Mac Greer: OK, Charly, let’s talk biotech. Dendreon’s prostate cancer treatment Provenge has been on the market for three months. As our colleague Brian Orelli noted, the FDA recently took issue with Dendreon’s marketing of Provenge. The FDA said that the company had minimized the risk and overstated the benefits of the treatment. What do you make of that flap?
Charly Travers: I’d agree with Brian’s take that this isn’t a big deal. No matter the industry, there’s always a little dance companies play with the regulators to push against the limits to try and get any edge they can. Every now and then they cross the line and get a slap on the nose and life goes on.
Provenge is a first-of-its-kind treatment for prostate cancer. It is an immunotherapy that harnesses the power of the immune system to attack prostate cancer cells. For decades there were many failed efforts in the industry to get this “cancer vaccine” approach to work. It’s an impressive feat Dendreon pulled off. And if you look at the advances in the treatment of cancer over the history of the biotech industry, I’d put this right up there with commercial launch of Genentech’s (now a part of Roche) monoclonal antibodies Herceptin and Rituxan over a decade ago.
Greer: OK, Charly. But immunotherapy has a pretty lousy track record. What makes Provenge different?
Travers: The difference is that Provenge actually works. The FDA has high standards of safety and effectiveness that must be met for it to give its approval and Provenge’s data satisfied their criteria. Provenge lets patients live longer, which is always what you want to see in a cancer therapy. Last month, the phase 3 trial data was published in the prestigious New England Journal of Medicine.
Greer: So Provenge has been successful for Dendreon. Does Dendreon need another success --- a second act?
Travers: There really is no Act 2 and by that I mean they don’t have any drugs in clinical trials that are close to launching. Without a follow-up compound there are two paths for the company to take. Once Provenge hits full speed, Dendreon can try deploying those profits into acquiring other biotechs to broaden its drug portfolio. But I’m not a fan of empire building because it’s expensive to do acquisitions and there’s a lot of risk that acquired drugs won’t work. It can be a complete waste of money.
I think Dendreon shareholders would be best served if the company sets itself up to get acquired by a big pharma company, maybe GlaxoSmithKline
Greer: Dendreon currently has a market cap of around $5.5 billion and shares are trading around $38. What is a big pharmaceutical company paying if it acquires Dendreon and what does that mean for Dendreon shareholders?
Travers: Provenge has blockbuster sales potential. It is not farfetched that it could do $1-2 billion annual sales and Dendreon is planning for that with the manufacturing capacity currently under construction. I would set a floor for an acceptable offer price at $75. That number moves higher the longer the wait and the stronger Provenge’s sales look.
Looking for some other stock ideas? Anand Chokkavelu recently highlighted his 7 pharma buys.