October 2008 may bring the epic saga of Dendreon's immunotherapy for prostate cancer, Provenge, to an end. Or it might open up a bright new era in the fight against cancer.
For a full recap of the epic so far, see my Dendreon Provenge page.
This is a time of fear and greed for investors. Although technically the expected October announcement (but don't be too surprised if there are further delays) is for interim results of the FDA-mandated trials of Provenge, Dendreon has gone to great lengths to insure that the interim results will be a solid basis for acceptance by the FDA, which means they are also a solid basis for rejection by the FDA. The band where it makes sense to wait for the final results (which might not be available until 2010) is probably quite narrow. If Dendreon does not have passing interim results, in my estimate their intellectual property, and their stock value, is nearly worthless. On the other hand, passing results means they own among the world's most valuable biotechnology intellectual property. They will be able to ramp up Provenge sales quickly and also ramp up studies of their immunotherapy methods for a variety of other cancers.
One thing that many investors don't understand, and that even professional analysts and scientists forget, is just how much of a dice roll these kinds of study results amount to. We tend to think of science based on the physics paradigm, where frictionless, idealized masses follow trajectories fixed by known momentum and outside forces. But clinical therapy trials (Provenge is not a drug, but an activation system for the immune system) seldom give black and white answers. A percentage of patients responds; a percentage of patients have adverse reactions; a percentage of patients do not respond. Whether the response rate compared to the adverse reaction rate makes a therapy worthwhile of FDA approval is the whole game.
You have two separate sources of randomness at work in such trials. One is the mathematical randomness. This is of the sort that gives you those plus-or-minus 3% footnotes in political poles. In theory the larger the number of subjects, the smaller the likely randomness of the final result. Polling 500 people or testing 500 patients does not give us as much confidence in our results as polling 2000 people or testing 2000 patients.
In effect, when FDA did not approve Provenge on its first submission, but saying Provenge could be approvable with more data, the FDA was saying that the original sample size was not big enough. On the other hand, if the results for the patients had been better, the sample size would have been big enough.
The other kind of randomness is the innate randomness of biological systems. Patients are not all alike. They differ not only in age, sex, and degree of illness, but in general health, in specific DNA makeup, and in all sorts of microscopic manners. In particular 500 patients may be believed to have the same type of cancer (prostate, in our case), but those cancers may differ in ways that are significant but not understood.
I once saw a combined study of over a dozen clinical trials. In theory each trial was looking at the same drug for the same disease. Yet in some of the trials the drug appeared to be a failure, in some it appeared to be a success, and in some results were marginal. Aggregated the data showed the drug was valuable, but if one of the failed tests was all a company had to show to the FDA, there would be no approval.
So the risk, both upside and downside, for Dendreon investors is hard to quantify. No one can really do more than estimate how much real world variation could affect the Provenge trial.
Management says that if Provenge simply does as well as it did in earlier trials, the FDA will approve it. I don't doubt that (though the FDA does not have to keep such a promise). What I know is that random fluctuations can be significant in clinical trials, even in large scale ones. So I don't seen good results as guaranteed. Balancing that, results could also be better than expected, which would go a long way to helping market the drug.
Provenge is very safe, so it has almost no down side risk. I believe any benefit it shows for men with prostate cancer should earn it approval. But I am not sitting on the FDA; that committee may think differently.
I own Dendreon stock. But in biotechnology stocks it is always best to ...
Dendreon August 12, 2008 Analyst Conference summary