Macro Tsimmis

intelligently hedged investment

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, 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.

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.

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 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 Provenge 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 two DNDN option straddle plays that even if we lose 100% here, we’ll still be ahead overall.

Previous DNDN-related posts:

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