BOSTON (TheStreet) -- This week's Biotech Stock Mailbag is open for business.
"They" refers to Northwest Biotherapeutics (NWBO) , which raised another $35 million in two separate deals announced earlier this week. The larger financing has U.K. investor Neil Woodford taking a $25 million stake in Northwest through the purchase of 4.32 million shares priced at $5.75. Woodford was a long-time money manager at Invesco before striking out on his own to start his own $5 billion C.F. Woodford Equity Income Fund.
As I noted on Twitter Wednesday night, Woodford's $25 million investment represents just 0.5% of his fund's assets, so he's not exactly making a huge commitment. But $25 million is better than nothing, particularly given the paucity of interest from institutional investors in owning Northwest shares. Franklin Resources is the only other large investor with an actively managed portfolio invested in Northwest. In the third quarter, Franklin reduced its stake in the company again and now holds just over 1 million shares, according to WhaleWisdom. The remaining $10 million raised Wednesday comes from a mortgage Northwest took out on a newly purchased U.K. manufacturing facility.
While we're discussing Northwest's financial situation, the 10-Q covering the third quarter, filed Wednesday night, included some interesting news nuggets.
Cognate BioServices, the privately held manufacturing services company majority owned by Northwest CEO Linda Powers, continues to benefit from its ties to Northwest. In the third quarter, Northwest recorded $16.9 million in cash and non-cash charges related to services provided by Cognate, or 74% of Northwest's R&D expenses for the quarter, according to the 10-Q. For the nine months of 2014, 71% of Northwest's R&D expenses of $64.2 million have flowed to Cognate, according to the company's 10-Q.
Northwest pays Cognate in a mixture of cash and stock. On top of these payments for services rendered, Northwest's board of directors issued 8 million shares of common stock and 3.8 million warrants to Cognate on Nov. 12. At Wednesday's closing price, the stock and warrants awarded to Cognate, majority owned by CEO Powers, were worth nearly $61 million. On the same day, Northwest's board gave out 10.5 million "restricted stock units" to company employees and directors.
Notably absent from Northwest's 10-Q was any revenue recorded from "Hospital Exemption" compassionate use of the experimental brain-tumor (glioblastoma multiforme, or GBM) vaccine DCVax-L in Germany.
Northwest said money raised in this week's financing will be used to "expand and accelerate" the phase III study of DCVax-L. This is the same study Northwest has been unable to complete after seven years of enrolling brain tumor patients. It's also the same phase III study Northwest radically redesigned in August -- a sign of trouble.
Northwest is also planning new mid-stage studies of its second cancer vaccine product DCVax-Direct. Earlier this month, the company reported preliminary results from a phase I study of DCVax-Direct presented at the Society for Immunotherapy of Cancer (SITC) annual meeting. In June, M.D. Anderson Cancer Center rebuked Northwest for making promotional and unjustified claims about results from this study.
According to a poster of the phase I study presented at the SITC meeting, a patient with advanced metastatic ovarian cancer treated with injections of DCVax-Direct showed a "mixed response to therapy," including reductions in the size of some tumors but the subsequent growth of a new lesion. A second patient with advanced sarcoma had a DCVax-Direct injected tumor grow, shrink and then grow again, according to the phase I poster. The poster concludes, "Intra-tumoral injection of activated, autologous dendritic cells [DCVax-Direct] is safe and feasible." The phase I study of DCVax-Direct says nothing about confirmed tumor responses in any of the patients treated.
It's difficult to peg the sales potential of Celldex Therapeutics' (CLDX) - Get Report GBM vaccine rindopepimut "rindo" until the company meets with FDA next year to nail down an approval filing strategy. The positive survival benefit observed in the rindo+Avastin "ReACT" study presented last Friday is very encouraging and could lead to an accelerated approval filing. Before that happens, Celldex needs collect final data from the study and then convince FDA that an accelerated approval for recurrent GBM patients can be supported by data encompassing progression-free survival at six months and overall survival from a smallish phase II study. Celldex shares have been on a nice upward run since last Friday's rindo data were announced, and deservedly so. [It's noteworthy to contrast Celldex's ability to demonstrate a survival benefit for rindo from a well-conducted randomized, controlled study with Northwest Bio, which has been unable to do the same for DCVax-L.)
The GBM incidence rate in the U.S. is about 3.5 cases per 100,000, or 12,000 patients per year. Rindo is targeted at a mutated protein known as EGVRvIII, which occurs in about 30% of GBM tumors. That reduces the GBM patient population eligible for treatment with rindo to about 4,000. How will Celldex price rindo? We have no idea but let's assume $100,000 per year, in line with other recently approved cancer drugs. That's a potential market in recurrent GBM of $400 million. If Celldex manages to treat half these recurrent GBM patients with rindo, sales could reach $200 million. [You're free to use the market share prediction of your choice.]
The incidence rate of GBM in Europe and the U.S. is the same, if you want to also calculate rindo's market potential overseas. Pricing would likely be lower.
The numbers I just ran through cover newly diagnosed GBM patient population. An accelerated approval of rindo based on ReACT data would cover recurrent GBM patients only, but I can't find any reliable numbers to guess the size of this market. Obviously, it would be smaller. Celldex is going after the newly diagnosed GBM market with the ongoing phase III "ACT IV" study.
Sure, this is easy. To own and be bullish on Puma means you believe CEO Alan Auerbach will sell the company -- meaning its only asset, the breast cancer drug neratinib -- to Big Pharma. Auerbach sold his previous company, Cougar Biotechnology, to Johnson & Johnson (JNJ) - Get Report , making his shareholders lots of money in the process. Many of these same investors are backing Auerbach again in Puma, believing he can pull off another big takeout.
I can't predict Auerbach's chances for success. Like Puma, Cougar developed a single product, the prostate cancer drug Zytiga. J&J bought Cougar and Zytiga for $1 billion. The drug's only competition in prostate cancer was Medivation's (MDVN) Xtandi. Puma's situation is a bit different. Neratinib is an oral inhibitor of the HER2 protein found in breast cancer. If approved, neratinib would have a lot of competition, most notably Roche (RHHBY) breast cancer drugs Herceptin, Perjeta and Kadcyla.
Last month, I detailed one investor's math to justify Puma's $7 billion valuation, which is where the company is valued today. The trick for Auerbach is to convince a suitor to pay $9 billion to 11 billion for Puma, assuming a typical 30% to 50% buyout premium for biotech stocks. I guess it can be done, but it's not going to be easy.
Yes and no. At one point during Sanofi's discussion of its diabetes business, a company executive pulled out one of the old Pfizer (PFE) - Get Report Exubera "bong" devices and placed it next to the Afrezza device. This demonstration was designed to show how much smaller and convenient Afrezza is compared to the failed Exubera device. Unfortunately for Sanofi and its Afrezza partner MannKind (MNKD) - Get Report , the demonstration only proved to illustrate the company's cluelessness about the driving forces behind the current insulin market.
Insurers don't care about the small size of Afrezza or its convenience. They care only about the price and risk-benefit of Afrezza relative to injectable meal-time insulin. On these measures, Afrezza falls short. The product is only approved for certain segments of the diabetes population and is weighed down with a black box safety warning. Afrezza is also more expensive to manufacture than injectable insulin. If Sanofi prices Afrezza at a premium to injected insulin, insurance companies won't reimburse for it. If Sanofi chooses to price Afrezza at parity, the company will lose money.
Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;
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