Wednesday, April 29, 2009

Provenge Prostate Cancer Data from Dendreon

Note: This was an analyst conference to discuss the release of data from the Provenge IMPACT clinical trial. This is a detailed summary, not a transcript of the full conference.

Overview: The data appears to be slightly stronger than the levels set by the FDA for the approval of Provenge for metastatic prostate cancer.


IMPACT Study met prespecified endpoints.

Data presented at American Urology Association conference. Average increase life time was 4.1 month. There was a 38% 3 year survival increase compared to placebo. 22% reduction of risk of death, or a Hazard ratio of 0.78. For the placebo arm median survival was 21.7 months, for Provenge it was 25.8 months.

Provenge is sipuleucel-T, an autologous active cellular immunotherapy against prostate cancer.

There were 512 asymptomatic or minimally symptomatic metastatic androgen independent prostate cancer patients in the study. Life expectancy at entry had to be at least 6 months. Castrate levels of testosterone had to be achieved. Statistical P value prespecified with FDA at <0.043. Actual P = 0.032

Ruled out the possibility that survival benefit was due to a subgroup difference with placebo group.

Multiple sensitivity analyses confirmed P values and Hazard ratios.

Time to progressive disease progression (secondary endpoint) was not statistically significant.

Safety profile was consistent with earlier results; mostly headaches, chills, and fever the day following treatment. Less than 10% developed influenza type symptoms, hypertension or hyperhydrosis (sweating). Placebos had 23.8% serious adverse events, Provenge arm 24.0%. But placebo arm had much less mild adverse events.

D9901, D9902A, and IMPACT study had every similar results. Integrating them all gave a Hazard ratio of 0.735, p value 0.001, median survival benefit 3.9 months, and 33% 36 month survival v. 20% for placebo.

Placebo arm survivors can now be given Provenge.

Will apply for licensing this year in U.S.

Conclusion: Results are unambiguous. First active immunotherapy to demonstrate overall survival. Highly favorable benefit to risk profile. Short therapy duration. Could create a new oncology treatment paradigm; platform could be applied across different cancers.


Why can’t you file sooner with FDA? This study has been going on almost 6 years. We need to put together the best amendment we can. It is a type 2 resubmission, giving the FDA 6 months to review it.

Other cancers? Will be evaluating, will update you this summer.

Why 3 infusion maximum? P11 study in early stage prostate cancer showed immune systems had a persistent response against antigen. Did get an increase with boosting infusion. This was 1999. There is no reason to not give more infusions, it was just not part of the study design.

Any side effects statistically significant? Yes, the ones listed were significant.

Median survival results for placebo crossing to Taxotere? Subgroup analysis can be misleading. But we believe there is a benefit to crossover arm.

Partnering for global sales? Our goal is to keep the product for ourselves in U.S. Get a partner ex-U.S. There has been a lot of interest, we have nothing to say so far.

Medians on time to progression? 14 weeks.

This study was not designed to be a comparison study of Taxotere (docetaxel). It has a 2.5 month survival improvement. So Provenge is safer and more effective, and requires less infusions.

Taxotere after Provenge data? We may get some data on that, but have nothing to share at this time.
PSAs were not measured after patients progressed. In androgen independent prostate cancer, PSA does not correlate with survival.

Trend in pain direction? Pain was not an end point after the study was amended.
Time to progression is a difficult to measure statistic, highly subjective. So it is an unreliable endpoint.

48 month rejoin of trends? All survival curves come together eventually. At the tail end of the curve there are very few living patients, so a lot of variability.

Link to Dendreon April 28, 2009 Press Release

My Dendreon Main Page

Thursday, April 23, 2009

Tysabri Leads Biogen Idec Revenue Growth

Tysabri revenues have been an issue for investors ever since the Multiple Sclerosis (MS) therapy was held to contribute to patient deaths from PML (Progressive Multifocal Leukoencephalopathy). Biogen Idec (BIIB) had to take Tysabri off the market, then reintroduce it with warnings and with PML detection awareness. Other than the PML issue, Biogen Idec has promoted Tysabri as a sort of wonder drug for MS, and apparently plenty of doctors and patients agree the benefits are worth the risks. In the first quarter of 2009 Tysabri revenue was $165 million, up 44% from the year-earlier quarter.

Overall revenues in Q1 were $1.03 billion, down a tad from $1.07 billion in Q4 but up 10% from year-earlier. Not bad during a recession. Biogen's main MS therapy, Avonex, showed a 4% y/y revenue gain, to $536 million for the quarter. Rituxan, reported as unconsolidated joint business revenue, contributed $279 million.

