Dendreon's Provenge Is Scientifically Intriguing but Commercially Nonsensical

I know that Dendreon’s (DNDN) groupies are an enthusiastic bunch. Now Wall Street has joined the party, at least until they get the fees from Dendreon’s inevitable secondary stock offering needed to fund Provenge’s launch. Dendreon doesn’t plan on filing for FDA marketing approval until sometime in Q4, and then the FDA could take up to an additional 6 months to contemplate the amazing data. The company refused to be any more specific as to when in Q4 or why the delay in filing.

Opportunism is the hallmark of the company’s CEO, so between now and year-end the FDA cannot say that the supplemental NDA filing is insufficient. That’s right; this is an add-on to the prior rejected NDA. Dendreon cannot chance the FDA rejecting its paperwork early. This provides the company with a risk free window to raise cash. They plan to commercialize Provenge in the U.S. themselves.

Adam Feuerstein in TheStreet.com's “Dendreon's Provenge: A Behind-the-Scenes Look” and Catherine Arnst in BusinessWeek's “Dendreon's Prostate Vaccine Validated with Drama” give us some background into the medical and economic benefits of Provenge.

Provenge was tested against placebo, not the standard of treatment Taxotere. Provenge’s survival benefit over placebo was about a median 4 months (25.8 vs. 21.7), but it had only about a median 1 month survival benefit over Taxotere. The company’s management tried to convince analysts that while Provenge was not measured against Taxotere, patients would find Provenge less invasive to administer. But they also told us that both have side effects over placebo.

Three urologists interviewed by Feurstein doubted “Provenge’s survival benefit in relation to the drug’s high price.” Dendreon refused to comment on price, except to say that it should be judged equivalent to other advanced cancer treatments. The urologists further stated that Provenge showed no measurable positive effect on time to progression.

Feurstein said Dendreon bears had to cover their shorts and some have turned around and gone long. Analysts are predicting certain FDA approval and a $1B to $2B annual sales base on $60K to $80K for a course of treatment. Feurstein says that a $30K price is ridiculous compared to Avastin and Erbitux.

While Wall Street is preparing for the road show, their logic is simply nonsensical. First, Provenge won’t be launched for at least another 18 months, if at all. The manufacturing and processing operation for this patient customized medicine will face intense FDA scrutiny. More importantly, all of these sales estimates are based on the American drug marketing and reimbursement model remaining static. With the current momentum in President Obama’s healthcare reform, that’s like sticking your head in the sand.

The U.K. has restricted Avastin (Roche - RHHBY.PK) based on limited benefit for the cost and required that the government be rebated for patients not benefiting from Velcade (Takeda). The National Institute for Clinical Excellence (NICE) advises the NHS on the cost-benefit of drugs. Despite the industry's disbelief that the cost-benefit of pharmaceuticals will come to America, it is a key plank in the President’s healthcare platform.

It is unlikely that a 1 month survival benefit with no additional quality of life benefit will ever be worth $60K under American healthcare reform. Beyond that is the ethical issues related to the distribution of care. If you go with the premise that most of Provenge’s target audience will be government subsidized through Medicare, how can you justify taxing a working person struggling to pay a $100 doctor bill to give a senior 1 month of life?

Some try to argue that healthcare reform will bring rationing of care for the first time to America. Anyone with high deductible insurance plans knows it already exists. The reality is that America actively rations care in favor of those with high priced insurance and seniors. Provenge expects to take advantage of the current system of rationing.

The swine flu scare is teaching America that it is only as healthy as its entire people. The healthcare have-nots can easily infect the healthcare haves. Potential epidemics from SARS to bird flu are happening as often as financial black swans. Likewise the once in one hundred year storms seem to appear every few years.

Dendreon CEO Mitch Gold wants his stock to steady long enough for major mutual funds to take interest. But he is selling the same fantasy that healthcare reform will not affect business as usual as Merck (MRK), Pfizer (PFE), Humana (HUM) and UnitedHealth Group (UNH) tried to do on their Q1 conference calls.

What the healthcare industry needs to learn from the banks is that companies that depend on the government can get TARPed and feathered. Humana depends on Medicare Advantage for 40% of its members. Just like the defense industry, government is their biggest customer. And Obama has not been afraid to shakeup the defense contractors.

