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Dendreon's Wild and Crazy Week


With Dendreon, it is not over yet. In the next 40 days, the FDA will provide their opinion - which is the only opinion that matters - on whether or not Provenge is safe...


This is a funny business. Eight days ago, I think it is safe to say a preponderance of people on Wall Street thought I was a moron. My firm's consistent bullishness on Dendreon's (DNDN) Provenge was a source of more than a little mirth and derision from our peers. I'm the first to admit we haven't called the price right since 2002, but I think we've been accurate enough on the fundamentals to help any investor who truly wanted the correct story on the company.

40 days

I am not crowing. I've been there, done that. In 2003, my firm was up 80% and I thought we were geniuses and everyone else on the other side of the trade was a moron. I read some of our stuff from back then and cringe at the arrogance. Madam Minxy Market taught me a thing or two since then. First, that it is not over until it is over. Second, that there is always another trade around the next corner that can make you look stupid.

The only solid rule in my business, after all, is that you're only as good as your last trade.

With Dendreon, it is not over yet. In the next 40 days, the FDA will provide their opinion – which is the only opinion that matters – on whether or not Provenge is safe and substantially effective enough to allow it to be on the market. The advisory panel voted 17-0 in favor of safety and 13-4 in favor of substantial efficacy. Those are compelling votes.

But while the FDA almost always follows the recommendations of its advisory panels, it does not have to. I place the odds they will high, but there is a chance they won't and smart investors need to factor that into their risk profiles. I'm not going to go into pages and pages of why I think the odds for approval are high, but I do want to correct what seems to be a common misconception out there. I also want to share a tiny insight I gained by being at the meeting that I think makes a difference.

Question Change

I'll give the bears points for being right on the stock price for all of the last couple of years (up until Friday). I'll also give them points for persistence. Let's be honest with each other and say out loud that it takes some logical gymnastics to spin a 13-4 vote by the panel as a negative.

The bear argument revolves around the fact the approval question posed to the advisory panel was changed. Since more than one of the analysts who have written about this have the story wrong, I want to correct it here. Let's start with the way the question was originally posed:

Question 8: Does the submitted data establish the efficacy of Provenge in the intended population?

The underlined word "establish" posed problems to the first three panel members who answered the question. They interpreted "establish" as something akin to "beyond a reasonable doubt" and were not convinced the data on Provenge met that high standard.

There was some back and forth about the question between CTGT Panel chair Dr. James Mule and the FDA's Dr. Celia Witten. Dr. Witten is the head of the CTGT program inside the FDA and the person who is the lead decision maker for the FDA's verdict on Provenge 40 days from now (though she doesn't have the final say). There was talk about changing the question.

While the panel's sitting biostatistician asked the FDA to define "establish," a gentleman from the FDA's "back row" gave a note to Dr. Witten and whispered something in her ear. She then changed the question to:

"Is there substantial evidence of efficacy?"

Her exact words when making the change were, "The regulatory definition is 'provide substantial evidence' so that is our standard. Is there substantial evidence of efficacy?"

I want to stop there and make a couple of observations about some of the research you might have read.

One analyst report said, "Surprisingly, today's CBER panel chair changed the predefined voting question of efficacy during the voting process."

This is incorrect. Dr. Mule did not change the question. Dr. Witten did. There is a big difference between the panel deciding on its own to change a question and the FDA department head responsible for making the decision on approval changing the question.

The same analyst calls the new question "post hoc" and "softer." Perhaps, but that ignores the fact "substantial efficacy" is right from the FDA's regulations. "Establish" is not.

One Passed Note Away From a Goat

Here's the tip you would not have got unless you were at the meeting…

Recall that the decision for the approval of Provenge is in the hands of the CBER division of the FDA. Up until the first of March, there was a concern the FDA's CDER division – specifically Dr. Richard Pazdur's Office of Oncologic Drugs – would get the review. CBER retained the review, as it should have according to FDA's regulations.

Remember when I said a gentleman from the FDA's back row handed Dr. Witten a note just before she changed the question? I think it pertinent that gentleman was Dr. Jesse Goodman, Director of CBER.

There were two to three bearish analyst notes that dismissed the panel because they felt the FDA would look askance at the 13-4 efficacy vote due to the change in the question. I'd be very interested to see how they get around these three facts:

1. The FDA itself changed the question.

2. The lead person in the evaluation of Provenge, Dr. Celia Witten, changed the question.

3. Dr. Witten changed the question after being passed a note by her boss, CBER Director Dr. Jesse Goodman.

I think those three facts tend to cancel out the idea the FDA is going to ignore the panel recommendation because the question was changed.

More to the point, the subtext of the bear's position here is the FDA inherently does not want to approve Provenge. If that is true, then why did the two people most responsible for the review of Provenge change the question after three consecutive 'no' votes?

I've been a big proponent of the idea logic and regulatory decisions do not always go together. That's one reason why our odds on Provenge's approval in 40 days are not 100%. Some "logic," like the idea the FDA does not want to approve this drug, simply flies in the face of fact.

Effect On the Sector

One reason I've been writing about Provenge is I thought an approval had a chance to benefit the entire sector due to it sending a signal that the FDA was going to be more reasonable. I'm no longer certain this is the case or, more accurately, I'm not sure the signal will last very long.

Dr. Richard Pazdur was at the CTGT meeting and was passing notes during lunch to Dr. Maha Hussain. Dr. Hussain is a sitting ODAC panel member and is serving as that advisory panel's interim chairperson. I've written often about my belief that ODAC has degenerated into a rubber stamp panel for Dr. Pazdur's peculiar ideas about how to get effective cancer drugs to suffering cancer patients (larger trials and stricter requirements).

After lunch, Dr. Hussain's comments in regards to Provenge's efficacy were delivered with more passion than accuracy. Many of her key facts were wrong and her assertions that Taxotere is an adequate drug for this patient population were contrary to statements she made at public scientific meetings. In sum, I believe this was a pretty good portrait of what Dr. Pazdur and ODAC would do if they got their hands on a similar application.

On May 9 and 10, ODAC meets in DC. On May 9, a superficially similar NDA for a drug from pink sheet company DOR BioPharma (DORB) called orBec will be in front of the committee. Despite potentially compelling efficacy data, I believe Dr. Pazdur will take out his "Provenge frustration" on orBec.

Worse yet, on May 10 ODAC discusses the risks of epo drugs (drugs to boost blood cells) when given to chemotherapy patients. I think it is highly likely Dr. Pazdur will be atop the grandstand on May 10, waving the banner of drug safety that seems so popular in Congress right now.

Between those two events, I think any halo given by a Provenge approval will be dampened. If I'm wrong and orBec is approved, and the panel decides not to go all medieval on epo's safety issues, then the sector will rip substantially higher. Substantially.

But that's another story. For the team here at BSR, we have 40 more days to find out if we get to keep our newfound genius status or whether we're goats again.

One other thing: Amgen (AMGN) will have the most exposure to the May 10 ODAC panel meeting. The safety issues with epo have been worked into its stock price, though whether the effect has been too much or too little I can't tell you. If the ODAC panel isn't too negative on epo, then Amgen shares could recover some. I don't think that's the likely outcome, however, so if you are in Amgen, the IBB, or the BBH you might want to take stock of the issue.

Position in DNDN

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