The stock market as a whole may have swooned over the past couple of days, but that hasn't changed the fact that the broad-based S&P 500, as well as the SPDR S&P Biotech ETF, are up notably year to date. In fact, the aforementioned biotech ETF has outperformed the S&P by a factor of three, rising around 21% so far this year.

Yet if you thought this return was impressive then you obviously haven't been keeping a close eye on small-cap biopharmaceutical company Northwest Biotherapeutics (NASDAQ:NWBO), also known as NW Bio, which has risen by 36% in 2014.

NWBO Chart

NWBO data by YCharts

Why has NW Bio been on fire this year? That's a question we'll answer today as well as look at what catalysts could move NW Bio's stock in the near future.

Why NW Bio has been cleared for takeoff
I wish I could say that understanding why NW Bio has taken off in 2014 would be a simple answer, but there are a number of factors that have contributed to its impressive return.

First and foremost, excitement surrounding the potential of cancer immunotherapies has been a big component to investors pushing the stock higher. Cancer immunotherapies, in their simplest form, retrain a person's immune system to recognize cancer cells that would otherwise go undetected. Whereas chemotherapy tends to focus on cells indiscriminately, retraining your immune system to locate and destroy specific cancer cells could, in theory, result in a more focused treatment with little to no healthy cell death.

In addition, the implication of a cancer immunotherapy injection is that it would 1) be considerably more personalized than any form of chemotherapy; and 2) would be far less likely to cause a serious adverse reaction considering that the innovator company is merely modifying your unique immune cells. Though cancer immunotherapy technology is still very wet behind the ears, investors are clearly excited about its potential.

Secondly, positive clinical results have played a role in sending NW Bio shares shooting higher. In June, for instance, the company reported positive updated phase 1/2 trial data for its solid tumor injection DCVax-Direct.

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Source: Pan American Health Organization via Flickr

According to the company's piecemealed data release, all nine patients which had received at least four of the six injection treatment had demonstrated some degree of tumor cell death, tumor shrinkage, or disease stabilization, while 13 of 20 patients had exhibited some degree of overall response as of the third injection. This trial obviously has a ways to go, but the initial results were certainly encouraging.

Finally, NW Bio had its first revenue channel opened when, in March, the Paul Ehrlich Institute (Germany's equivalent of our Food and Drug Administration) approved DCVax-L on the hospital exemption basis for the treatment of any form of glioma, a type of brain cancer. The approval gives NW Bio a period of five years with which to sell its drug to authorized German hospitals, and expands its use well beyond the multiforme glioblastoma indication that it's currently being tested for within the U.S. Although the revenue generated from this approval is likely to be negligible, the simple fact that it received an approval, and that DCVax-L has the opportunity to shine in all types of glioma indications, is a great sign.

Challenges still remain
There's no denying that NW Bio has had an exceptional year, but that doesn't mean the company isn't without challenges.

To begin with, cancer immunotherapies are largely untested as approved therapies by the FDA. For instance, Dendreon's (NASDAQ:DNDN) prostate cancer vaccine Provenge was expected to revolutionize late-stage prostate cancer treatment but has largely fallen flat on its face with peak sales estimates about one-tenth of what they used to be. Cancer immunotherapy skeptics will continue to point to this failed launch of Provenge until another cancer vaccine comes along that actually does launch with some degree of success.

Secondly, there's the fact that smaller-cap cancer drug developers have a very poor track record of getting drugs approved by the FDA. Whether it's a lack of adequate funding or a failure to partner up with a larger biopharmaceutical company it's tough to argue against the poor track record of biotech stocks with a market cap under $500 million that have tried to get a cancer drug approved.

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Source: Images Money via Flickr

Another point worth noting is that many of NW Bio's ongoing studies are still predominantly early on in development. Though we're getting bits and pieces of efficacy during the company's clinical updates, the real test will be in regard to how DCVax-L and DCVax-Direct perform in an FDA guided phase 3 study with a considerably patient pool.

Lastly, cash burn remains a concern. Even though the company has successfully raised cash previously, it's probably going to burn through $50 million per year over the next two years. For shareholders it means the company may need to turn to dilutive share offerings in order to boost its cash position. Additionally, it may seek out a licensing partner which could give it plenty of upfront cash, but would reduce the total earning potential of its product portfolio since it would have to share its revenue and profit/loss stream.

Where NW Bio heads next
Probably the toughest question of all to answer is where this stock heads next, because there are just as many positive things to latch onto as there are concerns. Personally, I'm very excited to see how successfully cancer treatments can be personalized over the coming years and suspect that, at least in some way, cancer vaccines are going to play a role.

Of course, it remains to be seen in NW Bio is going to be one of the companies whose vaccine actually is a success. With losses expected for the foreseeable future I'm not inclined to chase the stock too high, especially prior to receiving the results from its phase 3 glioblastoma multiforme study with DCVax-L in the U.S. I'd suggest the best pathway for investors to take with NW Bio is a watch-and-wait approach and use its upcoming phase 3 data as a guide that might give us insight into the success or failure of the remainder of its pipeline.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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