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Theodore Cohen
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Theodore J. Cohen, Ph.D., a research scientist, has been an investor for more than 40 years. Since 1980, he has focused his attention on investment research and investigative analyses of companies developing therapeutic drugs in the biotech sector. Dr. Cohen is a frequent contributor of Guest... More
My book:
Death by Wall Street: Rampage of the Bulls
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  • FDA Corruption Looms Large In SAC Probe Of Insider Trading

    Anyone who has seen the movie Casablanca remembers this famous exchange:

    Rick: How can you close me up? On what grounds?
    Captain Renault: I'm shocked, shocked to find that gambling is going on in here!

    I have to admit, I had much the same sentiment when I read Adam Feuerstein's revealing article in The Street on December 10, 2012, entitled SAC's InterMune Trade Probe May Reveal Corrupted FDA Drug Review. Corruption within the FDA? I'm shocked! As someone who has followed the Dendreon (DNDN) story since 2006, one cannot help but think about the events leading to, during, and following the Provenge Advisory Committee meeting of March 29, 2007. But before discussing those matters and how they relate to SAC (and they do), let's talk a little about SAC and InterMune. It is important for investors to understand what's going on here because if the probe bears fruit, it speaks volumes to the risks investors face from both the FDA (aside from those pertaining to drug approvals) and Wall Street in search of profits in the field of biotechnology.

    According to Feuerstein, citing reports in Bloomberg (among others), 'the FBI and SEC are reviewing InterMune (ITMN) trades in the first half of 2010 made by SAC, the $14 billion hedge fund managed by Steven Cohen." According to Bloomberg, "InterMune's stock soared in the first week of March after the drugmaker's experimental medicine for a deadly lung disease was reviewed more favorably by U.S. regulators than analysts had expected. Two months later, the stock slumped after the company's application for a potential $1 billion-a-year lung treatment was rejected by regulators."

    Among the questions being asked by investigators is whether or not SAC received an insider tip about InterMune's drug pirfenidone from someone within the drug company, from an FDA official working on the drug's review, or possibly from an outside advisor to the FDA…a tip that allowed the company to reduced its 1.9 million share stake at the end of the first quarter of 2010 to 10,983 shares by the end of the second quarter of that year.

    Not that this is news to anyone who has followed the saga of InterMune. On November 5, 2010, Tyler Durden wrote an article for Zero Hedge in which he cited unusual activity in ITMN based on a review of SAC's Form 13F filings. According to Durden: "What we do know, again courtesy of SAC's 13F filings, is that the firm which previously had rarely had a concentrated position in ITMN, suddenly went from zero as of December 31, 2010, to almost 2 million shares by the end of Q1... A quarter in which conveniently the stock tripled. Had SAC bought the stock ahead of the favorable press release from March 9 (InterMune's fortunes soared along with its stock to as high as $48 a share after a U.S. Food and Drug Administration advisory panel voted to recommend pirfenidone's approval), it would have made $60 million virtually overnight. Yet SAC's holding were back down to zero by the end of Q2, a quarter in which on May 4, the stock plunged by almost 80% on this adverse piece of news (The agency refused not only refused to go along with the advisory panel vote but told InterMune that another clinical trial would be required before the agency reconsidered the pirfenidone approval decision)."

    This was not an isolated case. Durden also cites 'interesting' trades by SAC in Cyberonics (CYBX) and Myriad Genetics (MYGN), to name but two of several other stocks he discussed. Of course, nothing has been proven against SAC in any of these cases-including the InterMune case-and so, the financial community at large only can watch for the next shoe to drop as Preet Bharara, US Attorney for the Southern District of New York, continues his probe into SAC trading, including that of the various hedge funds operating under the corporation's umbrella.

    But as I noted above, the mere mention of FDA corruption raises, again, issues relative to aberrations surrounding the FDA's review of Dendreon's Provenge in the early spring of 2007. Myriad articles have been written about this panel meeting and the aftermath. In SeekingAlpha, I addressed the issues here, here, and here.

    Probably the most exhaustive exposé was written by Mark Mitchell for DeepCapture titled Michael Milken, 60,000 Deaths, and the Story of Dendreon. (The updated version is available in Kindle format from Amazon.) As you may recall, the advisory committee voted 17-0 that Provenge was Safe and 13-4 that the treatment demonstrated Substantial Efficacy…a strong, formal Recommendation if ever there was one for a treatment in an area where few if any options existed. Dendreon's shares responded positively. By the first week in April, shares, which had been depressed to $4 before the panel vote, soared to more than $20.

