Since the release of the FDA Advisory Committee's recommendation, I have read numerous articles DNDN's potential value. One article suggested DNDN would be taken out at $30 after the FDA decision is announced. Another article states "a price per share of $70 within several months post approval is not out of the question." Many believe approval of Provenge on May 15 is a foregone conclusion and the rise in the stock price would suggest so.
While I understand the widespread excitement generated by the advisory committee's vote, investors seemed to have forgotten risk vs reward. I would suggest taking a step back and analyzing the advisory committee's vote in more detail.
The 17-0 vote in favor of the safety of Provenge was no surprise. Safety has never been the real issue. The questions surrounding Provenge has centered around efficacy. While a 13-4 vote in favor of efficacy does sound promising on the surface, it is important to address the efficacy issue in more detail. According to the FDA briefing documents before the vote, the original question regarding efficacy was stated as such:
Does the submitted data establish the efficacy of sipuleucel-T in the intended population?
For some reason, the FDA reworded the original question. The new wording on the question read as follows:
Is there substantial evidence to support that Provenge works in the intended population?
It is clear that the vote benefited from the revised language in the question presented to the panel. Originally, DNDN conducted 2 clinical trials designed to show that Provenge slowed the spread of cancer in men whose prostate cancer had spread to other parts of the body. Both failed to meet the primary endpoint of the study. The first study of 127 patients showed the drug extended overall survival by 4.5 months which is statistically significant. Apart from the fact that the trial was not specifically designed to show extended survival as a specified endpoint, the small patient size of the study would suggest that more information would be needed to approve the drug. Furthermore, it should be noted that in the second trial, while overall survival was prolonged, the result was not statistically significant.
While I acknowledge the FDA typically follows the panel's recommendation, I would find it surprising if the FDA did so in this case. In the past, the FDA has rejected drugs that did not meet its primary endpoints. Based on two small trials which failed to meet its primary endpoint, and a post analysis result that was not replicated in the following trial, it would be 'out of character' for the FDA to approve Provenge on May 15.
With that said, the prolonged overall survival in the first trial and the safety of Provenge cannot be ignored. DNDN is currently under going a larger trial of 500 patients to show Provenge extends life. Interim data is expected in 2008 with completion of the trial expected in 2010. It would be more in line with the FDA' s recent history to delay a final decision and issue an approvable letter on May 15 requiring additional data before making such a definitive ruling. In fact, members of the advisory panel suggested that the definitive proof would come from an ongoing trial. This seems to be the likely approach the FDA will take.
If, in fact, the FDA issues an approvable letter, the stock will most likely sell off substantially from these levels. Some examples of companies selling off after an approvable letter are POZN, ISPH and ENCY. Not only did the companies' stock prices experience a drop, the enthusiasm of long term investors was muted by long ongoing processes to a final ruling. If DNDN is issued an approvable letter, this would be a substantial step forward in a long process for a definitive ruling. Apart from the risk of competing products being developed over the next few years, investors will have to wait till 2008 for interim data and 2010 for the completion of the study.
Needless to say, there is tremendous risk in how this study may turn out. I question whether the risk/reward is worth it at the current stock price of $23-$24 having increased ~500% over the last 2 weeks for something that potentially may or may not come for another 3 years. While I'm cautiously optimistic on the approval process going forward, the stock price has gotten way ahead of itself given the likely scenario of the issuance of an approvable letter.
DNDN 1-yr chart