Darling Dendreon Takes Hits As Speculators Continue To Bet On Immunotherapy Plays

by: M. E. Garza

Recently considered biotech's immunotherapy darling, shares of Dendreon Corporation (NASDAQ:DNDN) have been taking a beating. Does this mean the end of the road or opportunity for others in the same space?

Currently trading -82.18 % from their 52-Wk High ($ 42.87), the stock was hit with even more negative coverage last week when the Maxim Group's Jason Kolbert initiated coverage on the company with a "Sell" warning and a lowly $5 price target.

"Dendreon is a pioneer in the cancer field, delivering the first cancer-immunotherapy to the marketplace," wrote Kolbert in his research report. "Unfortunately, the therapy - Provenge - is highly complex with logistic and manufacturing obstacles that will likely take years to resolve and may hold it back from biotech-like margins. In the interim period, the competitive landscape is moving forward with cheaper, potentially more efficacious and easier-to-administer therapies, many of which are oral pills. However, we believe it may become increasingly difficult for Provenge to acquire market share and grow. With a high cost structure and little leverage, we see more downside than upside over the coming year."

Other emerging cancer-immunotherapy companies in Phase II like glioblastoma treatment rivals ImmunoCellular Therapeutics (NYSEMKT:IMUC) and Northwest Biotherapeutics (NASDAQ:NWBO) have gone out of their way to let investors know that they plan to employ less taxing manufacturing processes, but the market, generally speaking, has not been kind to many immunotherapy players.

Even Phase III stage, Cel-Sci (NYSEMKT:CVM), who had seen its shares rising steadily since the beginning of the year, saw prices pushed lower quickly after the DNDN report.

CVM management quickly explained that unlike the personalized approach used by Dendreon, CVM's Multikine treatment aims to be mass produced in the Company's pricey, cutting edge (cold-fill) manufacturing plant. That drug would be given for 3 weeks before any other cancer therapies (surgery, radiation and/or chemotherapy) because previous trials show that would appear to be an ideal time to produce an effective immune response. While Multikine may well represent the next class of generation immunotherapy drugs, the stock may not be as de-risked as some may like until they raise enough money to completely finish the expensive, world-wide Phase III trial they are running with partners Teva Pharmaceuticals (Israel) and Orient Europharma (Taiwan). So far, in these choppy market environments, they have managed only to raise money on an "as-needed" basis. But if a partner like Teva, or a large hedge fund or perhaps even a quantifiable biotech investor steps in with a substantial (and favorable!) financing deal which can carry the company through the rest of Phase III, it could be a game changer. Filings posted after the company's most recent annual meeting of Cel-Sci's shareholders hint that a development precisely like this one may follow. If it does, at the very least it would signal a huge bullish bet for a technology that has taken decades to reach Phase III.

"The process of manufacturing Provenge is labor intensive," explains Maxim's Kolbert. "It is too early to predict that margins will rise as the easy automation (sample tracking) is not the core problem. The key question is: Will Dendreon have time to lower (Cost of goods sold ) COGS?"

Further complicating the issue for DNDN is the fact that Dendreon's approved drug only targets PAP on prostate cancer, but if PAP expression is switched off by cell, it will no longer be effective.

Other early developers, like TapImmune (OTC:TPIV) have product candidates (the TAP vaccine) which perform a key step in moving these characteristic markers (antigens) to the surfaces of cells. The theory is that without TAP, there are no cancer markers, so the immune system fails to spot the rogue cells and the cancerous cells can grow undetected. One of the firm's vaccines has shown effective restoration of TAP which restores and augments the marker (antigen) presentation and subsequent recognition and killing of cancer cells by the immune system, but a recently announced Phase I trial will test a novel set of HER2/neu Class II antigens that has doctors there and at the Mayo Clinic excited.

While a vast majority of the immunotherapy products which are being promoted and hyped to retail investors are still years away, speculators often get excited about the possibilities and we see those penny stocks run many times higher than logic should allow at random times during the year.

Shares of Galena Biopharma (NASDAQ:GALE) had been on an impressive run as one of the leaders in YTD performance, before an analyst warned investors that promoters were being paid to hype the stock and that a highly dilutive financing was on the way. The story folded out as predicted and GALE shares have subsequently lost nearly two-thirds of their traded value since.

For companies like Dendreon, the most visible upcoming catalyst is the possible approval of Provenge in Europe. That event is highly anticipated later this year, but most of the catalysts for DNDN will be provided by news of progress from other products in development. Those products are oral and cheaper and even the Maxim analyst agrees that their new drug candidates have potentially equal or better efficacy. As other products start to look good, it may drive Provenge forecasts lower.

In a recent interview ImmunoCellular's CEO Manish Singh stated: "I truly believe Dendreon was instrumental in opening the doors for small companies like us to build the next generation of immunotherapy product by building on its success."

DNDN is most often the sample pointed to as the example for biotech trading's tremendous profit potential. Dendreon was, afterall, the first company to deliver an approved autologous immunotherapy (April 2010) based on activating a patient's own (dendritic) cells. Now that the company tries to find its way during the commercialization questions still exist about its role in the prostate cancer treatment paradigm.

The fact that speculators are still willing to bet on immunotherapies has other deals moving along as well. On Monday, shares of Genesis Biopharma, Inc. (GNBP) rose 30% after the firm let the market know that their plan to move a targeted cancer immunotherapy directly into Phase III was on track. The ready-to-infuse autologous cell therapy ("ACT") which utilizes tumor infiltrating lymphocytes ("TILs") for the treatment of patients with Stage IV metastatic melanoma is based on a physician-sponsored investigational therapy currently available at the National Cancer Institute, MD Anderson Cancer Center and the H. Lee Moffitt Cancer & Research Institute for this same indication. If that firm manages to actually pull off their ambitious plan, speculators may continue to notice.

There are also rumors that another firm (name withheld) with a late-stage immunotherapy currently under a clinical hold placed by the FDA may be close to negotiating a deal which would get those hand-cuffs removed. Unfortunately, these are the type of highly-speculative plays that get those who are looking for multi-baggers excited- most often defying logic or sense.

For now, Maxim feels that while Dendreon's Provenge "is an innovative and exciting new breakthrough, its trial-based efficacy is marginal, its cost of goods is very high, and treatment protocols are arduous."

As always, trade with caution and pay close attention to the details. Do these firms conduct science in a luxury office building or do they actually have labs, for example?

The devil is often in the most simple details that most traders overlook.

Disclosure: I am long CVM.

Additional disclosure: I have been long CVM for some time and do not plan to sell until after Phase III results are released.