Dendreon Corp (DNDN)

BUY Dendreon (DNDN)—potential cure for cancer (again)

Posted by intelledgement on Tue, 14 Apr 09

Yep, we are once again dipping into the Dendreon well. If you were not around in 2007, please read our original pitch for buying DNDN stock:

http://intelledgement.wordpress.com/2007/01/10/buy-dendreon-dndn%E2%80%94a-cure-for-cancer/

...as we do not propose to rehash all the basic reasoning, most of which remains valid.

What happened in 2007 is that the FDA granted the company fast track status to review their application for approval based on two relatively underpowered Phase 3 studies for Provenge, Dendreon’s anti-prostate cancer immunotherapy, despite the fact that both studies failed to meet their primary endpoint, which was time-to-progression for tumors. This unusual step was taken because [a] there was compelling evidence that the men who had been treated with Provenge were significantly outliving the men in the placebo arms in both studies and [b] there is not good alternative for patients with advanced prostate cancer, which kills 30,000 men a year in the USA.

In March 2007, an advisory committee (“AC”) assembled by the FDA to consider Provenge concluded 13-4 that it is efficacious and 17-0 that is safe. Expectations had been low as approval of a drug that fails the primary endpoint of two Phase 3 studies is not common, and as is di riguer with development stage biotech companies, the stock was heavily shorted and the shorts had spent considerable energy debunking/trashing Provenge. However, it was virtually unheard of for the FDA to go against the recommendation of their own AC, and so the stock promptly soared from $4 to the mid-teens, with spikes as high as $25. As we had initiated an options straddle position in anticipation of a decision by the AC:

http://intelledgement.wordpress.com/2007/03/09/buy-dendreon-dndn-puts-and-calls%E2%80%94straddle-play/

...we were happy campers.

Then in May, the FDA did go against their AC and required that Dendreon successfully complete the third, larger Phase 3 trial—which was already enrolling patients and has survival as the primary endpoint—in order for them to approve Provenge. The stock instantly tanked back to the $3-to-$7 range. We had cashed in our options play after the AC meeting and made a killing; now we sold the stock and took a mere 50% profit (down from potentially 250%).

Last January, we again initiated an options straddle in anticipation of the release of the latest Phase 3 trial. And today, the company announced that this third trial—which recently concluded earlier than anticipated—“resulted in the study successfully achieving the pre-specified level of statistical significance defined by the study’s design,” according to a press release:

http://investor.dendreon.com/releasedetail.cfm?ReleaseID=376922

...issued prior to the market open.

This new information substantively changes the nature of game here.

Yesterday, a purchase of DNDN stock was a bet on a two-time loser drug and a company with no other cards to play (in that all the other potential products were immunotherapies based on the same science, so if Progenge failed...). Today, it is still a speculative venture—the company has no revenue and limited cash, a novel and complex production process (they need dendritic cells from each patient to process customized dosages of Provenge), no sales force in the USA or partner in Europe, and still only one product within sight of commercialization—but if management’s conclusion that the FDA requirement for approval has been met, that product is a blockbuster with $1B+ potential in the USA and again in Europe (presumably split 50-50 with a partner-to-be-named-later).

Furthermore, this is the first immunotherapy to successfully complete Phase 3 trials and—by this time next year—would be the first to be approved. It is a whole new approach to fighting cancer, focusing on marshaling the body’s own defenses to fight the disease, with potential applicability to breast cancer, kidney cancer, colon cancer, etcetera. And their complex production/delivery process is patented and potentially licensable for use with other immunotherapeutic products.

In short, we have a $1.8B company that could easily be worth $9B five years down the road, a company doing important, ground-breaking biotech work that is worth watching, and rooting for.

Not to mention we are so far ahead on our previous DNDN plays that even if we lose 100% here, we’ll still be ahead overall.

Risk/Reward ratio people. If anyone reading this review has ever been to a casino, imagine yourself standing at a roulette table and putting 400 dollars down on black. You have about a 50/50 chance - you either double your money or lose it. In the case of Dendreon, even pessimistic analysts give PROVENGE about a 50/50 chance of gaining approval. Now imagine that instead of doubling your 400 dollar investment or losing it you have equal odds to multiply that amount by 15 (a realistic estimate for the new price of DNDN if PROVENGE is approved) or halve it (and DNDN simply tries again or is bought out). If you have some extra money to risk DNDN is a matter of playing your odds.

