Dendreon Watch 2010 (and Why You Should Ignore It)

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After years of waiting, the time is finally here. The Food and Drug Administration aims to make a decision for Dendreon's (Nasdaq: DNDN  ) Provenge by Saturday. An approval could come Friday evening -- maybe earlier, or possibly later. Either way, you're likely to hear a lot about the company over the next five days.

Whether you've been in a cave for the last two years, or are just new to biotech investing, let's get you caught up.

Dendreon developed a prostate cancer treatment called Provenge. Immune cells are taken from a patient and exposed to an antigen, training them to attack the prostate cancer, before being infused back into the patient. High-tech stuff for sure.

Provenge is often referred to as a vaccine, since it uses the same mechanism of action as vaccines such as Merck's (NYSE: MRK  ) Gardasil or Pfizer's (NYSE: PFE  ) Prevnar. But the drug won't be given to everyone to prevent the disease like a normal vaccine. Only patients who already have prostate cancer will be given Provenge.

Dendreon tried to get Provenge approved two years ago, but the FDA decided it needed more data. A new trial came up positive, so we're back for another investor circus.

Buy now?
We've covered this already. As of last night, shares are up 75% since Dendreon presented the data from the latest clinical trial last year. I'm not sure what has increased investors' confidence in an approval, but clearly, the time to buy was back then.

The amount a stock goes up after a binary event like an FDA decision or a clinical trial result is directly proportional to the confidence investors have in the event coming out positive. There's still some risk of the FDA turning the drug down, so I think it's likely we'll see an increase after an approval; just don't expect the stock to skyrocket.

Sell on the news?
After an approval, all eyes will shift to how quickly Dendreon can ramp up sales. The drug seems to work better than sanofi-aventis' (NYSE: SNY  ) Taxatore, with less severe side effects, so marketing shouldn't be a problem. The biggest hurdle may be the logistical issues with the complexity of the treatment.

Dendreon hasn't said what the drug will cost, but with a market cap topping $5.6 billion, investors have already priced in substantial sales. Assuming Provenge eventually becomes a multibillion-dollar drug, long-term investors should make out just fine. In the short term, though, Dendreon's stock will be tied directly to how quickly the company can ramp up Provenge sales.

Is a "complete response letter" the end of the world?
The FDA issues complete response letters when it wants more information before approving a drug. The requirements can vary from a new trial to more mundane paperwork issues.

What happens to the stock after a complete response letter depends on the severity of the requirements. Amylin Pharmaceuticals (Nasdaq: AMLN  ) and Alkermes actually went up after the FDA turned down their diabetes drug Bydureon. While a delay for Bydureon, which Amylin will market with Eli Lilly (NYSE: LLY  ) , wasn't ideal, investors figured the likelihood of an approval was higher because the issues mostly involved paperwork. 

I wouldn't expect the same for Dendreon, because the confidence in an approval seems so high. Depending on the perceived length of any delay the FDA might impose, a 25% drop for Dendreon like the one Mannkind (Nasdaq: MNKD  ) saw isn't out of the question.

Any final Foolish thoughts?
Two, actually. First, don't get caught up in the hoopla. If you're going to buy, do so because you think the rewards post-approval are greater than the risk of a delay. If you don't understand those risks, don't buy.

Second, if you do decide to stay on the sidelines, don't beat yourself up if the stock goes up after any approval. If you decide the risk-reward profile isn't right for you, then staying on the sidelines is the right decision, no matter what the FDA says.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is a Motley Fool Inside Value recommendation. The risk-reward profile for the Fool's disclosure policy clearly favors the reader.

Read/Post Comments (8) | Recommend This Article (28)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 26, 2010, at 4:18 PM, ahrahr wrote:

    The Fool didn't get it from the beginning.

    If Provenge gets approved, DNDN is going to be the next Amgen/Genentech - if not better.

    If Provenge gets approved, DNDN stock price is going to handily beat the S&P for years to come.

  • Report this Comment On April 26, 2010, at 4:21 PM, ahrahr wrote:

    The Fool didn't get it right from the beginning.

    If Provenge gets approved, DNDN is going to be the next Amgen/Genentech, if not even better.

    If Provenge gets approved, DNDN will beat handily the S&P for years to come.

