After years of waiting, the time is finally here. The Food and Drug Administration aims to make a decision for Dendreon's
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
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'
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
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
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.
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.