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Dendreon: Going to the bottom of mysterious story

Prohost Biotech - Tuesday, January 03, 2012

We keep reading daily tails about Dendreon (DNDN), Human Genome (HGSI) and other firms granted FDA approvals for therapeutics, which had disappointing sales. Bullish and bearish analysts are filling the media with articles explaining the reasons for the sluggish sales of Dendreon’s drug Provenge and Human Genome’s drug Benlysta after investors have already lost their money. Predicting the drugs’ poor sales before they hit the market was no dilemma, as the barriers to successful launch were palpable. Both bullish and bearish analysts preferred not to reveal ongoing obstacles to satisfactory market penetration; the bullish were enjoying the rally and had no interest in halting it, and the short-selling analysts and their followers welcomed bubbling of stocks, so they would hit the jackpot if and when the bubbles burst. Investors’ disappointment wouldn’t have been as deep, resulting in a huge selloff of the stocks if they had done their due diligence towards developing realistic expectations. Instead, they interpreted analysts’ silence as a sign that the revenues being generated from the drugs’ sales would certainly meet the analysts’ and the firms’ projections. They didn’t. Why? That’s what investors needed to know.

As DNDN reached around $30 and HGSI $24, Prohost announced its decision to sell the stocks, having in mind to buy them back at a fair price, around $14 each. We did sell them and we are buying them back at a much lower price than we had in mind, as DNDN and HGSI have both bottomed, trading currently at around $7.50.

While bragging about our timely selling of stocks of two promising biotechnology firms, we wish we had expressed our concerns earlier when we had a chance to prevent catastrophic events that harmed the patients, investors and the developing biotech companies. This is the right way to protect the biotech industry - a great asset for the U.S. future financial prosperity - from the damage being caused by those who have nothing in mind but serving their own greed. By revealing the problems, we might prompt the companies to address them, thereby short circuit negative analysts and prevent the tumbling of the stocks.

Dendreon’s story is a complex tale having all the elements of intrigue. What happened between 2007 and 2011 has become a case history with mysterious events that have yet to be unveiled. Investors are still in the darkness regarding the circumstances that led the FDA to reject Provenge in 2007 in spite of the FDA committee’s recommendation of approval. They have no clue about what the causes behind DNDN’s dropping from $24.50 to $7.50 in no time on April 2009. Divulging the secrets behind these events and others would help prevent future destruction of development-stage biotechnology firms.

Matthew Herper from Forbes wrote an article citing some events in the past three years of Dendreon’s life. How staged protests in front of the FDA headquarters when the agency denied Provenge approval in 2007 have led two experts who wrote letters to the FDA advocating denying approved to use bodyguards whenever they went to medical conferences. He observed that following Provenge’s approval, there was a debate between investors about whether Medicare would agree to pay for the approved drug and how it took a year before Medicare did pay for Provenge.

Mr. Harper article went on to mention how Provenge’s sales have failed to meet what Wall Street had expected, which led to DNDN’s demise. He pinpointed three analysts who were not taken completely by surprise. David Miller of Biotech Stock Research who warned investors that Provenge was uniquely expensive, especially that the treatment is given in three injections in a short time compared to other expensive cancer treatments that are spread out over many months. Doctors had to take a high financial risk giving Provenge to patients, as they would risk losing huge amounts of money. Lucy Lu at CitiGroup and Eric Schmidt at Cowen argued that the lag of sales was caused by the firm’s inability to meet the demand as the sample processing facilities were not there. Mr. Harper concluded his article saying, “Now the jury is out on whether Dendreon faces a fixable problem caused by pricing or a much tougher set of difficulties caused by how convincing doctors find its clinical data.”

Prohost is convinced that two sets of problems have caused the sluggish sales of Provenge, manufacturing problems and reimbursement problems. We are also convinced that both sets of problems have been taken care of and the doctors, we believe, are ready to prescribe the drug if they confirm reimbursement will be made in an acceptable time frame.

We liked a comment on Mr. Harper article signed Ted. It revealed that Drs. Howard Scher, MSK, and Maha Hussain, Univ. of Michigan who were members of the Provenge Advisory Committee were serving under waivers because of their conflicts of interest. The comments went on to state that Dr. Scher, at the time, was the co-lead on the pivotal Phase III trial of another drug, Ascentar, developed by the firm Novacea also for prostate cancer, which would have competed with Provenge had it been approved. Both Drs. Scher and Hussain voted YES on safety and NO on efficacy, sas members of the DSA advisory committee.

Ted’s article has also revealed that,

“Dr. Scher would eventually write to Dr. von Eschenbach, then-commissioner of the FDA, encouraging the agency NOT to approve Provenge. (Dr. Hussain eventually would write a letter of her own.) Among those attending the letter-writing meeting at the FDA was a member of the staff of the National Cancer Institute (NCI). I know this from information provided to me by the NCI Freedom of Information Office on November 16, 2007. Not surprisingly, a draft copy of Dr. Scher’s letter, containing edits and comments (also obtained by FOIA), was found on the government-owned computer of another NCI employee. Strangely, Dr. Scher’s letter was leaked to (and subsequently published by) The Cancer Letter, either before it was delivered to Dr. von Eschenback or subsequent to its delivery to the commissioner. And you wonder why protests were staged outside the FDA’s offices?”

“So, yes, people were angry. The government could have given its Conditional approval to Provenge and allowed the company to prove that it met the ‘statistical purity’ demanded of it, as the company eventually did in 2010. But instead, it turned thumbs down on the treatment on Black Wednesday, May 9, 2007, making those with end stage prostate cancer wait another 3 years for approval. Hey, what’s another 100,000 lives, some of whom might have benefitted from Provenge? What, indeed!

The author went on to say,

“Three weeks after the FDA turned down Provenge, Schering-Plough signed a $440M co-development deal with Novacea for Ascentar. Unfortunately, the Phase III trial for Ascentar was stopped by a safety committee because of deaths in the Ascentar arm, and the co-development deal was terminated.”

The article ended reminding of what happened on April 28, 2009, recalling the Bear Raid on Dendreon’s stock when DNDN dropped from $24.50 to $7.50 in 75 seconds. He wrote,

“The SEC has yet to explain what happened that day. But, according to the latest information I have received regarding Report OIG-521, and specifically the material redacted from the Report and the reason for the redaction, I conclude an investigation (civil? criminal?) is now ongoing. I think many in the medical community would like to think that immunology is the future of cancer treatment. Unfortunately, as Dendreon has shown, the first one through the ‘wall’ is the one who gets bloodied.”

It is refreshing to fall on somebody who would deal with whatever it takes to shed light on the dark corners of mysterious events, which took their toll on people’s lives. In this case, Ted, whoever he might be, has done a great homework in seeking the truth and announcing what he learned. The ball is now in the hands of investors who should do their homework getting to the bottom of this story.

We believe DNDN and HGSI have bottomed. We intend to buy some shares in the next 72 hours.

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