There was no shortage of skeptics about the true market potential of Dendreon's (DNDN) Provenge cancer vaccine, but there were few credible prognosticators who predicted the magnitude of the disappointment in Provenge sales. What has been most interesting about the reaction to this shortfall, though, is how it blitzed the entire biotech sector. While the data gets sketchier the further back one goes, the post-Dendreon reaction Thursday (a bad day for the market overall), may have resulted in the worst single day in the history of the sector.
The question for investors, though, is whether or not the problems at Dendreon really have anything to do with their particular holdings. Though many investors may have sold their biotech stocks after the Dendreon news thinking that it's just too hard to figure out the eventual winners and losers (after all, FDA approval is supposed to the key to the vault), the reality is that nothing at all has really changed for the large majority of companies developing new drugs for diseases like hepatitis C, diabetes, or cancer.
The problem with Provenge is that it is a very expensive drug with a troublesome reimbursement situation (clinics essentially have to pay up front in full and wait for payment), an unfamiliar means of production, and possibly a smaller patient pool than once thought. While this may be cause for investors in companies with exceptionally expensive or novel drugs to reconsider their assumptions, the reality is that post-approval disappointments and sell-offs are not nearly as uncommon as investors seem to believe.
With that in mind, it is worth looking at some of the companies with upcoming PDUFA dates – that is, scheduled dates by which the FDA will approve or reject a company's application to sell a new drug.
Regeneron Pharmaceuticals (REGN) has an August 20 PDUFA date for its drug VEGF Trap-Eye. This drug, which Regeneron will market in partnership with Bayer, is also known as Elyea and should be able to grab a meaningful piece of the wet AMD market from Roche (OTCQX:RHHBY) and Novartis (NVS). Unlike Dendreon's Provenge, there is nothing too concerning about this drug's price, reimbursement, or administration.
Shire (SHPGY) is up next on August 25 with its drug Firazyr for angioedema. Though offering a treatment for a condition that has long been lacking effective interventions, the expectations on Firazyr are so low relative to other Shire compounds like Adderall XR, Vyvanse, and Lialda, that it is hard to imagine it will disappoint anyone.
Seattle Genetics (SGEN) closes out the month with the PDUFA date for its Adcetris drug for lymphoma. Expectations are that SGEN will get FDA approval for this drug, but here is where the Provenge example might be slightly more relevant. Adcetris is going to be expensive (probably well ahead of $100,000 per course per patient) and it is also a first-in-class therapy. Even though it really is not like Provenge in terms of patient identification or reimbursement, those surface similarities to Provenge (as well as the general mood of the FDA these days) could be enough to lead to ample post-launch skepticism. If that does happen (and the stock has already fallen one-quarter since a unanimous FDA panel recommendation) this could be a name to consider picking up.
The Good, The Bad, And The Ugly
If Dendreon is a case study in what can go wrong, Vertex (Nasdaq: VRTX) is the opposite case. Demand for its new hepatitis C drug Incivek has actually been quite strong and the sales run-rate heading into the third quarter as well above analyst expectations. Then again, it is not as though this has done Vertex investors all that much good – the shares are their lowest level since a big move in late February.
On the other side of the coin is Human Genome Sciences (HGSI) – a stock that is almost exactly where it was two years ago in spite of FDA approval for Benlysta, the first new drug specifically for lupus in most people's lifetime. There are more than a few similarities here to Provenge – HGSI and GlaxoSmithKline (GSK) have had some initial issues related to reimbursement and analysts have begun to question whether the eligible patient population is as large as first thought. Still, it seems like this post-approval disappointment has taken a lot of the risk out of this name and reset expectations to a level that new potential buyers may find intriguing and that Benlysta sales can outperform.
Of course, the consummate example of post-launch failure is the inhaled diabetes drug Exubera – a drug that Pfizer (PFE) and Nektar (NKTR) developed to great fanfare, but that landed in the market like a lead balloon. Here too there was a gross exaggeration of the potential patient population and the willingness of insurers to pay for what amounted to old wine in a new bottle … and the drug never did ultimately achieve any meaningful market success.
The Bottom Line
The jury is very much out on Provenge right now and while the stock is probably undervalued at today's prices, the lack of visibility is in the sales ramp is going to be an issue for a little while. But Dendreon really isn't the point of focus here.
The issue is that it is not at all uncommon for stocks to sell off after a major product approval. In fact, many clinically successful biotechs struggle for years to regain the market valuation that investors assign when there is little more to a story than rampant optimism. This does not mean that investors should abandon the sector altogether; there are too many success stories like Alexion (ALXN) to justify that much skepticism.
What it does mean, though, is that investors should not be too hesitant to sell if pre-approval hype pushes the stock to a point where the drug in question has to be a thunderous success. Likewise, investors thinking they should buy ahead of a PDUFA date should remember that it's always safer, and often cheaper, to actually wait for the FDA's decision before jumping into a name.