The clear lesson to Dendreon bulls is to model Provenge under the stress of full blown healthcare reform based on the U.K. cost benefit model. If Provenge cannot pass the Federal Reserve’s bank stress test, sell Dendreon now before the hype subsides.

In my previous Dendreon article, “Dendreon’s Troubles Beyond Provenge’s Potential FDA Approval”, I was concerned with whether their form of customized medicine was commercially viable. With the data release on April 28, my new concern is drug price realization. Clearly the expectations are overblown.

If Gold gets his wish and the stock steadies, puts might get cheap enough to bet on the downside. I think we may have to wait a few months. Hang on tight for a wild ride.

Disclosure: Author is long PFE.

Comments

[bobrmd:]

Is Feurstein and the author for real? A biotech analyst? check the facts about avastin and the other biologics. 11k a month for a year! Thats over 100k with a minimal benefit for survival and a hell of a lot of life threatening side effects. provenge has a 3 year survival advantage of greater than 20% . Where do u get a 1 month median for provenge from? The median was 4.1 months. Median survival hides the true benefit of a therapy. For example, If 49/100 patients live for 10 years and 51/100 for a week, the median is still a week!!!!

Apr 30 09:08 AM

[Dr. Dan:]

As others have pointed out, this author is either deliberately misrepresenting the data or, as seems more likely to me, confused about terms like "median" and "survival". He also either didn't understand or forgot to mention that the patient test population had cancer that had ALREADY spread beyond the prostrate, and had ALREADY failed to respond to all available treatments. THAT was the placebo group. To prove that among this population significantly more people were alive after 3 years with Provenge is not just good - it's amazing.

Apr 30 09:38 AM

[LoveShorting:]

Michael, thanks for a little break from all the DNDN hysteria.
To the rest of you - - don't worry, your checks from Dendrion will be arriving in the mail soon. Drug companies appreciate good press.
Tuesday was just a shadow of things to come and I know which side of the trade I'll be on (my pseudonym holds a small clue). But thanks for the $50 target price and timeframe, guess I'll wait a week or 2.

Apr 30 12:39 PM

[ScienceSmith:]

"But both...(Provenge and Taxotere) have side effects over placebo"

You lost any credibility you may have had by stating the above quote without expanding what the side effects of the drugs are. You write it as if they have the same side effects. Go visit some cancer patients using Taxotere as treatment and then rewrite your article. Until you do so you should be ashamed of yourself.

Apr 30 01:08 PM

[HealthCareP...:]

So let me get this straight. I'll have a choice between a 1 month course of treatment or a 10 month course of treatment. I'll have flu like symptoms for a couple of days, then normalcy OR I'll have 10 months of perpetual infusions, getting sick, doctor's visits, nausea to the point of being bed ridden, probable hair loss, and a shorter life expectancy. Further the one month treatment is a modality designed EXCLUSIVELY from my own blood versus a universal one treatment fits all modality. And, I will have my health care provider, and the associated paperwork, on my back for ten month protocols versus a one month protocol. Nothing make a patient feel better than looking at those medical bills. Yup, definitely sounds "Commercially Nonsensical" to me. Very dumb presentation.

Apr 30 02:07 PM

[fun and game:]

I wonder if you still feel the same way if you just discover that you have a serious case of "prostate cancer". Those 4 months of life sure will seem like a life time! (unless your life has been utterly boring and horrible up to this point of course)

Apr 30 04:55 PM

[doc8:]

The pseudonym refers to the number years I did in residency training as an M.D. Your article was so slanted and scientifically incorrect that it is laughable. It's not worth any time refuting such ignorance. I do hope " Seeking Alpha" takes note of this absurdly biased and inaccurate article and revokes your abIlity to post on this otherwise reputable board.

Apr 30 06:20 PM

[nova:]

Michael Steinberg is a very dishonest:
- He admits that Provenge’s survival benefit over placebo was 4 .1 months (25.8 vs. 21.7)
- He also admits that Provenge’s survival benefits are superior to the present treatment Taxotere by 1 month.

