Wednesday, May 9, 2007

Dendreon Approvable Letter for Provenge

Prostate cancer patients received a setback yesterday when the FDA gave Dendreon (DNDN) an approvable letter for Provenge therapy rather than either approving or rejecting it outright. Investors who bought DNDN recently at prices that assumed approval had quite a setback too; short sellers had a heyday. But what you really want to know is, what about Dendreon's stock price today? Should it be zero? Or is this a buying opportunity?

For background on Dendreon, aside from the company web site, you can check out my two prior blogs on the subject, What Price Dendreon? [April 12, 2007] and Dendreon Odds Less Long [March 30, 2007], as well as my summaries of Dendreon analyst conferences.

On April 12th I said I believed Provenge had a 50% chance of outright approval, a 40% chance of getting an approvable letter, and a 10% chance of outright reject, AFTER the Advisory Committee recommended approval. So the approvable letter is not a great surprise to me, but as a shareholder I had hoped for full approval.

Given that the Advisory Committee did vote in favor of Provenge, and that the FDA granted an approvable letter, it looks to me like we are actually in better shape than when we were in a state of ignorance before the advisory vote. Provenge could be ultimately rejected, but the chances of that are small. The main cause for rejection would come from further clinical study giving worse results than we have seen so far. That happens; there is a degree of randomness in these things, mostly due to the shere complexity of human biology.

I hope Dendreon will publish the full text of the FDA letter. That would go far to help investors understand exactly where we are in this process.

But that is not the main problem for shareholders. The main problem confronting the company is financing further study. How much that will cost depends on whether a little more data is wanted or whether Dendreon will be required to redesign its planned Phase III study and then spend years carrying it out.

Dendreon had $121 million in cash and equivalents on December 31, 2006, so they can run for a while on that. If they need to bring in a partner or issue stock to raise money, the value of the current shares will be diluted.

I think today's price (in the $6.90 range) is low, but until I see that letter it is hard to tell. It is interesting to note that so far today over 109 million shares have changed hands; there are only 81.7 million shares outstanding. It is a good day to be buying. Once we know more about the approval letter and how Dendreon plans to manage it, it is likely the stock will be priced as one that has an approvable drug and a technology that can be used on many types of cancer. In other words, in the $10 to $12 per share range. But if the letter is harsh it is possible the stock could go even lower than today's price.

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