lender.

A year before that, the SEC charged John Fife "for acquiring and selling more than 21 billion shares of penny stock without registering as a securities dealer with the SEC." Here's what has been said about the mode of operation of these so-called "toxic lenders":

Fife has operated as what's called a "toxic lender" for many years. Microcap companies trading on the over-the-counter market typically have limited access to traditional financing. Desperate for cash, they sign on with financiers like Fife who purchase securities-usually convertible promissory notes or convertible debentures-from them. The financiers charge extremely high interest, but that's the least of their clients' problems. Upon conversion, the lenders enjoy a discount to market price that may be as high as 60 percent, and higher in the event of default by the issuer. As he converts portions of his note and sells the resulting stock into the market in a series of tranches, the stock's price plummets. That is why these kinds of instruments are called "death spiral convertibles." Eventually, the dilution caused by the conversions may force the issuer to reverse split the company's stock. Sometimes it drives the company into bankruptcy.

So, Northwest Bio has a) very little cash, and b) very little access to good loans, so c) they take a loan from this controversial lender, from whom d) they took a loan earlier, whose fate is uncertain, and e) they just allowed themselves to dilute shareholder value in future, by half, so f) the conclusion is that the cash position and dilution situation remains precarious for a company which claims to have arrived at very strong results in a cancer indication.

The only item left to discuss is the "spoofing" lawsuit filed by the company against 8 of the largest market makers in the US, including Canaccord Genuity and Citadel Securities. In a statement , the latter said:

This frivolous lawsuit appears to be nothing more than an attempt by Northwest Biotherapeutics to divert attention away from its long history of governance and management failures, SEC charges for financial reporting lapses, and lawsuits from its own shareholders.

In March, I see a note on law360 (which I cannot fully access), which says these companies have asked a federal judge to toss the suit, saying "the case fails to allege any actionable trading or evidence of misconduct." So, the lawsuit is ongoing, and it is, whatever its merit, a major distraction from the company's main business of developing and selling a cancer therapy product.

So that is it. These are what happened to NWBO recently. They also explain, once again, why the stock has been cut by half in the last few months since the data. They have no cash, and they are offering no timeline for a BLA submission. I have a few shares, I am not making a profit right now, and I will continue to hold.

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