Wednesday, June 24, 2009

Dendreon, The Glory and the Dream

A moment ago Dendreon's (DNDN) had a stock price of $24.70 and a market capitalization of $2.85 billion. At this moment Dendreon does not have a product approved for sale by the FDA. I would never buy such a company. Yet I own the stock, which I bought years ago when almost every other biotechnology analyst thought Dendreon's Provenge (sipuleucel-T) therapy would be summarilly rejected by the FDA.

At my Dendreon analyst conferences page you can find all of my past articles about the positives and negatives of DNDN's prospects. Before the latest data came in I recommended it only as a stock for risk-takers who know how to hedge risk. I have not written anything new since the latest data was announced. Good data has lowered the risk while increasing the stock price, which increases potential down side if something goes wrong. So a different class of investors are probably buying it recently.

Here, as implied by the title, I want to look at the best-case scenario, where in a few years investors might wish they had gotten in when the market cap was only in the low billions. In this scenario we go beyond the approval of Provenge for late-state metastatic, androgen-independent prostate cancer by the FDA some time in 2010. I believe approval by the FDA has already been fully-factored into the current price, at least by conservative, rational investors.

Provenge is an immunotherapy. There is no reason to think that its use cannot be extended to any prostate cancer that has antigen presenting cells (APCs) that can be activated with PAP (prostatic acid phosphatase). Or some similar method of stimulating a T cell response against prostate cancer cells, which is what Provenge does.

So while selling Provenge after FDA approval, the short term strategy for Dendreon is most likely to conduct more clinical trials that, if successful, will allow label extensions. Given Provenge's safety profile so far, and its ease-of-use (it requires just 3 infusions), it may become a blockbuster if it proves effective with earlier stages of prostate cancer.

Meanwhile, there is the pipeline Dendreon has already established. This includes Lapuleucel-T for breast, ovarian, and colon cancer. CEA for breast, lung, and colon cancer. And CA-9 for kidney, colon and cervical cancer. All three are immunotherapies, and only Lauleucel-T has started clinical trials. CEA and CA-9 are joined by Trp-p8 in being preclinical (lab/animal testing stage). The later is a small-molecule prostate therapy. I suppose they know a lot about prostate cancer now, and wanted a small-molecule as a hedge against the limitations of immunotherapy.

Developing a pipeline is a very long term process. It will probably take years to get any of the drugs already in the pipeline through FDA approval, and that is assuming the data is good. Figure 5 years for another approval, maybe 3 years under the most accelerated scenario. I know; most investors can't think that long term.

But look at the best case scenario ten years out. Dendreon could, by then, have brought out immunotherapies for all the major cancer types.

And therein lies the glory and the dream. Given the complexity of the human body, the immune system, and cancers, it is highly unlikely that immunotherapy will replace other cancer therapies. But given its safety (if it proves to be safe long-term), there is no reason not to try it on any and every cancer patient.

Just a hint of that scenario breaths life into Dendreon's stock price. We are talking truly big money. Others will accelerate their immunotherapy efforts, but Dendreon has a lead and will be generating revenues from Provenge that can be used to bring new immunotherapies to market.

What Dendreon owns is not just Provenge. It owns, and has protected with patents, a new type of technology. If the technology really works, Dendreon is not just a company. It is an industry in the making.

Keep diversified!

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