Dendreon: Provenge's Shortcomings Have the Shorts Coming

Perhaps one of the fastest stocks being shorted this past week and this coming week will be the one and only Dendreon Corporation (DNDN). That's right, this was the one that soared a few hundred percent a few weeks back as FDA advisors recommended the approval of their prostate cancer drug. You see how I emphasized 'recommended'? That's because the actual FDA regulators haven't actually given the final approval. And now there have been plenty of signs pointing to the possibility that they'll get a big red stamp on their application papers stating either rejected, turned-down, or even dismissed.

Before I move on to the juicy indicators on a possible drop in share prices, understand that Dendreon Corporation is a biotechnology company that spends all its time trying to develop and make a business out of therapeutics (a.k.a. chemicals) that boost up the human immune system's ability to fight evil cancers of all forms. Their biggest and potentially biggest cash-cow is their "Provenge (sipuleucel-T)", which is explained as "...an active cellular immunotherapy that has completed two Phase III trials for the treatment of asymptomatic, metastatic, androgen-independent prostate cancer..." - in plain English, it means it's medicine for men's prostate cancer. It is expected to generate at least $1 billion in sales if formally approved, and on March 29, when the advisory panel to the FDA had recommended it for approval, their stock prices went up over $20 dollars, to later drop back to $15.

More on the Advisory Panel: They're basically an aggregate of "experts", being scientists and doctors that give the thumbs up or down, and then the FDA comes out to make the decision formal. After so much publicity on DNDN's Provenge drug, experts have come out to reiterate what the news was all about. And life wouldn't be interesting without tons of criticism, and that's exactly what's been happening. While studies have shown that the drug prolongs the lives of patients with advanced prostatecancer, it doesn't show that it slows the spread of the disease (cancer cells still spreads to other major organs) - which is supposing the primary objective. The FDA comes out with their decision on May 15.

Now the Indicators: Do you believe in inside information? Well you better start if you don't! One of the biggest indicators that I watch when looking at stocks is the holding and transaction activities carried out by the company's management. For DNDN, several big time management guys sold off their share holdings:

The CEO, Mitchelle Gold, sold 202,090 shares of the company early in April - over 50% of his total holdings

Two Directors, Ruth Kunath and Bogdan Dziurzynski, sold close to 100,000 throughout the month

My question is, if these prominent company officials sold so many shares to capture the gains, does that mean that they know something we don't? Maybe the possibility that the share prices might drop soon? You see, if it was just this stand-alone incident, maybe I wouldn't have been so boggled, but there were more. For example, how does this sound? Already made public is the fact that three of the 17 FDA panelists that were questioned came out to say that they're against recommending an approval. And then you also have other analysts like Jonathan Aschoff from Brean Murray Carret & Co. says that he expects the unsuccessful decision by the FDA. Others like Charles Duncan, an analyst at JMP Securities hints at the fact that he expects the FDA to ask for more support, trials and other need-bes.

So we got some disapprovals from within the FDA, we've got some analyst doubts, what else? How about top oncologists advising the U.S. Food and Drug Administration to delay the approval of the drug. Maha Hussain and Howard Scher are a couple I can think of that are against it, both saying that the existing clinical trials for the drug just don't cut it for approval.

Meanwhile, about 44% of the Company's shares are sold short. This number comes mid-April, and for all we know it could have gone up already - it definitely won't make any sense for the existing to cover their shorts as the price since that time has stayed relatively stagnant. This certainly implies that the market, if not several major fund houses, are bare on their expected chances of an approval.

Finally, guess what DNDN's own researchers commented on the drug? "...the research data is less than perfect."

You know what I think? I'm not a biotech or cancer expert, but I think the indicators speak for themselves. I'm going along with the short-sellers on betting that the FDA won't go along with the panel.

DNDN 1-yr chart

Disclosure: none

Comments

[walldiver]

Mr. Kapur...the two experts you mentioned, Dr. Maha Hussain and Dr. Howard Scher, already had their chance on March 29 at the advisory panel meeting...they were 2 of the 4 No votes on the "Does the product demonstrate substantial evidence of efficacy" question. Unfortunately for their position, there were 13 Yes votes. In addition, Drs. Hussain and Scher both voted Yes on the safety question, which Provenge passed by a 17-0 vote. Before you decide to take a short position, you should know that well over 90% of the time in the past ten years, the FDA has confirmed approval after a positive advisory panel vote. When the FDA does reverse an advisory panel recommendation, it almost always is a reversal of a negative panel vote. Do Gemzar and ovarian cancer ring a bell?
findarticles.com/p/art...