However, at the same time, Michael "forgot" to mention that:
1. Taxotere,
-- It is extremely toxic with terrible side-effects. Consequently, 60%+ cancer patients refuse to take it due to extreme toxicity and side-effects.
-- It is a very expensive drug.
-- It has to be taken for ~7 months vs. only 3 treatments during a single month for Provenge

2. Avastin,
-- It has annual sale well above $4B+.
-- It is a very toxic drug with very bad side-effect (Avastin label has 4 "black boxes"). Avastin kills some of its patients.
-- Its overall survival benefits (OS) are not even close to Provenge, i.e., Avastin has failed to show any survival benefits in breast cancers, showed under 2 months OS in lung cancer, and 1-2 months OS in metastatic colorectal cancers with latest chemotherapy. These are indications where Avastin is approved in the USA

3. Provenge
-- It is NOT toxic and its sideeffects are very close to a placebo. The last FDA scientific committee voted 12:0 that Provenge is safe.
-- It is NOT toxic and its sideeffects are very close to a placebo. The last FDA scientific committee voted 12:0 that Provenge is safe.
-- It survival benefits are very clinically significant
-- For any pharmaceutical or biotech company, it is a norm to take at least 6 months to prepare and file applications for regulatory approval with the FDA


The Bottom Line:
- The author is dishonest with no knowledge and/or understanding of oncology
- As for a drug capable to improve overall survival by 4+ months without toxicity and side-effect, it is a major scientific breakthrough

Finally, if Provenge will ever approach Avastin's $4B+ in annual sale, it will not be bad for either DNDN or its shareholders.

Apr 30 09:18 PM

[Mr. Ed, Jr.:]

Well, I guess the author really ruffled some feathers here. I notice that an awful lot of the comments are new posters...just a few comments under their belts.

But this article has compelled them to take out their wrath on the author. Really interesting that they all found this article at the same time, and all are very mad about it.

And "all" of them could not refrain from making their first post right here and now.

Amazing. What are the odds ?

May 01 03:58 AM

[Marianthi:]

Wow...was someone short DNDN?? Sucks to be you...
By the way, mild flu like symptoms for a cancer treatment is pretty darn good...also, it is not just quantity of life most people want but quality...this drug extends both...hard not to like this company & stock after all they have done for people...$40 sounds like an achievable target price for this stock.

May 01 10:20 AM

[the_lazy_ob...:]

someone said "No one will pay 50-80k for 4 months of life. Save it for a nice funeral and leave a little for the kids"

all i can say is: really? i bet if you were in this situation, you'll give up all your earthly belongings just to have one MINUTE more with your kids.
think about it, are those green pieces of paper really worth ANY amount of time of your life?

May 01 10:46 AM

[goDNDN:]

sounds like writer is not only short dndn...but against being one step closer to a cure for cancer. finding a new way to treat cancer other than chemo is a breakthrough in science. also, provenges results were on men with a progressed stage of prostate cancer. can you imagine the results if cancer is diagnosed early and treated non-invasive? I know I would rather have provenge than chemo.

May 01 12:02 PM

[jamack22:]

: Two execs in Dendreon take $1.9M in profits off the table, Barron's reports
Dendreon (DNDN) shares more than led on April 14, and have risen more than 1000% in the last six weeks, after the company said its cancer drug, Provenge, met a late-stage study goal, strongly boosting chances of FDA approval. While investors were busy piling into the shares, two executives took $1.9M in profit off the table. On April 20, Principal Accounting Officer Greg Cox exercised 15,313 shares and ultimately sold the shares for $306,260, or $20 a share, for a profit of $189,998. Cox also sold 2,168 shares for $43,360, or $20 a share. On April 14, director Gerardo Canet exercised 109,171 shares and ultimately sold the shares for $2.3M, or $21.40 a share, for a profit of $1.6M. He continues to own 20,956 shares directly. Neither of the insiders owns more than 1% of Dendreon shares outstanding. The transactions were made through 10b5-1 trading plans. It was Cox's first sale of stock and Canet's second, after a small 2007 sale. Only five insiders have sold since 2000. Lon Juricic, president of StreetInsider.com says that he can't blame the insiders for taking some of their money out of the game at this point. Juricic believes the shares will likely hang around the $20 range until more material news about Provenge's FDA approval emerges

May 01 12:42 PM

[jamack22:]

