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Dendreon’s Debate

Prohost Biotech - Thursday, September 15, 2011

For temporary negative circumstances that do not weigh against an FDA declining approval of a new drug, Dendreon’s (DNDN) stock plummeted as much as it would have if the FDA had denied it a drug approval. It was an irrational sell-off, kind of investors’ anger or vengeance against Dendreon, or someone in it. Since then, a debate started over Dendreon’s whereabouts, including its therapeutic vaccine Provenge’s efficacy and life-extending possibilities. The debate never stopped. Its temperature continued to rise, causing serious investors’ malaise and a subsequent stock malaise. The endless debate has affianced many people, including science writers, biotechnology analysts, critics, daily traders, biotech fans and both positive and negative investors. Getting confused rather than informed, a number of Prohost followers asked us to engage in the debate, or at least give an opinion over what this or that angry fellow might be suggesting.

It is no mystery that the cause of the heated debate is DNDN’s nosedive. The stock is $11.90, coming down from $45. It is on sale, unless the therapeutic cancer vaccine Provenge is ineffective, which would evaporate whatever is left of the poor price. What investors want to know is whether Provenge is a good cancer immunotherapeutic drug, or it will is a failure like all other investigational therapeutic cancer vaccines? They want to know if Provenge will take a share of the huge prostate cancer market. Some asked, If you believe it is effective then why the early disappointing sales? Why the stock plummeted? Why, why, why.

It is no secret that the stock selloff occurred after the firm surprised its shareholders with lowering its guidance on Provenge revenues for 2011. “Surprised” in the above sentence is the key word. Shareholders have also learned from the firm that Provenge had lower than expected sales as a result of reimbursement problems, which caused urologists to abstain from prescribing the drug. Investors’ rush into selling the stock was a reflex negative reaction towards surprising disagreeable news. Skepticism was a normal reaction.

When DNDN price shot up to over $30, we decided to sell the stock. Our decision, which we published in the Prohost Letters at the time, had nothing to do with the vaccine’ efficacy, or the vaccine’s future sales. The stock has had a long sustained giant rally that was based on mere optimistic speculations rather than encouraging post-approval news. We sold because we believed the stock was overvalued at the time and was due for a correction.

Many analysts viewed Provenge’s high price ($93,000 for a course of treatment) as the reason behind the reimbursement headache that caused the trouble. An Internet debater argued, “Had the firm reasonably priced Provenge, the reimbursement problem would have never happened and the product sales would have definitely multiplied.” The truth is that it was much easier for outsiders to hypothesize about what the firm should, or shouldn’t have done than for Dendreon to follow their suggestions. The production capability was inefficient and could not handle an increase in demand. The consequences of lowering the price without being ready to meet an increase in market demand would have resulted in a further decline in revenues, which would have devastated Dendreon’s plans and programs, including the marketing of its only approved drug and the development of its clinical and preclinical programs.

Having said that, it is important to also recognize that these difficulties are not unusual for small, underfunded firms that decide to develop and market their own products rather than bring in a deep-pocketed full partner that would carry the burden of expenses. The question is, had the firm elaborated on these difficulties and on its plans to overcome them from the beginning, would it have prevented the sell-off in its stock later on? The answer is definitely yes. A stock correction would have occurred, but would have been a considerably milder than the sell-off that caused the evaporation of 70% of the stock value.

Nothing of what happened can be in anyway related to the efficacy or safety of Provenge, or its   inability to extend the lives of the near-dead. We haven’t seen anything published in any peer review journal that demonstrated Provenge to be ineffective, or has failed to extend lives, or failed to boost the immune system T cells to attack the cancer cells. On the contrary, we have seen laboratory evidence and statistical evidence that the drug, indeed, produced the required biological effects, improved patients late-stage prostate cancer, and extended survival.