Bet the wrong way on this one. Here's a good lesson for all of you...when it comes to small drug companies, most will fail because the drugs they are developing fail and they run out of money. However, those that actually survive long enough to bring a new drug to market have HUGE upside potential. I'm going to leave this pick open forever as a good reminder to me not to mess around with these things!

Dendreon will get FDA approval next year. Their market for Provenge is 1-5 billion. With proof of concept, FDA approval and a cash infusion from a ROW partner, they should be able to accellerate the development of several new cancer vaccine therapies with their proprietary cassette technology and over 30 identified targets in other cancers -- each successful cancer vaccine leading to blockbuster revenues.

Dendreon will change the way cancer is treated worldwide and dominate the space for several decades.

1. Chart
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4. P/E? Where is it?
5. Market CAP
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The story of Dendreon continues with today's stock "fluctuations". Dendreon soard from $2 to $6 per share on announcement that they were saved a seat at the American Urological Association to present their findings on their prostrate cancer immunization type drug, a few weeks ago. It appears this is standard practice when an important meeting is due near results time and could have been meaningless. Shortly thereafter, however, the preliminary data indicated that results were positive and Dendreon traded as high as $24 today. Minutes before the results were announced the stock plunged back from $24 to $8. "The Nasdaq posted a note around 2:30 p.m. EDT, saying that it was investigating what it suspected to be a brokerage error involving Dendreon trading between 1:25 and 1:27 p.m. EDT. However, following a brief review, the Nasdaq said the trades won't be canceled, and the decision can't be appealed. The selloff occurred just before the company released data from a closely watched clinical trial on its cancer drug Provenge." Those with stop losses in the low $20's had them "taken out" in the $8's.
The data appears to be as expected and appears to improve the length of life by 4-6 months. While not a long period of time it could work better when the cancer is detected earlier. As it has no chemo effects it could be the drug of choice of many patients. Each dose is customized to the patient reducing the ability of generics to cut-in as the patent time expires. Overall the drop to $8 appears to be unfounded. FDA approval, (delayed the last two attempts in a request for a broader test), is not automatic and could take many months. The demand for the drug and no abnormal safety concerns should eventually secure passage, but nothing is guaranteed so some risk/reward holding period is needed.

The stock price is artificially being kept low by a hedge fund, and this offers great opportunity to accumulate the stock until FDA approval in the Spring. The drug will sell between $1B and $5 in its first 2 years and will be the best selling cancer drug of all time.

it has the proprietary Antigen Delivery Cassette™. This Antigen Delivery Cassette™ is then used to stimulate a patient’s immune system to recognize and destroy cells that express the target protein. This is a first of its kind cancer fighter.

BINGO!

On fast track for FDA approval for Provenge its first therapeutic cancer vaccine (for prostate cancer). This drug has a very mild side effect profile while showing significant benefits.

It has the proprietary Antigen Delivery Cassette™. This Antigen Delivery Cassette™ is then used to stimulate a patient’s immune system to recognize and destroy cells that express the target protein. This is a first of its kind solution to fighting cancer - initially prostate cancer.

Dendreon is a biopharmaceutical company focused on developing medication for oncology, which is one of the leading causes of death. It is developing therapeutic vaccines that goose the body's immune system to help it fight cancer by targeting dendritic cells, which initiate an immune response to disease-causing antigens.

Dendreon is in the growing phase with stock price movements clearly hinged on the future of its investigational drug Provenge for the treatment of metastatic and androgen-independent prostate cancer. The clinical trial of this investigational drug has not been smooth as its first two Phase III clinical trials failed to achieve the desired objectives. The company also already submitted its biological license application to FDA for this drug in August 2006. Considering that the drug has acquired fast track FDA status, the FDA decision on the approval of this drug is expected in 2007. Inorder to strengthen its case the company is conducting another Phase III trial on this drug called IMPACT. The company has kept the exclusive marketing rights of this drug with itself.

Neuvenge, another investigational drug is still in its early stage of clinical research. The company is primarily concentrated on development of drugs targeting the oncology market which is the third largest oncology market after cardiovascular and central nervous system therapy areas and is experiencing strong growth. Launch of Provenge in 2007 may see a short upswing in the stock price of the company. However, with the drug receiving a bumpy ride in the past and intense competition in the oncology market, it is good to maintain a cautious approach going ahead as the drug may not be a success although successfully launched.