    Now, here's where things got really strange. According to Mitchell: Out of "…the entire universe of 11,500 hedge funds, only ten held [counterintuitive] put options on large numbers (more than 150,000) of Dendreon shares at the end of March 2007. Two of those ten funds held put options on relatively few (200,000 each) Dendreon shares and cashed out soon after the FDA advisory panel meeting. They do not appear to have otherwise been major traders in Dendreon, so I will not mention their names." He discussed the third, and dismissed it for failure to uncover evidence needed to tie the fund to naked short sellers. But among the remaining seven was Steven A. Cohen's Sigma Capital. According to Mitchell: "Cohen's lesser known hedge fund, Sigma Capital, held put options on 750,000 shares of Dendreon at the end of March 2007. Another of Cohen's lesser known hedge funds, JL Advisors, owned 1.3 million shares of Dendreon as of the end of 2006. These shares were dumped sometime before March 31, 2007, contributing to the selling volume created by Joseph Edelman dumping more than 6 million Dendreon shares that he'd received by exercising call options -- and by the simultaneous appearance in the marketplace of at least 9 million more phantom shares, the result of rampant naked short selling which the SEC decries as illegal, but refuses to address, except to say that naked short selling is a big secret - a 'proprietary trading strategy.'"

    At this time neither Sigma Capital nor JL Advisors has been cited in any documents related to the SAC inquiry by the US Attorney. But the stock and options positions cited above do raise interesting questions within the context of the market forces impacting Dendreon during the early part of 2007.

    As I said above, it is important for investors to understand what's going on here because if the probe bears fruit, it speaks volumes to the risks investors face from both the FDA (aside from those pertaining to drug approvals) and Wall Street in search of profits in the field of biotechnology.

    Stay tuned!

    Disclosure: I am long DNDN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: I am long both DNDN and the May 2013 $3 PUTS. I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock, do your own research and reach your own conclusion. Investing involves risks, including loss of principal.

    Tags: CYBX, DNDN, ITMN, MYGN, economy
    Dec 11 12:17 PM | Link | 7 Comments
  • Dendreon and Fuzzy Journalism: Wherein lies the truth?
    Between 1980 and 1984, my wife and I wrote and voiced more than 500 90-second radio features―Report on Personal Computers―for WTOP AM-1500, a 50,000 Watt clear-channel station in Washington, DC. (Selected features were aired by the CBS Radio Stations News Service and Canadian Broadcasting Corporation.) We used to joke that WTOP, a 24x7, all-news station with a large complement of staff reporters and editors, was significantly different from the usual “rip-‘n’-read” AM radio stations that dotted the US landscape. The latter had only one person running both the transmitter and the station board. As such, it was his or her job, at 55 minutes past the hour, to run to the teletype machine and rip the news from the station’s news service (e.g., AP, UP, etc.) off the printer. From there, it was back to the microphone, where this all-in-one engineer-announcer cum news reporter would read the news, without concern for the truth!
     
    That was 30 years ago. Yet today, many newspaper, radio, TV, and cable news commentators as well as Internet reporters and bloggers (professional and otherwise) still follow the practice of “ripping” the news off the ‘wire’ (basically, from whatever source is available) and presenting it to their readers, listeners, and viewers without verifying the information presented.
     
    The rush to be first with a story often creates such issues. But all ‘news organizations,’ be they newspapers, radio and television outlets, cable broadcasters, and legitimate news-oriented Internet sites as well as otherindependent news and information Web sites,have an implied requirement—even a burden, if you will—to “get it right” the first time. Failing to do so not only can result in the promulgation of incorrect and potentially damaging information, but also, can destroy credibility and even lives (in the case where erroneous information or intentional disinformation is spread regarding medical treatments).
     
    The lack of concern for the truth in the media conjures up visions of Yellow Journalism. Unconstrained, it can cause grave harm to the reader and the public at large. You do not have to look far for examples. As a veteran of the ‘Provenge Wars,’ I am all too familiar with the ongoing battle over the infamous ‘four month’ extension in life that so many seem to associate with Dendreon’s immunotherapeutic treatment for end stage prostate cancer. Time and time again those who understand the results have attempted to educate laypersons and the medical community alike as to what the results of Dendreon’s drug trials really mean. Yet, as late as last week, examples of published misinformation regarding the potential life-extension from Provenge, ‘fuzzy journalism,’ if you will, still were being broadcast on the Internet, trivializing this immunotherapy’s benefits.
     