By the way, there were four other oncologists on the Provenge advisory panel, and they all voted Yes on the efficacy question. You should also know that Drs. Hussain and Scher were chosen to sit on the panel by the CDER (drugs) division of the FDA, along with another oncologist, Dr. Alexander, who voted Yes. These were the only three advisory panel members chosen by CDER to sit on the panel. The other 14 members were chosen by the CBER division (biologics), and they voted Yes by a 12-2 margin. You should know that it will be CBER, not CDER, who makes the final decision on approval.

Anyway, even with all this info, I do hope you short the stock before the FDA makes the decision. We longs can always use a little more fuel for the price rise when the FDA inevitably approves.

[iamahoo]

Ishmiel of BULLPOO.COM, have you been able to find your "prostrate" yet? Keep searching...walldiver, not to diminish Ishmiel's biotech savy, but you put another fireball in the shorts shorts. When the FDA issues it'e approval on or BEFORE May 15, we will see DNDN close at $35-40 on Friday, May 18. Wait a minute! We also have nearly 50% of the float shorted!! How about $60?

I am very long DNDN with a May put hedge.

[zukor]

I believe there is a large population study of Provenge that is underway. The FDA would not totally pull the plug on any cancer drug that shows effectiveness, even if the data is "less than perfect." Consequently, I believe the FDA will issue an approvable letter, state their concerns with the drug and rely on the results of the definitive study for approval of the drug. I'm not sure this is the outcome the bulls on DNDN want, but seems to be the logical progression, given the questions about this drug.

[in4thelonghaul]

zukor....your contention that FDA will issue an "approvable" letter is absurd. Haven't you been paying attention? Those members of the Advisory Panel chosen by CBER voted overwhelmingly for "efficacy" on 3/29. It will be that same CBER which will make the final decision soon regarding Provenge. Walldiver has already indicated in his rebuttal that well over 90% of FDA final decisions go along with the advisory panel recommendations. Are you aware that it was the FDA which "corrected" the efficacy question at the advisory panel, so it would conform to published FDA guidelines?

Provenge treatment has achieved a 300% increase in overall survival measured at 3 years, with only the mildest of short term "flu-like" symptoms. By the way, some Provenge recipients from the original trial are still alive...7 years later!! Imagine what can be achieved when those receiving the Provenge treatment also have "booster" infusions incorporated into their treatment regimen at 18 to 24 months.

So, let's see, by your reasoning the FDA is going to insist that these very late stage prostate cancer patients....patients with an average life expectancy of approx. 18 months, are simply going to be denied a treatment which has demonstrated a 3-fold increase in overall survival with basically no serious side effects? They will be forced thus to choose Taxotere which is of such limited efficacy (a couple of months increase in survival) and such severe side effects that roughly half of the potential patient population simply refuses to take it. Look up the side effect profile of Taxotere, my friend. Those patients are supposedly going to be told by the FDA that they will simply have to wait until 2010 to receive a superior treatment, simply because the trial wasn't perfect?

People with such limited understanding as yourself, have no business investing in biotech.

FDA will grant a resounding "approval" to Provenge very soon, any day in fact; and it will usher in a new era of humane treatment for prostate cancer treatment.

[chinooking]

hey bunky kapur,you started your muse with rejected,turned down or dismissed,kinda sounds like rambling considering they all have the same meaning.how about sher and hussein as well as aschcroff have a conflicting bias connection to sanofi avenis producer of taxotere the only competitor ,a chemo therapie that kills the patient along with the cancer,While studies have shown that the drug provenge (prolongs the lives of patients with advanced prostate cancer) your words, that alone is reason for approval. by the way do u have a connection to taxotere?

i am long on dndn i didn't see if u had any money where your mouth is





prolongs the lives of patients with advanced prostatecancer.

