Macro Tsimmis

intelligently hedged investment

Dendreon (DNDN) update

Posted by intelledgement on Tue, 16 Jan 07

It came a trading day later than expected, but Dendreon (DNDN) announced before the market opened this morning that the FDA has accepted their application for fast-track consideration of Provenge for approval. The date for a decision is 15 May, a month or so earlier than widely anticipated. The market was anticipating the FDA would accept the application for approval but was not expecting it would get fast-tracked, so this is a plus for the stock.

Now, of course, we get to the $64,000 question…will Provenge get approved? The possible outcomes include:

• UNCONDITIONAL APPROVAL (20%)—there are 1,000,000 men in the USA with prostrate cancer and over 200,000 new cases each year compared with 30,000 deaths, so the market is growing…because there is a customized element to the treatment, it is more costly and probably less profitable than a “standard” drug product, but the market is estimated to be around $1B/year, so there is no question Dendreon will instantly become profitable and at that level of sales, should be worth minimally in the $120 range per share…not saying it would get there instantly, but should ramp up to 25%-to-30% of that level pretty fast upon approval, and climb from there as production, sales force, and partnership issues are resolved.

• CONDITIONAL APPROVAL (70%) – because the Phase 3 trials failed to meet their major endpoints (did not slow disease progression within the mandated time parameters), the consensus is that the FDA are unlikely to approve Provenge for general use without the results of another Phase 3 trial, final results from which would not be available until 2009. But because Provenge does appear to extend survival and has negligible side effects, it arguably would make sense to approve use for terminal or advanced cases, where alternative treatment options are unattractive at best. The FDA could then await the last Phase 3 results before deciding on unconditional approval without enraging either the protocol sticklers (who want the drug turned down because it “failed”) and the patient population (who see a potential life-extending treatment and want it now). Should this happen, the company will get some revenue, but most likely not enough to become profitable and the stock could settle in the $8-to-$20 range in anticipation of eventual full approval.

• REJECTION (10%) – The logic here is that there is no basis for approving Provenge because it failed to slow progression of the disease in Phase 3 trials. The problem with this logic is that the trial criteria were designed for “standard” chemo-style drugs that work by directly attacking the cancer. Provenge works by martialling the body’s own immune system, and it apparently takes longer for the results to show up (apparently beyond the time frame of the trial with respect to standard disease progression measurements)…but the data do indicate that men taking Provenge live longer than those who don’t. Never-the-less, if the FDA stick by the letter of the law approvals-wise, they should reject this application—most likely, issue a so-called “approvable letter” stating that Provenge is approvable if the third Phase 3 data are positive—and await those data. In this case, the company will need still more funding and the stock is likely to drop back below $4.

So, we like the odds favoring additional gains here and are holding onto our position.

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