For more details on the quarter, see my Biogen Idec Analyst Conference Summary for Q1 2009.

Consider the entire field of therapies for autoimmune diseases such as MS. Therapies will suppress the immune response. To some extent this will result in overall immune system response, and that will open the patient up to potential infections. It is very difficult to take all the risk out of something as complicated as the human body.

Tysabri actually seems to repair (or allow the body to repair) damage caused by MS, and can be discontinued if an infection occurs. As long as PML cases remain rare, and given the grim outcome of MS progression, it makes sense for patients to want to try Tysabri.

With Tysabri continuing to grow revenue, and with a strong development pipeline, I expect Biogen to continue to grow revenues and profits. There is the usual downside danger from competition and further adverse reactions to Biogen therapies, but I believe they are relatively minimal, and accounted for in the stock price.

I own some Biogen stock, as well as other biotech stocks.

Openicon Biogen Idec page with links to past analyst conference summaries
My Biotech Investing help page

Friday, April 17, 2009

Dot Hill Data Storage Preliminary Q1 Results

Dot Hill's sales of data storage equipment fell in the March 2009 quarter more than expected. But sales did not fall off a cliff. I am still sticking with the theory that the one technology product that enterprise-sized corporations must buy this year is more storage capacity. It is the law.

Dot Hill's products are very well positioned to take advantage of enterprises needing more storage but wanting to cut back on capital expenditures. While serving only a tiny sliver of the market so far, it is clear tht Dot Hill has gained considerable market share during this last year. In the past three years it has transitioned from being highly dependent on sales to a single OEM, Sun, to having three solid large clients, Sun, HP, and NetApp, plus a host of smaller OEMs and channel distributors.

Preliminary estimates for Q1 were released on April 14, 2009 [See also Dot Hill Preliminary Q1 press release]. Revenue probably came in just below $54 million. Non-GAAP net loss should be $0.05 to $0.07. At the Dot Hill Q4 analyst conference on February 26, 2009 guidance was for Q1 2009, with admitted low visibility, was $56 to $63 million in revenue with non-GAAP EPS negative $0.06 to $0.11. So despite being somewhat below the bottom of guidance on revenue, they did well on EPS.

Management has done a great job reducing costs. Any sort of firming of the global economy should result in a revenue ramp-up that puts Dot Hill back in the black. They have a good cash reserve, about $54 million at the end of the quarter.

Market capitalization has shot up since the announcement, but it is still just $38 million as I write. If they can do a profitable quarter by the end of the year, with over $200 million a year in revenues, you can bet this stock will shoot up. I have; I own the stock (so weigh that against my obvious enthusiasm).

Aside from the possibility that this recession will last into 2010, the main potential risks for Dot Hill are price competition from competitors and the danger of being dependent on Sun, HP, and NetApp for most of their sales.

See also:
My Dot Hill main page

Tuesday, April 14, 2009

Provenge Prolongs Survival

Dendreon this morning announced that Provenge, an immune therapy for certain forms of prostate cancer, provides statistically significant survival benefits for patients.

We have actually known this for almost two years, but the last time around the FDA decided to ask for a larger study to verify the earlier results.

The new study, a Phase III trial named IMPACT, enrolled 512 patients with metastatic androgen-independent prostate cancer, a late-stage cancer than usually kills men in a few months. The trial showed that on average men lived over 20% longer when they had received the Provenge treatment. The exact statistical results will be presented at a medical conference shortly.

This is going to have a major impact on the entire biotechnology industry. If the FDA now approves Provenge, as expected, it will be the first approved immunotherapy.

Immunotherapy research has been stifled by lack of funds because the FDA had never approved a therapy. When sales of Provenge begin, Dendreon should have the funds to both improve its therapy for prostate cancer and to create therapies for other forms of cancer.

It is important to note that Provenge in its current form is not a cure. Many prostate cancer victims get no response to it. This is probably because what we call prostate cancer is a range of disease. But some men who started Provenge therapy years ago are still alive, which is remarkable given what we know about the disease.

Congratulations to the people at Dendreon who kept going despite considerable pressure to pack it in from certain people on Wall Street and in the FDA.

I own a bit of Dendreon stock. It is still possible that the FDA will refuse to approve Dendreon despite these good results, or that it may not become commercially viable for some unknown reason.

Wednesday, April 8, 2009

Inventory Corrections and Short Memories

My wife's business actually sells widgets. It is a micro-business, not even receiving her full time attention. She has no employees. And she just might be seeing, on a micro scale, the turn around of the American and global economies.