[jim inpennsylvania]

kapur------------ such ramblings---------- where did u get ur information that the ceo sold over half his stock?
the very idea that the fda will not approve is absurd! men in there last days with prostate
cancer will have a chance to live longer with hardly any side effects.
my bet is the fda has no choice but to approve for the sake of those suffering last stages of prostate cancer. WHAT DO THEY HAVE TO LOSE?

[wahl44]

It amazes me that your article is so casually inaccurate. It is one thing to short DNDN 15071 shares with play money, it is entirely different using REAL money. If you wish to play around with biotech stocks you should at least try to understand a basic concept. ".....Dendreon Corporation is a biotechnology company that spends all its time trying to development and make a business out of therapeutics (a.k.a. chemicals)...". Dendreon is not developing "chemicals". Biologics are manufactured using living organisms and are far more complex than most small molecule chemical drugs. Dendritic cells are harvested from a patient in order to be used in creating a vaccine that stimulates the immune system to attack the cancer. That is why it is called immunotherapy.

[hpski]

Mr. Kapur, you're right about one thing, you are NOT an expert in biotechnology, or even close to being well informed pharmacologically. I have addressed Dr. Scher's antipathy towards Dendreon in a previous post - read between the lines and draw your own conclusions - you seem like a fairly smart young guy. Your discussion of insider trading is old news, and for us older folks who've worked within this industry, the CEO exercising & flipping his options is not surprising - I'm sure he'll be getting a bunch more options when FDA approves their drug, they'll be strike priced at a premium, and there may be option by-laws that we're too busy to research that required him to limit the # of options outstanding. Bottom line in biotech, most employees sell some of their options into good news to hedge their bets. In terms of, "less than perfect" research data, there is, NO SUCH THING AS PERFECT RESEARCH DATA, which is why the statisticians make the big bucks, and P values exist, and why they are not 100% correct 100% of the time. Biology & medicinal chemistry are not exacting sciences, for example, Rituximab, an anti CD20 mab, is approved for low grade NHL - the drug reps would like the docs to believe this Mab makes a "b-line" for cancerous b-lymphocytes presenting CD20, but healthy cells exhibit CD20, and they get whacked as well. What's more, Rituximab often illicits an allergic response, e.g fever & chills, anaphylaxis has been reported. Is it a great drug? Yes. Does it work all by itself? No, major league no. How did Idec come up with the dosage? Answer, it was determined as much by their ability to produce a finite supply of drug during the pivotal study as pharmacokinetics. CBER knows all this, now you do as well. Finally, when you look at the big picture, politics enters the playing field - I think the political climate in Wash. D.C., merged with prostate cancer being the, "step child" vis-a-vis breast cancer, makes Provenge ripe for approval. Adding this all up, my conclusion is FDA approval will happen May 15. Sure, there is a chance CBER will cave to a few dissenters, they may think the AC was caught up in "irrational exuberance". If that happens, I will not retract what I wrote here. This is a high risk business, these boards, as well as the calls & puts reflect it. I am long Dendreon, Celgene, OMRI, EXEL.

[LockstepInvesting]

If it gets to $32 I make money, if it goes down to $6 I make money. With 44% short interest, I think there is high probability I will make money no matter what happens.

[Sonia Mirza]

Christian - are you straddling or something slightly more exotic?

Merely curious...quite a large straddle if that's all it is...
And if I may ask what is your T?

Cheers!

[ishmiel.kapur]

I have received a lot of emails on my own blog at BullPoo.com (some positive, thank you, and some not so positive, which I fairly respect). I think the best is to see what will happen before May 15. There will always be two sides to a coin, and I'm one of many with the bear view. I failed to disclose that I do not own any positions in real-life, just short positions on my virtual account with my blogs.

[donald190]

I really don't need to say anything more, the great walldiver and hpski50 have said plenty, your arrogance and you probably did this on purpose to elicit responses from the longs or to see just where you sit, and indeed you sit alone atop a cold mountain with your short buddies, like walldiver said short somemore, sell your house and all your assets, you sound so positive, you will need all the luck in the world! reyna

[ishmiel.kapur]

I believe the results speak for themselves. I should have sold my house and my assets to get in. Unfortunately, I'm sensible enough not to. I do home all those who've longed DNDN still have something left.