NWBO - Northwest Bio: Is There Ever Going To Be A Right Time?

2023-08-17 16:56:25 ET

Summary

• Northwest Biotherapeutics is a biotech focused on developing a dendritic cell vaccine to fight cancer.
• The company has faced financial challenges and has relied on dilution to raise funds.
• While they have achieved success in glioblastoma, funding remains a major concern that makes this a no-go for me, even for the risk tolerant.

Topline Summary

Northwest Biotherapeutics ( OTCQB:NWBO ) is a biotech dedicated to developing a novel dendritic cell vaccine, with the hope of "reinvigorating" the immune system to fight cancer. While they're moving past regulatory hurdles, cash has remained an issue for them, and dilution has been the cornerstone of fundraising, dunking on shareholders again and again. Scoring a rare win in glioblastoma is a huge feat, but I have serious reservations about funding operations until they can get to sales meaningful enough that dilution is off the table.

Pipeline Overview

NWBO has several candidate cell therapies in its pipeline, all focused on the DCVax platform, which entails taking a patient's immune cells and helping them to differentiate into dendritic cells, which are dedicated to finding and processing molecules that are not self. These dendritic cells are then used to treat the patient, with the intent of informing the immune system of the entire range of the tumor's unusual antigens and allowing a mounted immune response.

DCVax-L is the product furthest along in development for NWBO, and they achieved a lofty milestone that was published in November 2022, a clinical study focused on patients with glioblastoma. In a non- randomized, externally controlled phase 3 trial , treatment with DCVax-L in combination with standard-of-care chemotherapy yielded median overall survival of 19.3 months. This was significantly higher than an external, contemporary control group that had 16.5 months.

After 60 months of follow-up, 13.0% of patients were still alive, versus 5.7% in the control group.

In patients who had recurrent glioblastoma, DCVax-L improved survival to 13.2 months from the time of relapse compared with 7.8 months in the control group. This led the authors to conclude that DCVax-L provided a "clinically meaningful and statistically significant extension of survival for patients with both [newly diagnosed and recurrent glioblastoma multiforme].

While the patients in this study were not propensity-matched (i.e., the study was not likely balanced in terms of age and disease features). Moreover, glioblastoma is such a high area of unmet need that some liberties can be taken in terms of study design and conduct, as long as the results appear as striking as these.

Per managerial guidance, NWBO is putting substantial effort into getting an NDA submission to the FDA seeking approval of DCVax-L. They continue to advertise other dendritic cell vaccines in their pipeline, but development of these are on the back burner for now as they prioritize DCVax-L's submissions.

Financial Overview

Per NWBO's Q2 2023 SEC filing, the company held $1.4 million in cash and equivalents at the end of the 2nd quarter. Total current assets reached up to $4.6 million. Meanwhile, total operating losses exceeded $13.5 million for the quarter, and after interest expenses, the net loss was $14.4 million.

The company used a mixture of Mezzanine equity and common stock sales to fund operations in Q2. They issued over 1 million shares, as well as 1416 preferred shares, and over the course of the first 6 months they've raised $21.2 million through their financing activities.

Strengths and Risks

NWBO has one huge strength working in its favor: positive phase 3 results. Honestly, it's unclear to me whether these findings will be acceptably positive, given the lack of an enrolled control into the study (recall that the trial in glioblastoma used external contemporary controls). But putting that aside, assuming they get an approval… when is it?

Because it feels like almost everything else is working against NWBO. They have almost no cash on hand, and they're funding through rapid dilution and I think questionable-at-best loans . As of the end of Q2, total shares outstanding were in the 1.1 billion range, and the company has been authorized to sell up to 1.7 billion.

So optimistically at this point the most they could raise with these extra shares is around $115 million, getting them through maybe another year of operations. At the expense of an almost 50% dilution of your investment if you were to buy in today. Of course, extremely good news could reverse that and make sales of common shares a more attractive and tenable strategy, but would-be shareholders and current holders of this equity should definitely be aware that NWBO is showing its various challenges in raising funds, and this is not going to go away any time soon.

And beyond that, a drug approval in a relatively niche area of cancer, with a challenging-to-manufacture drug is likely to put NWBO in the realm of a market cap $1-$2 billion, or somewhere like $1-$2 per share. With the current capital structure of the company, prospective shareholders just don't have that much here to be worth the very real risk of disintegration by dilution.

Bottom Line Summary

It's so tempting to consider an investment in a company with almost as close to a slam dunk approval as you'll see in biotech. NWBO's phase 3 data are promising, and glioblastoma is a huge area of unmet need. But unfortunately their cash challenges are extremely deep, and having been in these kinds of investors' "just one more quarter, and we'll turn around" situations, it's not fun, and I would strongly discourage a long-term investment here at this time. There might be some volatility play for the traders out there, but even in that situation, the bloated equity structuring of the company limits how high good news can send them, unless you see news of an NDA acceptance as worthy of more than $1 to $2 billion in market cap, which I definitely don't.

I think there are way better places you could consider placing your money right now if you want companies that are at this same point or further. Consider my analysis of Gamida Cell , for example, as an alternate high-risk/high-reward situation with a lot less baggage. 9 out of 10 times would I put money into them before considering NWBO at this time, unless they're able to show a decisive move toward solving cash flow issues.

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