Dendreon has a date with the FDA on May 15 for final approval of Provenge. I think they'll get it, and there was a whopping 33.9 million short position as of the April 10 reporting date, or 41% of the outstanding shares. After getting killed by the Advisory Committee recommendation for approval, the shorts INCREASED their bet by about 10 million shares.
The shorts say Provenge will not be approved because it would go against FDA history to approve a drug that missed its primary endpoint. At least they are right about part of that - it will go against FDA history, and that is exactly what the new FDA Commissioner is trying to do. There is a real struggle between the process-oriented, old-line bureaucrats in the oncology division and some of the newer folks in the biologics, led by the Commissioner. For example, the data for Pharmacyclics’ Xcytrin was no worse than for Provenge, but the oncology division won’t even consider the application because it barely missed statistical significance. Xcytrin treats brain metastases from non-small cell lung cancer, in combination with radiation, and in a 554- person study showed a 5.4 month improvement in time to neurologic progression, when memory loss started getting worse. Nothing else has worked in these patients. And the treatment has a great safety profile. This is just the kind of –-- you should pardon the expression –-- crap that the FDA Commissioner is trying to derail. But the oncology division is a notorious quicksand pit for both useful drugs and Commissioners, so I’m sorry to say that I don’t think Pharmacyclics will get very far, even if the FDA does review the drug. On the other hand, I expect DNDN to walk away with approval and a requirement to complete their current Phase III trial as a Phase IV post-approval trial. With 41% of the outstanding shares sold short, May 16 will be mighty exciting.

Phase 3 results demonstrate overall survival benefit for prostate cancer victims. FDA Priority Review likely to be granted by January '07. Approval may be given in May '07, if not before.

Its is simple: Provenge VS Chemotherapy

--Provenge patients lived an average of 4.1 months longer than those who received a placebo -- 25.8 months versus 21.7 months -- in the late-stage clinical trial.

--Provenge increased the three-year survival rate by 38 percent versus placebo. That's more than double the three-year survival rate seen in patients on Sanofi-Aventis' Taxotere

--Provenge resulted in a 22.5 percent reduction in the risk of death compared to placebo, surpassing the 22 percent threshhold Dendreon says it needed

Provenge for Prostate Cancer rather than chemo, its a no-brainer.

So, whats next... breast cancer, etc.

The numbers: to start, Provenge low ball $3Billion estimated sales / 98 million outstanding = around $30 before factoring in market multiples. Growth down the road, some other cancer therapy via a similar Dendreon delivery system.

I "red-thumbed" DNDN at $4.44 on fundamentals. Now, after a positive report from an FDA Advisory panel, I still wonder about the "fundamentals". What I hear is that sales "might" reach $1B in 2010, but I think sales can't take place before then. What I hear is that about 50,000 U.S. men might purchase Provenge. If I divide $1B by these 50,000 men, that means they will spend, on average, $20,000 per year for this drug.

So, if I understand this correctly, you should buy this stock if you're willing to wait 3 years for any sales, and then rely on 50,000 men to pony up $20,000 each for a drug that doesn't reduce prostate cancer and *may* (based on a 4-month study of 127 men) slightly prolong life.

I hope all the best for those 50,000 men and anyone else with $20,000 to spend on "hope" (which may well be the only thing you'll be buying for your $20,000). I just don't know that Provenge is it. I hope I'm wrong!

The pitches on DNDN show a lack of DD (especially the red thumbs). Yes, the runup was large...but the potential on this stock is much bigger than the price. The last remaining doubt will most likely be lifted by May 15th (FDA approval deadline - and Fools in the know are anywhere from 85 to 90% sure on this). I suggest anyone and everyone read the discussions on the DNDN board and the New Paradigm Investing board. There's alot of money to be made if this company comes anywhere even close to their potential.

Under priced battleground stock in a highly volatile sector. I should definitely no better, but the risk/reward is just too great. Very promising and needed drug in Provenge. I'm banking on approval but you never know with the FDA.

FDA will issue an approvable letter in May which will throw the stock price back to a ditch.