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Biotech Roundup: Dendreon, ACC, Short Interest, Cancer Drug Roadblocks, Second Life


This week in biotech: regulatory decisions, Pfizer, short interest and virtual communities...


D-Day for Dendreon

Both sides of what might be the biggest biotech regulatory decision of the year are at a fever pitch when it comes to Dendreon (DNDN) and next Thursday's FDA advisory panel vote on its prostate cancer drug Provenge.

Even though my firm has been positive on the drug for five years, the bulls think we're caving in to "pressure" from the bears because we've urged put coverage and caution. Despite having these puts in place to hedge the risk for over a year, the bears think we are recklessly bullish. I suppose it's because my firm is now hated by extremists on both sides, which means we have it about right.

I think the drug works and should be approved. If the FDA asked me to be on their advisory panel meeting next Thursday, that's the way I would vote. The totality of the clinical evidence, compared to no serious side effects directly attributable to the drug, is highly persuasive. The statistical issues are minor and, in any case, are unique enough that any positive vote I make would not lead to the improper approval of lesser drugs in the future.

Unfortunately, I don't get a vote. More importantly, I don't get to participate in the panel discussion to constantly remind the panel that their job is not to be the guardian of the FDA's myriad approval rules, but to provide clinically-based advisory input.

Instead of being able to do something about the vote, I have to sit here and pay more attention to where the stock is going. After all, we can't buy or sell fundamentals. All we can do as investors is buy and sell the stock. As I have noted over and over, the fundamental value of a company and the price of its stock are only coincidentally related.

With the stock at 52-week lows as I write this, I find it amazing how little chance Wall Street gives this approval. Provenge will sell at least a billion dollars at market maturity. Anyone buying next Wednesday could get that billion dollars in future revenues for about $300 million in market cap. A billion dollars in 2011 sales probably generates ~$500 million in gross profit (ultra-conservatively) on this one product. A typical biotech multiple is 20-30ish. Even assuming a post-approval financing would bump the shares outstanding to 100 mln; you do the math. Then figure out the discount required to get back to today's $300 mln market cap.

Let me remind you of the bear case here: The bears say Provenge won't be approved because the company chose progression instead of survival as the primary endpoint, and one valid statistical analysis method ahead of another valid statistical analysis method.

Yeah, their argument is just that. All their other fundamental arguments have been proven wrong over the last couple of years. If Dendreon has moved a couple of words around in their trial planning documents back in 1999 when these trials were designed, Provenge would already be on the market. Because it didn't, now the bears are comfortable with about 1/3 of the float short.

As I said before, the risk of the advisory panel choosing process over patients means a downside risk below $2. Upside is a multiple of the current market cap.

Here at BSR, we are using some group buying power to offer a discounted rate to view the live web cast of the Provenge panel. Click here for more information. Act fast, because the offer ends tomorrow (Saturday).


Pfizer's (PFE) torcetrapib is taking center stage at the ACC meeting in New Orleans. The investigators on this failed $800 mln clinical trial program are going to lift up the table skirts and tell everyone what went wrong. I was actually booking for New Orleans when I found out I'd have to be in Washington DC instead for the Provenge panel.

As most Minyans know, my firm predicted some number of years ago the torcetrapib program would fail. What Wall Street will be looking for next week is whether the problem is a class problem (which would affect a Merck (MRK) drug under development), or something isolated to torcetrapib.

I think the blood pressure problem will show up in the other products, but it is unlikely to be so pronounced. I remain convinced CETP-inhibition, the class mechanism of action here, will not provide long-term benefits in lower cardiac events and deaths.

For those keeping score, watch Dr. Steven Nissen's presentation on how well torcetrapib reduced the layer of fat inside arterial walls. With that much of a hike in HDL and this duration of treatment, the fat withdrawal percentage should be comfortably in the double digits. Recall that an IV drug developed by Esperion was able to do strong single-digit reductions in most patients after just two weeks of occasional therapy (Pfizer subsequently bought Esperion).

If the withdrawal of fat from the arterial walls is not very strong – or if there is no difference – then CETP-inhibition is over. If there is a strong result, then perhaps I've been wrong about this approach and just got lucky in predicting torcetrapib's failure.

Timely-ish Short Interest

The NASD and SEC put their heads together and decided short interest should be reported every two weeks. That gets a big "about time" from me, as you might expect. I've written often about how dumb it is to have short interest reported only once a month. Frankly, every tick that goes by using a borrowed share should have an "S" on it.

When we get to daily short interest reporting, I expect there to be many TA/quant strategies that will spring up because of it. I'm already reading of folks who are looking.

The semi-monthly reporting will begin 3Q-2007.

Cancer Drug Roadblocks

It isn't much of a secret I'm no fan of the way the FDA approves cancer drugs and, in particular, no fan of the head of the FDA's Office of Oncologic Drugs (OOD), Dr. Richard Pazdur. I found the March 19, 2007 issue of BioCentury very interesting in this regard.

The lead story was on FDAMA, last decade's attempt at Congress explaining to the FDA that access to new drugs is at least as important as ensuring safety. They detail how the FDA's requirements – really, Dr. Pazdur's requirements – for oncology drug approvals violate the spirit, if not the letter, of FDAMA.

I'll add something they didn't: Most of the examples date from when Dr. Pazdur was completing his internal power play to set up OOD and directly result from not having adult supervision at the FDA for most of President Bush's term in office.

Second Life's Virtual Markets

If you haven't yet heard of Second Life, don't feel too bad. It probably just means you: (1) Don't have kids; (2) Are above a "certain age"; and/or (3) You need to get out more.

OK, maybe you need to feel a little bad...

The complexity of this virtual universe astonishes me every time I read more about it. I know more than a few people for whom Second Life is their sole occupation. Now comes news of a stock exchange inside the Second Life universe.

Take a few minutes and check it out. You'll probably either think it is really cool or you'll have another anecdote you can share around the water cooler to "prove" what a bubble we're in when even virtual communities have stock exchanges.

Editor's note: A change to this piece incorrectly indicated that Dendreon's fundamental argument on Provegne has been disproven. As written, it said the fundamental arguments of Dendreon bears had been disproven.

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