What about now? Many of the difficulties in increasing Provenge’s sales are being solved. The reimbursement problem is being addressed. As we mentioned in a previous posting, the Centers for Medicare and Medicaid Services announced a favorable coverage decision for the drug and issued Provenge a specific Q-code that allows for electronic submission of claims, which will accelerate time to payment to oncology centers and oncologists. With regard to production, the FDA has recently approved a third manufacturing facility, after approving a second one at the end of June 2011. So, three facilities are ready and capable of meeting increasing demand for Provenge. With regard to spending, Dendreon has already embarked on ways to cut costs and  has already narrowed its second quarter net loss by around $28 million and recently, it has reduced the work force by 25%.

Positive news has come about a 16% increase in Provenge’s August sales. We view these figures as a sign of physicians and patients’ increased confidence in Provenge, which could be a beginning of a trend towards sales’ growth as the firm’s problems are fading away.

The endless debate: Tackling immunotherapeutic approaches by amateurs is an extremely difficult, intriguing and uncalled-for task. The immune system, like the nervous system, is very complicated. In spite of the mountains of information that revolutionary molecular biology has offered life sciences, immunologists estimate that they still need years of hard work and more mountains of information to get an inkling of the immune system actions, reactions and susceptibilities, let alone exploring its obscure dark corners. Most amateurs’ opinions on Provenge we happened to read were unscientific and most of their compared and contrasted topics were incompatible. There is no doubt that Dendreon has made history bringing the first “Active cellular Immunotherapy (ACI)” approach into the market. Provenge has been FDA approved based on clinical trial results that met the trials’ endpoints. The results were undoubtedly positive and in its second review of the data, the FDA did not require a committee of experts to offer its recommendations for it to approve the vaccine.

A primary goal of the ACI approach is to generate a robust T-cell–mediated response capable of recognizing, targeting and destroying tumor cells. Dendreon accomplished this task through exposing patients’ own antigen presenting cells (APCs) outside the body to a recombinant antigen that consists of prostatic acid phosphatase (PAP) - a cancer associated antigen expressed on the surface of 95% of prostate cancer cells and an immune cell activator called granulocyte macrophage colony stimulating factor (GM-CSF). Digesting the antigen, the APCs display it as fragments on their surface. These matured APCs are the active ingredient of sipuleucel-T,, i.e., Provenge. Returned to the body, the mature APCs activate the T-cells, and enable them to recognize and attack the cancer cells.

For patients with advanced-stage cancer, Dendreon’s goal has not been the total eradication of tumor cells, but rather the restoration of a dynamic balance between tumor cells and immune system response. The firm succeeded in reaching its goals. Its approach has definitely worked and  expected to be increasingly adopted and improved by the firm itself and by other companies and academic researchers who believe that this approach can bring ideal results.

A case in point, this week, the New England Journal of Medicine published a study about an experimental immunological treatment conducted by the university of Pennsylvania on three patients suffering from late-stage chronic lymphocytic Leukemia. The patients had no other treatment options. The researchers used the ACI approach used by Dendreon, but instead of activating the T-cells with the patients’ matured antigen presenting cells expressing the specific cancer antigens on their surface, they preferred a concept that involves adding gene sequences from different sources to enable the T-cells to produce what researchers call chimeric antigen receptors, or CARs — protein complexes that transform the cells into serial killers. The researchers used a disabled form of HIV-1 as a vector.

The results were stunning. Modified patients’ T-cells multiplied to 1,000 to 10,000 times the number infused. They wiped out the cancer then gradually diminished, leaving behind “memory” cells that can proliferate if needed. In this trial that is considered Phase I, two out of three patients had complete response and a third had a partial response. All suffered tremors, very high fever and chills and other complications but they ended up healthier than they have ever been.

Most processes in both the Provenge approach and the Pennsylvania University experimental approach are not all scientifically understood. Researchers in both, Dendreon and Pennsylvania University have separately admitted that there are more question marks than answers about many details in their approaches. Both also agree the active cellular immunotherapy approach they use for fighting cancer is working, is promising, can be used for various cancers and can be improved through adaptation based on experience.

Immunology is a difficult science.  Didn’t we tell you?

We currently have no positions in DNDN.

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