  • Report this Comment On April 26, 2010, at 5:39 PM, ragedmaximus wrote:

    bought some dndn today and expect it to go up all week and i may sell friday before fda approval or denial or i could hold it and gamble the possibility of fda approval are there any nostradmus fda dndn fools in the house? if it does get approval how high can it get

  • Report this Comment On April 26, 2010, at 6:15 PM, optionstrategist wrote:

    I have lost respect for motley fool.This company DNDN has paid it's dues and has more than Provenge in the pipeline. Whats with such a negative headline, at such a significant time in the company's history..Lets hope DNDN gets this approval so that prostate cancer patients can live longer..


  • Report this Comment On April 26, 2010, at 7:17 PM, TSIF wrote:

    optionstrategist, if you lost your respectt for the Motley Fool, then I'm surprised you had any to start with. The articles here are by individual authors, not sanctioned or approved necessarily by the Fool.

    Their purpose, along with the Motley Fool in it's entirety is to stimulate discussion and thought.

    If there are investors who don't understand BIOS, then this is a great article and sound advice. MANY investors have gone down the biopharm road with no clue to what phase testing results, market size, FDA approval, etc, all mean.

    I bought Dendeon in the $6's. I wouldn't recommend it to anyone at this price, though I do believe it will go up on approval. One: Approval is NOT a slam dunk and Two: I have seen MANY BIOS share price exceed the market opportunity for their product and on on FDA approval the shares DROP like a ROCK!

    Again, not something I expect out of Dendreon, but the point of the article was that if you've been on the sidelines because you don't understand the game, now is not the time to jump in. If you've been in the game, or you've played the bio game before, then do your DD and act accordingly.

    Good luck.


  • Report this Comment On April 26, 2010, at 7:22 PM, eddiewellis wrote:

    I have stuck it out and hung in there as this company has grown over the years. I have been impressed with their stock. I have bought and sold this stock two times. When I first started buying the dndn stock I bought the shares three years ago at $3.37 and bought around 2500 shares. At one time it went up to $30.00 and I sole my shares for around $27.00. When the shares dropped back to $3.47 I bought over 6500 shares, and it is sitting at $41.00, This stock has been good to me, so if it dropes again don't worry it will always come up again. I hope to maybe make some more money in the future.

  • Report this Comment On April 26, 2010, at 7:37 PM, bhessel wrote:

    Nice summary. I would add that the most likely cause of a delay is generally considered to be potential FDA concerns with respect to the manufacturing process. Virtually all analysts have concluded that the IMPACT study data meet the FDA’s criteria for approval, which isn’t to say that the FDA might not change their criteria but this is considered by most to be extremely unlikely. Therefore, any potential delay is likely to be temporary, lasting only so long as it takes the company to satisfy the FDA that bugs are out of their manufacturing process.

    Although, that might not be a slam dunk. As explained in the article, each patient's doses of Provenge are unique to him and require drawing, processing, and returning his blood. This is obviously much more complex than producing, packaging, and distributing a vaccine that is chemically identical for everyone. The FDA did raise some manufacturing concerns back in 2007 when they declined to approve Provenge because (also) they wanted more data; at the time the company felt the manufacturing issues were mino...which compared to having to wait another three years for approval, they presumably were. And, presumably, they have long since been addressed.

    Management also stated that if there was any indication from the FDA that there were manufacturing issues, that that would constitute a material event if it would delay approval and shareholders would be informed. Thus the closer we get to 1 May with no warning from management, the less likely that there will be a delay.

    Of course, there were two weeks the FDA lost to snow earlier this year, so maybe 1 May is really 15 May. Or maybe the FDA will just decide to take more time; the 1 May date is not binding.

    As for buying the stock, there is certainly a chance it will be available cheaper than $40 between now and whenever Provenge is approved. But barring a market collapse, it’s not likely to be much cheaper after approval (which could happen anytime). And it could easily be a lot higher soon if, as many long-time observers expect, an ROW deal (or a buyout) follows closely on the heels of FDA approval.

    In any event, if you believe the Dendreon’s immunological approach to treating cancer has the potential to be a cure, then there is a reasonable chance the company’s stock is headed a *lot* higher in future. And whether your basis is $40 or $30 won't matter so much when and if the stock is worth $100+…and if you failed to buy it at either price, then you may well feel like beating yourself up at that point.

    Brad Hessel (long DNDN common and Jan 11 $5 LEAPS)

  • Report this Comment On April 27, 2010, at 8:28 AM, BluegrassInNYC wrote:

    Anyone who is interested in buying or selling Dendreon stock should understand that there are hedge funds in the market that do not necessarily behave as you would expect. They have access to the media and the strength to strong-arm the market to a certain degree. Before jumping into this stock in particular, and other biotechs in general, do your research and read . I cannot vouch for the veracity of the entire story, but it is a fascinating read anyway.

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