    Today, there is no excuse for the continued dissemination of such misinformation. If a reporter is going to write about Provenge, then he or she owes it to their readers to present the truth. Now, this is not to say that they are not entitled to voice an opinion regarding the treatment, whatever that may be. Reporters are entitled to their own opinions, on Provenge or on any other drug or treatment. However, they are NOT entitled to their own facts.

    I am going to assume that reporters of all stripes who focused erroneously on a ‘four month’ life extension from Provenge have done so either because they ‘ripped’ the result from some other document or because they simply did not understand basic math, much less the statistics involved. So, perhaps those in the media (and others) who read this Blog might find the following discussion helpful when it comes to describing the benefits of Provenge:

    Instead of talking about a 4.1-month MEDIAN—not average—survival advantage demonstrated in the pivotal, 512-patient Phase 3 IMPACT study (which, admittedly, some people find difficult to understand because of the statistics involved), perhaps it would be better simply to talk about a 38% improvement in 3-year survival (31.7% survival rate at three years on the treatment arm compared to 23% for the control arm) and/or a 22.5% improvement in risk of dying. Put another way, the odds of a patient treated with Sipuleucel-T, which is the generic name for Provenge, surviving at 3 years was about one in three comparing to the odds of about one in five for an untreated patient. Think about it this way: If you are a man 70 years old or older with metastatic prostate cancer, would you consider a treatment that would give you a chance of one in three to live 3 years longer instead of doing nothing and taking a chance of one in five or even less of living that long? I know what my answer would be!

    Results from the similarly designed Phase 3 Study D9901 in asymptomatic metastatic castration-resistant prostate cancer (CRPC) also demonstrated a survival advantage of similar clinical magnitude as the IMPACT study.
    This level of efficacy coupling with a mild side effect profile—mild flu-like symptoms—was remarkable when compared to the current standard of care, the chemotherapy Taxotere, which showed only a 2.5 months median improvement with possibly debilitating side effects.

    Furthermore, it should be noted that in contrast to other trials, including the ones for Taxotere, patients on the control arms of the Provenge trials were allowed to cross over and take a weaker form of Provenge after disease progression. This could exaggerate the survival rate and the median survival time of patients on the control arms. That is, the 4.1 months median difference or the 22.5% improvement in the risk of dying, could be much better if the control arm of the IMPACT trial was using a pure placebo. For example, in a recent study presented at the ASCO 2011 Symposium (see this abstract), it was found that the median survival times were respectively 20.0 months and 9.8 months for patients who crossed over to the weaker form of Provenge and patients who did not receive any form of Provenge. Patients who crossed over also had 48% less risk of dying than those who did not. These data are substantiated by material submitted to the FDA by Dendreon, and are available in the archival literature.

