After staying under the radar for most of 2016, under-pressure Northwest Bio ($NWBO) posted a rather complex, messy release this week as an “update of its operations.” But when you delve into the details, it becomes clear that the Bethesda biotech’s troubles are far from over.
First up is its new problem with Nasdaq. In a Form 8-K sent to the SEC, Northwest Bio revealed that Nasdaq staff had sent the biotech an official letter on April 26 saying it didn’t like how some of its shares had been issued to Cognate BioServices--alleging it had not complied with its rules.
A number of analysts and reporters have for some time been very vocal about the connections between Hanover, MD-based Cognate and NW Bio.
Cognate, a cell-based specialist manufacturer, is the CMO for NW Bio’s lead cancer vaccine DCVax but is also a part of (and created by) the venture group Toucan Capital Fund III--an entity controlled by NW Bio’s CEO and president Linda Powers (she serves on the CMO’s board and is MD of Fund III) and her husband.
According to a report published last October by analysts at Phase Five Research (a company that held a short position on NW Bio), since 2004 around $310 million in cash, shares, warrants, options and other benefits had been transferred from Northwest to the Toucan Group.
Speaking to the WSJ last year, Les Goldman, who heads Northwest’s business development, said any payments to a company related to Powers “would have been made to a Toucan portfolio firm Cognate BioServices in return for further development and manufacture of the biotech’s cancer treatment for use in clinical trials involving hundreds of patients.”
But Phase Five also said in its report that it believed Powers “used $30 million of NWBO’s cash for the actual benefit of Cognate--acquiring a huge production site in England--that according to our analysis of the evidence will most probably be used by Cognate rather than NWBO.” Powers has vehemently denied the report’s allegations.
Back in 2013, NW Bio converted $11.6 million of accounts payable to Cognate into shares of its common stock at a price of $4.00 per share.
In the SEC filing, NW Bio said it had paid substantial portions of Cognate’s invoices in unregistered, nontradable shares rather than cash to “conserve resources.”
It went on: “This enabled both trials [for DCVax] to proceed at full speed during 2013-2015, without suspension or reduction of the trials such as had been necessary during 2008-2011 due to the financial crisis. … However, by the end of 2014, the company was able to raise sufficient resources to make such stock payments no longer necessary, and they ceased after only about 12 months of the 18-month period.
“In November 2014, the company approved the issuance of adjustment shares under the most favored nation provision as a result of transactions done with unrelated investors. The approval and the plan to issue the adjustment shares was reported in the company’s SEC filings at that time and subsequently, but the shares were not actually issued until October 2015, when completion of that issuance was required as a pre-condition of a $30 million financing the company entered into.”
Nasdaq staff found, however, that some of these issuances to Cognate were below the market prices, and the most-favored-nation adjustments also resulted in issuances being lower than what would have been expected.
The rules state that a company must get shareholder approval prior to the issuance of common shares equal to 20% or more of the common shares outstanding, before the issuance for less than the greater of book or market value. Nasdaq said NW Bio had broken this rule.
Powers herself has also come under censure, with Nasdaq saying that although she never received any of the shares issued by NW Bio to Cognate, given her high-level involvement in Cognate the stock issuances (which it claimed came under “equity compensation”) should have obtained shareholder approval. As a result, the Nasdaq staff said that those issuances were also not in compliance with its rules.
NW Bio said: “The letter [from Nasdaq] does not have any immediate effect on the listing of the company’s common stock. The company is currently in discussions with the Nasdaq Staff about two potential approaches to remedy the non-compliance with these rules, and the company intends to regain compliance as quickly as possible.”
Should this not be sorted out, Nasdaq has a host of options it can use, including issuing a reprimand--or more seriously delisting the company’s common shares.
This compounds more woe on the company, which last year saw star fund manager Neil Woodford invest around $95 million--but after the allegations of financial impropriety began to surface, Woodford belatedly attempted to run an investigation led by independent ex-FBI agent Elliott Leary. This was swiftly rejected by the biotech’s board in December, denting Woodford’s reputation.
Northwest did say however that it would launch an investigation into the allegations and appointed Charles Price, another former FBI special agent, to help carry out the investigation. It said late last year however that it wanted Price to “establish whether the allegations are a deliberate attempt to manipulate its stock price,” rather than look deeply into its own financial history.
Now, we come to its clinical trial updates. Northwest's lead program is for DCVax, a therapeutic cancer vaccine designed to use a refined dendritic cell (DC) tech to fight cancer. Cancer vaccines have been something of a mixed bag, with trials for a number of biotechs and Big Pharmas biting the dust with a mixture of safety concerns and/or lack of efficacy hitting research programs.
Back in August, a Phase III trial of DCVax-L for newly diagnosed glioblastoma multiforme (GBM) saw the screening of new patient candidates for the trial temporarily suspended while it submitted “certain information from the trial for regulatory review,” although it didn’t specify what this was.
The trial was and still is ongoing with more than 300 patients, according to the biotech, but it added that this “temporary suspension” of new patients was still in place 7 months down the line. “The company is in ongoing dialog with regulators, and providing further information,” NW Bio said in a statement, adding that it “hopes that this issue will be resolved soon.”
It also has several other trials ongoing for its cancer vax, and said in a statement that it is setting up a new scientific advisory board with “leading immunotherapy and oncology specialists” (the names of whom were not disclosed), presumably to help with future trials. (The roles of these specialists in relation to NW Bio were also not disclosed.)
The biotech has also reached “conceptual agreement” with three different sets of parties, in regard to three different combination treatments, for three different cancers in three different Phase II trials.
“These involve leading participants in the immunotherapy field. The company and these parties are now completing the agreements and budgets, and pursuing regulatory approval for the agreed upon trials.” No further details were given.
It has also released updated data from the ongoing follow-up of patients in the Phase I portion of the DCVax-Direct trial.
To date, half of the 40 patients have exceeded 12 months’ overall survival (OS), while 13 of the 40 patients exceed 18 months OS, and at least 10 of those 13 patients (with 2 of the 13 currently unknown) are still alive at OS times up to 29 months to date--with the majority having exceeded 20 months.
It said it has undertaken “extensive analyses” of data from the Phase I portion of the Phase I/II trial of DCVax-Direct for all types of inoperable solid tumors, which has unearthed some “novel, unexpected and encouraging results that are of significance for further trials.” These results were not shared in its release.
NW Bio and its advisers have in addition completed clinical analyses and preparations for injection of multiple tumors in multiple different tissue locations, as well as a greater number of treatment cycles, for the upcoming Phase II portion of the trial.
As well, both the biotech and Cognate have completed a “lengthy program of development work” to “further optimize” the DCVax-Direct drug.
Its shares were up by nearly 2% at 11 am EDT.