Dendreon: Yes, It Got FDA Approval, But Here's What It Did Wrong

Includes: AGEN, DNDN
by: Michael Shulman

Dendreon (NASDAQ:DNDN) investors – and traders long the stock – got what they wanted yesterday with the FDA approval of their treatment for advanced metastatic prostate cancer, Provenge. The FDA was under enormous pressure to approve the treatment and in trials, Provenge hit primary endpoints and showed it was more effective – not that effective, but more effective – than the existing standard of care. The company plans to come to market slowly due limited production capacity and will charge $93,000 for a three treatment cycle of therapy. This approach is a very big mistake and should give investors pause.

The management team at Dendreon is looking at too small a picture -- a mistake free ramp of production, the difficulty of getting insurance company approvals, starting new trials for Provenge earlier in the treatment cycle and perhaps re-activating research and trials into the use of Provenge against other cancer types. They need to think big picture – how to dominate the immunotherapy market and become the next Genentech in the coming decade. This will probably not happen – I have followed DNDN for many years and the performance of senior executives, despite this approval fro Provenge, is somewhere just north of an "F." But here is why and how they should consider the big picture.

• Provenge, from a cost and manufacturing point of view, is a singularly inelegant treatment to produce and use. It is patient specific – blood is taken from a patient, sent to a Provenge facility, treated and then shipped back to the physician who administers it to the patient. Treatment is time sensitive, not just because these patients have little time left before they die but because the blood needs to be treated almost immediately. The more patients, the more capacity is needed, all tracked with perfect – 99.9% does not do it here – logistics and management. This inelegance also means competitors looking at immunotherapy treatments that can be administered in a manner similar to existing therapies will, over time, get a leg up in the marketplace if they can get to the marketplace.

• Provenge trials revealed, anecdotally, the treatment could put some sub-segment of the patient population into complete remission. The larger the real world patient population using Provenge, the faster Dendreon will be able to identify what sub-segments of patients respond best and perhaps why this is so. This would help explode the market and reinforce their ability to price the treatment at will.

• Dendreon rightly intends to begin the effort required to get approval for using Provenge at earlier stages of the treatment cycle for prostate cancer. Even though the last trial hit its primary endpoints, the median increase in life expectancy was still less than five months. Many believe this is due, in part, to the profile of patients in the trial – they were very sick and their immune systems had already been compromised by previous treatments. If the product were priced differently, physicians outside of trials would probably begin to use Provenge off label as an adjunct to other prostate cancer therapies earlier in the treatment cycle and data would more quickly become available on whether patients benefit from earlier treatment. If this can be proven, the market becomes that much bigger that much faster – and this is not pure hope, anecdotal data from previous Provenge trials shows the earlier a patient gets the trial, the better they do.

If you look at Dendreon's balance sheet you may think this cash rich company that's about to come to market with a product eagerly awaited by patients and physicians can do what it wants. Their focus, given this cash position of more than $650 million in cash and marketable securities, should be on dominating the market as quickly as possible. Being able to process only 2,000 patients in the coming year and charging $93,000 is not the way to do this.

Do they need to worry about competitors just yet? No – they have a three to five year lead – but the approval of Provenge will generate more activity among start ups and may prompt Big Pharma to re-think immunotherapies and companies with years of experience and treatments in trial, such as Antigenics (NASDAQ:AGEN). I have recommend as a long position in my service, ChangeWave Shorts as the way to best short traditional cancer therapies.I did not recommend Dendreon as I believe it is way overvalued.

Bottom line: Scrap the high price tag for the treatment, fellas. Spend some of your cash and expand capacity as quickly as is possibly given the need for perfect operations. Raise more money, right now and put a lock on the market.