SELL Dendreon (DNDN)

Well, we got our eagerly-anticipated news today, and it was not good: the FDA issued an approvable letter. According to Dendreon management, the specifics of what the agency are asking for are unclear, but it involves both clinical data and information on manufacturing. Up to now, management were confident the FDA were satisfied on both counts, so it’s not surprizing they are clueless in the face of this development. We are certainly shocked.

It is remotely possible that what the FDA are after can be satisfied by an interim snapshot of some of the early 9902B data (TTP) but as they have already stated that time to progression is not the correct endpoint for measuring immuno therapy, we are expecting that it will take the survival data, not expected until 2010.

Dendreon has about $100MM in cash, which is enough to tide them over for a few months assuming they fire most of the sales and production staff they have added in recent weeks, but to keep going until 2010, they will need more financing…which means dilution as they are unlikely to get a loan on reasonable terms, with no solid prospect of Provenge revenues in the offing. And three years is enough time for competition to arise, although in the wake of the FDA decision this morning, all immuno therapy companies are suffering stock price wise, and are likely to find financing tough to come by themselves—an unfortunate side effect of this decision—so any competition will likely have to arise from another quarter.

To be honest, it is a bit surprizing the stock price is holding up as well as it is (down over $10 to around $7). We were expecting it to tank to the $2 range on an approvable letter. Given the risks of dilution, competition, and the chance that 9902B will reveal the earlier data to have been a false positive—which the FDA must have concluded is greater than one in forty; can’t conceive of them consigning tens of thousands of men to death in the next three years if they believed there was a treatment with a 97.5% likelihood of efficacy available—we are cashing in all our 10 Jan $4.01 chips here for a 75% profit and will wait and see.

Good thing we didn’t buy more in the $14s! In the event, we can’t really complain from a financial standpoint: we made money on the stock and we made money on the options. This turn of events is none-the-less shocking, however, because when you consider that the product probably works, that the disease is killing 10,000 people a year, and that the FDA’s own advisory committee recommended approval…well, it just seems like a bad decision.