Northwest Biotherapeutics (NASDAQ:NWBO)
NWBO Gets German Approval for Compassionate Use
- NWBO received German Approval for compassionate Use of DC-Vax for GBM and other gliomas
- 6 German Hospitals may be able to apply for reimbursement
- Company made a PR Gaffe on the heels of this announcement
Compassionate Use and Reimbursement
On Monday NWBO announced that the Paul Ehrlich Institute (PEI - the German equivalent of the FDA) granted approval for compassionate use of DC-Vax-L for glioblastoma multiforme (GBM) as well as for other gliomas (earlier/less severe stages of brain cancer). In addition, 6 German hospitals will be able to apply for reimbursement for the therapy from a national "sickness fund". NWBO is not allowed to market the therapy because is has NOT yet been formally approved for marketing.
Questionable Timing
For some analysts, myself included, the timing of the NWBO German approval PR was questionable. This press release came on the heels of an announcement that the efficacy analysis for the interim look at the company's phase 3 trial was still pending after 12 weeks even though the safety analysis was complete. The natural question that arises to the skeptical mind is "was the company sand bagging the efficacy analysis because of the ongoing German approval decision"?
The Street.com's Adam Feuerstein reported that, according to the PEI, the compassionate use approval decision was made on February 14th, published in the German Federal Gazzette on February 21st, and this is when NWBO was informed about the news. The company took 17 days to report that positive news to the public.
A PR Gaffe
In reaction to Adam's article, NWBO made a major PR Gaffe by issuing a press release entitled "NW Bio Refutes False Claims by Adam Feuerstein". In this press release the company explains that it took over a week to translate the approval from German to English, and another week or more to obtain approval from German regulators for their press release announcing the approval.
you really should fire the agency or person who is giving you advice to react with a press release - again, it's incredibly dumb
Why is this a PR gaffe? By formally responding to Adam's article with a press release, NWBO raises Adam's article to a level where all investors have to pay attention to it because the company is paying attention to it. Furthermore, a widely distributed press release gets syndicated by thousands of websites creating tons of Google link juice that permanently enshrines NWBO locked in a battle of words with Adam Feuerstein. That's incredibly dumb.
How the Company Should Have Handled the Situation
Here is what NWBO SHOULD have done. First and foremost, if the company's account of the timeline is indeed accurate, this should have been stated up-front in the original press release. Duh! Okay, let's say you simply forgot to include the details or someone gave you bad advice to omit the info.
Once Adam called you out, the proper way to deal with the situation would have been simply to add a paragraph to your 8-k disclosing the press release. You have to file the 8-k anyway. By adding the details of why the timing took as long as it did in the 8-k, you inform investors of the true facts without engaging the likes of Adam and elevating their views to a level that others need to pay attention to them.
This approach has the added benefit that some eager analyst will read your 8-K, discover the "new" information and happily write a Seeking Alpha article that will goose your stock price back up and erase any short term dip caused by Adam's sharp reporting.
By the way, you really should fire the agency or person who is giving you advice to react with a press release - again, it's incredibly dumb.
Investors Should Pay Attention
While the management of a public company should ignore Adam and others in the same sphere, investors should NOT ignore them.
Like his opinions or not, one thing investors should realize is that Adam has an encyclopedic knowledge of biotech due to a long tenure in the space. Sometimes his polemical style with a stock such as NWBO can be off-putting if you own the stock. But investors should use these occasions as opportunities to test their own investment thesis and make sure new facts that change the story have not been brought to light.
On Hope and Skepticism In Investment Analysis
The role of an investment analyst is to synthesize available information and make reasonable projections of possible future outcomes for a given company. This requires assessing possible positive outcomes as well as a healthy does of skepticism due to any number of factors from outright fraud, to management incompetence to misalignment of incentives, to outside factors beyond the company's control.
The job of the analyst is to balance hope and skepticism and find those investments that result in gains while minimizing losses.
Suppose for example you are analyzing a public company whose CEO has, earlier in their career, held a high post at a previous public company that turned out to be a colossal scam.
Next, suppose that that CEO consolidated all fiscal responsibility in their company by also being the CFO and principal accounting officer.
Now suppose that that same CEO had a separate company that provided critical services to the public company in question, and, due to the CEO's role as CFO was able to negotiate a deal where the related company was partially paid in stock at prices well below what shareholders would pay on the open market.
Next suppose that the company in question repeatedly made misleading and inappropriate comparisons between very early stage data from their product compared to the standard of care - both in their SEC filings as well as in statements to the press.
Now suppose that a competitor whose therapy, though a bit different, nevertheless used the same basic therapeutic approach and recently showed disappointing results suggesting that early trial results were successful due to cherry-picked patients.
Finally suppose this company has delayed and missed timelines on trial enrollment as well as announcements of results.
All of these factors weigh in on the skepticism side of equation.
On the hope side are a very small single-center open-label trial showing promising results but which may be explained by cherry-picking. And a recent move by a European country to allow it's citizens who have only months left to live to try the company's experimental therapy on a compassionate, last-resort basis.
Of course, this is not a theoretical situation, this is exactly the situation that NWBO is in right now.
Managers of public companies are only dealing with their own situation, but as analysts we deal with tens or hundreds of companies at once.
For every 10 honest hardworking CEOs and management teams out there there is a Ken Lay (Linda Powers' former CEO when she was VP of Global Finance at Enron) who is defrauding investors.
The job of the analyst is to balance hope and skepticism and find those investments that result in gains while minimizing losses.
Without a doubt, if DCVax-L works, investors long NWBO will do well. However, based on the situation as we see it, we cannot find the conviction to hold the stock long term. There is a trade to be had here going in to May 2014 with possible DCVax-Direct results at ASCO. But in the long run our view is that DCVax-L will ultimately fail.
Our view of NWBO management would be greatly improved if NWBO would hire a CFO and separate the financial and accounting responsibilities away from the CEO.
