Don't Bet on the Dendreon Lawsuit

Shares of Dendreon (Nasdaq: DNDN) were up more than 10% at one point this week after a patient advocacy group filed a lawsuit attempting to usher Dendreon's prostate cancer drug Provenge onto the market.

The nonprofit advocacy group Care To Live filed the motion this week in response to the approvable letter that the FDA issued on Provenge in May. The goal of the motion is to get the agency's decision to withhold approval of Provenge overturned in court.  A copy of the motion is available on Care To Live's website, http://caretolive.com/.

The text of the suit starts normally (albeit unconvincingly) enough, but then enters the realm of the absurd by accusing top FDA officials or those involved in an advisory panel meeting of being "prodded by the devastated financial investment community" in an attempt to help those who "short the stock" or "were invested in direct competitors" of Provenge.

Making these kinds of allegations isn't exactly a good path to persuading a judge to overturn the Provenge approvable letter. Furthermore, nothing in the motion explains why Dendreon hasn't tried to get Provenge approved anywhere else in the world. Surely not every drug regulatory agency in the world is affected by a "dishonest and dishonorable agenda," as the motion claims of several FDA officials.

It's important to remember that Dendreon is not involved in this lawsuit, so the wild accusations aren't a black mark against it, unlike other public companies such as Overstock.com (Nasdaq: OSTK) or Biovail (NYSE: BVF), who have actively filed frivolous lawsuits in the past and wasted shareholder cash.  

The future of Provenge is still completely tied to the outcome of the ongoing phase 3 study testing the drug in men with late-stage prostate cancer. If the study can show a statistically significant survival advantage when its interim results are announced in the second half of next year or with its final results in 2010, then Dendreon will have an approved compound on its hands. Investors shouldn't expect any miraculous change of the FDA's opinion or court rulings ahead of time.