    Finally, a good tutorial on Provenge for those interested in how the treatment works can be found here. For reference, there currently are 656 sites authorized to administer Provenge. For more information, see Dendreon's Provenge site.
    I recognize that the easy way out for most reporters, bloggers, and others is simply to talk (erroneously) about a ‘four-month’ life extension for Provenge. But it is incorrect to do so and only shows ignorance of the subject…perhaps, even, to the detriment of patients who could benefit from Provenge. Think about it. Spreading false information about any treatment, even unknowingly, can kill if even one patient makes an incorrect, life-determining decision based on something you wrote.
    Disclosure: I am long DNDN and will not alter my position within 72 hours of the time of publication of this article.
    Theodore J. Cohen, Ph.D., is the author of the novel Death by Wall Street: Rampage of the Bulls.
    Tags: DNDN, FDA, Sipuleucel-T, Prostate_cancer, CRPC, Median_life_extension, Dendreon, Provenge, IMPACT
    Aug 29 7:37 AM | Link | 17 Comments
  • Provenge Reimbursement Already On The Way To A Solution
    You would have to be living under a rock, together with some of the more well-known characters from an insurance company’s television commercial, not to know that the common stock of Dendreon took a significant ‘hit’ in the after-hour and succeeding markets following the announcement that Provenge providers were concerned about reimbursement. At this writing, the stock is trading at just over $12, down from $35 when the stock was halted for the quarterly conference call.
    One of the two major reasons cited for the shortfall in earnings was the reluctance of some centers to administer Provenge. The reason cited by Dr. Mitch Gold, CEO of Dendreon, was that small business medical providers, many of whom lacked the infrastructure and financial resources (e.g., a line of credit) needed to survive in an environment that required them to lay out $93,000 for the full treatment, were reluctant to administer Provenge. This apparently was not an impediment until Dendreon began expanding its provider base beyond the academic medical community, which is better able to operate in an environment where delays in Medicare and Medicaid reimbursement at the federal and state levels can take many months.
    I recently spoke about the reimbursement problem with Dr. Leonard Liang, a urologist and transplant surgeon with a solo private practice in Los Angeles, CA. Dr. Liang is an ‘early adapter,’ and long ago saw Provenge as what he perceived to be a preferred way of treating end stage prostate cancer. [Full disclosure: Dr. Liang is a Dendreon shareholder.] Thus, when it became possible for his practice to administer the treatment, Dr. Liang was one of the first to apply for, and obtain, authorization. To aid in his marketing efforts, and more importantly, to help him explain Provenge and its benefits to his patients, Dr. Liang even developed his own presentation, which now is available on the Web.
    To date, Dr. Liang has administered Provenge to two patients. The information below is current as of August 4, 2011. Obviously, for reasons related to patient privacy, only the most general data are provided. The charges cited do not include office visits or the administration of the infusions. The doctor has a four-month line of credit with McKesson, which supplies him with Provenge.
    Patient A has what should be considered good insurance. He has Medicare primary, Blue Shield PPO secondary. As primary, the Medicare allowable was calculated to be $32,860 for one infusion ($31,000 plus 6%).
    Patient A: First infusion
    Date of infusion - 6/6//2011
    Code used: J3490
    Date charges given to billing service: 6/7/2011
    Date billing sent out: 6/14/2011
    Date Medicare payment received: 7/14/2011
    Amount Medicare paid: $26,288 (80% of $32,860)
    Date Blue Shield payment received: 7/19/2011
    Amount Blue Shield paid: $6,572 (20% of $32,860)
    Date $31,000 payment to McKesson is due: 10/6/2011
    Patient A: Second infusion
    Date of infusion: 6/20/2011
    Code used: J3490
    Date charges given to billing service: 6/28/2011
    Date billing sent out: 7/14/2011
    Payment pending
    Date $31,000 payment to McKesson is due: 10/20/2011
    Patient A: Third infusion
    Date of infusion: 7/11/2011
    Code used: Q2043
    Date charges given to billing service: 8/1/2011
    Date billing sent out: In process
    Payment pending
    Date $31,000 payment to McKesson is due: 11/11/2011
    You can see from the data above why having a four-month line of credit is so important to this type of operation. The need to ‘carry’ charges for Provenge over a period of several months are not insignificant.
    The second patient has received two infusions. Liang called him Patient B. The third infusion has been delayed but will be given in a couple of weeks. This patient has what would be considered marginal insurance. He has Medicare primary and MediCal secondary. MediCal is insurance from the state of California for low-income patients. It's what is known as Medicaid elsewhere in the U.S. Prior to infusing this patient, MediCal had not reimbursed for Provenge, so for Dr. Liang, infusing Patient B was a leap of faith. Happily, he reported that he received a check from MediCal for essentially the full secondary amount on the afternoon of August 4, 2011. This is important information because reimbursement for Medicare/MediCal patients has been a significant issue.
    Here’s the full billing and payment history, to date, for Patient B.
    Patient B: First infusion
    Date of infusion: 6/3/2011
    Code used: J3490
    Date charges given to billing service: 6/7/2011
    Date billing sent out: 6/14/2011
    Date Medicare payment received: 7/14/2011
    Amount Medicare paid: $26,288 (80% of Medicare allowable $32,860)
    Date MediCal payment received 8/4/2011
    Amount MediCal paid: $6,463.85 (19.7% of Medicare allowable $32,860)
    Date $31,000 payment to McKesson is due: 10/3/2011
    Patient B: Second infusion
    Date of infusion: 6/17/2011
    Code used: J3490
    Date charges given to billing service: 6/28/2011
    Date billing sent out: 7/14/2011
    Payment pending
    Date $31,000 payment to McKesson is due: 10/17/2011
    Here’s a summary of what Dr. Liang had to say regarding payment: “Speaking only for myself, I currently have no reimbursement concerns regarding Provenge for patients with good private insurance, patients with Medicare/private insurance, or patients with Medicare/MediCal insurance. I would still be reluctant to infuse a patient with MediCal insurance alone.”
    Finally, with the issuance of the final CMS J-Code for Medicare reimbursement of Provenge expected momentarily, the procedures should be in place to speed payment to all medical service providers. There already are indications that some providers are being reimbursed in as little as two weeks.
    Disclosure: I am long DNDN and will not alter my position within 72 hours of the time of publication of this article.
    Tags: DNDN
    Aug 10 8:51 AM | Link | 4 Comments
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