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Dendreon, The Fabled "Next Amgen"

|Includes: AMGN, CELG, Dendreon Corporation (DNDN)

In the Biotech oncology space immunotherapies are red hot.  The hottest of the hot--and actually the probable reason for all the heat of its brethren-- has been Dendreon (NASDAQ:DNDN), the Seattle oncology biotech that received the first FDA approval in history for a "therapeutic vaccine".  In common understanding a vaccine is given to prevent disease--by training the patient's immune system to recognize and defeat invading organisms.  A therapeutic oncology vaccine puts kind of a twist on this idea:  the patient already has cancer and the therapeutic vaccine trains the patient's immune system to kill the cancer. 

For over a hundred years doctors and cancer researchers of every stripe have been trying to stimulate the patient's immune system to fight cancer, and have failed.  A key difficulty in the fight against cancer is that the "invaders" causing the illness are the patient's own cells--run amok and wreaking havoc to be certain--but "us" in the eyes of the immune cells charged with fighting disease--so they leave it alone.
Finding a way around this problem is the Holy Grail of cancer research--and has been for these past hundred years.

Dendreon has succeeded where all others failed.

Provenge, the autologous therapeutic vaccine for late stage prostate cancer, approved by the FDA on April 29, 2010, demonstrated in clinical trials the ability to significantly extend the lives of the sickest of the sick men with prostate cancer.  It demonstrated the largest survival advantage EVER in the late stages of this disease, improving three year survival by a gigantic (in the world of late stage prostate cancer) 40%. 

Provenge works by a process in which the patient's blood is drawn, immune cells are isolated, and then combined with Dendreon's patented antigen delivery cassette.  What this really represents is a "school for the immune system":  the antigen delivery cassette is made up of an antigen that is present on the surface of almost every prostate cancer cell, fused to an immune stimulating protein.  It's kind of like holding up a mug shot to the immune system and saying "Look--these are the bad guys!"  The infusion bag of "activated" immune cells (trained in what the bad guys look like)is Provenge.  The activated cells are infused back into the patient (3 times over the one month course of treatment) and treatment is done--and the process produces a MASSIVE immune response against the patient's cancer.  All with a very benign side effects profile--none of the usual ravages of chemo.

Unbelievably awesome, right?  Success where all others have failed.  Minimal side effects.  And in the second most common cancer of all.  

How big is that market and what could the revenues look like for the company? There are over 100,000 men currently diagnosed.  30,000 new cases every year and the company has priced Provenge at $93,000 for a complete course of treatment--competitive with current chemos--and with a brand new decision by Medicare to provide coverage.  You can do the math, but since approval men have been clamoring for the treatment, waiting lists have been forming, and the company has been hustling to bring three plants online by mid 2011 that will have the capacity to process $2.5 Billion worth of Provenge a year.

And the story gets better.  Dendreon somehow limped, and begged, and dragged itself across the FDA approval line without partnering (please see my earlier article--Dendreon Learned From Icos' Mistake) and having maintained 100% rights to the well protected cassette technology--and process technology that is behind Provenge.  Not only does the company own it all--and as of April 2011 have almost One Billion dollars in cash to execute the launch of Provenge, with Hans Bishop, a top gun hired away from Bayer, to oversee it--but there is the real prospect that the same technology that has been validated with Provenge will also prove successful in follow on treatments for bladder cancer and renal cancer, for which the company plans trials beginning this year and next.

What about the rest of the world?  I'm glad you asked.  The company owns 100% rights there too, and plans to keep it that way.  They've shown they're serious there by publicly admiring Celgene's go alone success with Revlimid and following up with meetings with the EMEA--the European equivalent of the FDA.  They have already reported that those meetings indicate that Europe is unlikely to require new trials for Provenge, given the rigorous gauntlet the company has already run with the FDA.  The company is expressing its optimism in Europe by contracting for a gap producer of Provenge to support an application for European approval late in 2011 or early in 2012, and by planning a new Provenge factory for construction in Germany.  European and Rest of the world revenues could easily equal or exceed those of the U.S.

Has your calculator exploded yet?
There's more.  It will be tough, because it's harder to run trials in prostate cancer victims in earlier stages of the disease--with their longer life expectancies and the FDA not yet accepting any surrogate endpoints for survival--but if Dendreon can expand the Provenge label to earlier stage disease the revenue prospects are tremendous--multiples of the figures we have already discussed.  And of course since Provenge works by stimulating the immune system, there is every logical reason to expect that having succeeded in the sickest of the sick PC sufferers, with immune systems already so compromised that they had allowed their cancer to spread, it will work even better in men with earlier stage disease and healthier immune systems.  One researcher, who participated in Provenge trials, even expressed the hope at an analyst's day held by the company that in earlier stage disease Provenge might prove to be--(Let's whisper it, since for some reason some people get upset when I quote her here--remember I'm quoting--I'm not saying it--the research doctor is saying it) a cure.  That's right, a possible cure for early stage prostate cancer.

One aspect of the recent Medicare decision to cover Provenge that has not been fully appreciated is its handling of off label use of Provenge.  The label indication is late stage metastatic disease. So far everyone's analysis of the market potential of Provenge has been limited to labeled use.  As above, patients are going to be eager to receive Provenge in earlier stage disease, before the cancer has spread and their immune systems are even weaker.  Medicare did not--as many expected them to--forbid coverage for off label (earlier stage) disease.  Instead they left that decision to the local regional Medicare contractors.  Dendreon has trials going on in earlier stage disease, and while success in those trials might not suffice for FDA approval--they are not registration trials for approval--there is still the chance that if the results are good the various treatment Compendia, which CMS looks to in addition to the FDA in making coverage decisions, may list Provenge in earlier stage disease as a treatment recommendation, and thus open the door for off label coverage.  That would be absolutely HUGE and could push the U.S. Provenge market into the 10 Billion dollar range.

Sound good?  Sound like it could be the "Next Amgen"?.  Do all the due diligence you care to--and for sure, as always, there WILL be bumps in the road--from here on execution will be everything--but all the bureaucratic obstacles have finally been removed and it sure looks like the best candidate out there for "Next Amgen" status to me.

So where are they selling this?  It's over at the NASDAQ under the symbol DNDN, and guess what?  Right now it's on sale--because of the "Tempest in a Teapot" fears about the CMS review (see my earlier article Dendreon: Fear is Our Friend) and because analysts have yet to dig deeply enough into the story to be even including the European and Rest of the World markets, or the chance of off label revenues, into their models.  Not to mention other cancers which may be treatable by the patented technology behind Provenge.  The shares are currently well off their immediate post FDA approval highs (57's)--but they won't be for long as the Market learns and believes the full story. 

Long term investors should load up.  I predict you'll be very happy you did.

Disclosure: I am long DNDN.