: Two execs in Dendreon take $1.9M in profits off the table, Barron's reports
Dendreon (DNDN) shares more than led on April 14, and have risen more than 1000% in the last six weeks, after the company said its cancer drug, Provenge, met a late-stage study goal, strongly boosting chances of FDA approval. While investors were busy piling into the shares, two executives took $1.9M in profit off the table. On April 20, Principal Accounting Officer Greg Cox exercised 15,313 shares and ultimately sold the shares for $306,260, or $20 a share, for a profit of $189,998. Cox also sold 2,168 shares for $43,360, or $20 a share. On April 14, director Gerardo Canet exercised 109,171 shares and ultimately sold the shares for $2.3M, or $21.40 a share, for a profit of $1.6M. He continues to own 20,956 shares directly. Neither of the insiders owns more than 1% of Dendreon shares outstanding. The transactions were made through 10b5-1 trading plans. It was Cox's first sale of stock and Canet's second, after a small 2007 sale. Only five insiders have sold since 2000. Lon Juricic, president of StreetInsider.com says that he can't blame the insiders for taking some of their money out of the game at this point. Juricic believes the shares will likely hang around the $20 range until more material news about Provenge's FDA approval emerges

May 01 12:44 PM

[McBride, RPA-C:]

Let's also consider that Dendreon has a pipeline...it seeks treatment of other tough cancers and even BPH (benign prostate hypertrophy) affects MILLIONS of men and BILLIONS of dollars are spent on BPH medications before surgery.

Additionally, Provenge is a spearhead drug in the UNDERUTILIZED field of immunotherapy, that eventually will replace chemotherapy- as it spares healthy cells and recognized the cancerous cells selectively.

Concession time- yes, this treatment is going to be very costly, but as far as being cost effective...

Just the fact that it requires 3 treatments and a tangible static cost of 3 treatments (which admittedly may decrease if medicine undergoes some major overhauls as mentioned by the author) this I find very inteesting. If chemo works, it's only temporarily, and is commonly resumed as long as it takes to either fail, or, make the patient so sick he decides to discontinue it. That my friends, is poor spending in chemotherapeutic medicine.

If the body is taught to combat the cancerous cells, it would likely be used earlier than chemo is traditionally started, thus possibly limiting the use of chemo. There may be a shift in costs that the author fails to recognize.

May 01 01:17 PM

[Mr. Ed, Jr.:]

And the new commentors just keep on coming......you guys must have a lot invested on the long side to be spending so much time posting about one article you don't like.

This comments section is as bogus as it gets at SA. Click on the thumbs down all you want-- this sort of crap with everyone coming out of the woodwork and from under rocks to attack has been seen many times before. If the drug is as good as you claim, it really doesn't need all this propping up.

May 01 07:34 PM

[McBride, RPA-C:]

You can't expect new commentors not to arrive in an interesting debate about Provenge, in seeking alpha :-)

As far as crap coming out of the woodwork and from under rocks to attack so that we prop up the drug so it works better?? Hmm.

I think the discussions are awesome and can lead to better understanding of why we would invest more or le$$, short or long, and produce a closer to truth prediction about DNDN + or -

Evidently, the original posts by some of the authors are in need of reality checks and inputs, so...it's helpful...

I just can't wait until someone finds out who was buying on the way down to $11/share...

May 01 10:05 PM

[blak67gto:]

People, dont take this moron's OPINION as investment advice. He is not an analyst and has no formal education as such. You read his article, you see where he is coming from and what his angle is with all its negativity. He doesnt even give disclosure on DNDN but he does for PFE??!! Even Krusty The Clown can write for SA if he wasnt so busy with his day job.

May 02 04:47 AM

[GoWest:]

The reason so many are writing now is because we have been waiting years for Provenge to get this far, as Taxotere is toxic. Since we are interested in anything about Provenge we eventually ended up at this site.


On May 01 03:58 AM Mr. Ed, Jr. wrote:

> Well, I guess the author really ruffled some feathers here. I notice
> that an awful lot of the comments are new posters...just a few comments
> under their belts.
>
> But this article has compelled them to take out their wrath on the
> author. Really interesting that they all found this article at the
> same time, and all are very mad about it.
>
> And "all" of them could not refrain from making their first post
> right here and now.
>
> Amazing. What are the odds ?
>

May 02 11:43 PM

[E Thomas St.:]

Remember 2007 for DNDN? It's like the DRYS of Biotech.

May 12 01:37 PM