She makes jewelry. Most of what she sells she designed and is made specially for her by foundries. She packages the pieces and sells them wholesale to non-profit groups that use them either as fundraisers or for reward gifts. A good number of retail stores also buy from her. Almost everything she sells wholesales for $4 each. See her jewelry site.

When the faux-Depression panic hit last fall she noticed many of her customers ordered less than they had in the past, or not at all. Worried that she might get stuck with a bunch of inventory, she curtailed orders to her suppliers. We discussed it. I voted for keeping a good inventory because it is a microbusiness; the inventory value is pretty small, so the real risk is not having enough to keep customers happy when they do order. Her vote, the one that counts, was to do minimal reorders. Only reorder when actually out of an item. This can be a problem because is can take 6 weeks to get the foundry to fill an order for more parts.

Here we are in April, and she is complaining that all her money is going to be used to restock her inventory. She has almost lost large orders because of not having enough items in stock.

So now the foundries - she uses an American pewter specialist and an American glass blower - have orders from her. These are small businesses too, so even at her scale, that has an impact. They seem pleased to get the orders.

The economic statistics keepers tell us that business inventories have declined a lot since 2007. The question seeing these aggragate statistics does not answer is: are inventories low or high? Of course some businesses did not cut inventories enough, and may still be still cutting. Others must be finding themselves in the same position as my wife: they were too careful, too cautious. They need to restock.

With unemployment still growing, we can't be sure that we won't need another round of inventory cuts. But there are scattered reports that some of the companies that laid off people early are understaffed. For a while that will mean overtime expenses, but eventually it makes more sense to start hiring again.

I went to the birthday party of a retail store in Gualala (California) last Saturday. It was having a 40% off sale, that day only. The stuff there is what I call luxury items, optional items. Thrifty people don't shop there. I expected a gloomy party where people ate free food and drank free champaign and nothing much sold. Instead there was a line of women snaking through the store. They were clutching items they had been desiring for months. The platters of cheese and cupcakes were almost ignored. The demand is there; people who have not lost their jobs are looking for an excuse to spend.

More than 8% of the workers in America may be unemployed, but senior citizens are mostly just fine. Most followed the advice of conservative financial planners and got out of risky investments as they aged. Their CD's may not pay high interest rates these days, but the money is there to be spent if they want to.

I think American consumers have shown more restraint than they are capable of in the long run. I am all for thrift and restraint. I think you should avoid buying things on credit. But there are still plenty of American families with strong balance sheets, and there are more of them after a year of restraint.

I think we are going to see good consumer demand from March, and growing demand in April and May, taking the unemployment rate into consideration. Retail stores will be among the first to rehire, and in many areas new housing construction looks like it is on the agenda.

We could have avoided this down cycle by being less exuberant in the up cycle, but that is not the American way. We party hard and we crash hard. We are happy to leave it to the Fed and Congress to try to balance things out.

We have short memories. We forgot the tech bubble and jumped into the housing bubble. We'll forget this economic lesson in a few years as well.

Buy low, sell high. It is great for the professional investor, but we know what the masses will do. They sold when they were scared, when the market was low. Then they won't buy back in until they feel they are missing the new party.

Wednesday, April 1, 2009

Rackable Systems Eats Silicon Graphics

When I moved to San Francisco in the early 1990's and started meeting the computer graphics crowd, the place everyone said they wanted to work was Silicon Graphics. Not only was that where the cutting edge lay, it was also seen as a smart career move. Surely, in a few years, Silicon Graphics would surpass HP and then Intel and IBM.

It did not work out that way. Today Rackable Systems (RACK) announced it would buy Silicon Graphics (SGIC) for about $25 million. While that is certainly a bargain basement price for a treasure chest of intellectual property, I cannot assume that Rackable will do well with the acquisition.

Silicon Graphics' (aka SGI) traditional problem is running a business that actually makes money. That is exactly the problem Rackable Systems has had these last few years. Rackable has a substantial amount of cash in hand, but it was mostly generated from its initial IPO, not from profits. Rackable grew rapidly and had some profitable quarters a few years back, but then they got shoved around by bigger competitors, notably Sun, HP, Dell, and IBM. I think Rackable on its own could be profitable again if IT spending picks up some time this year, but this acquisition will create distractions and a lot of new variables to manage. So we have the dilemma of a company with a tremendous opportunity that could turn into a serious downside.

What are Rackable shareholders (that includes me) getting for their $25 million in cash? The latest results for SGI showed revenues of $82.8 million and a GAAP net loss of $49.2 million and an EBITDA of negative $17.3 million. That is no way to run a business. And it is not just from the recession. Once upon a time SGIC's market capitalization was over $1 billion.

So the first thing Rackable management should do is can as much of SGI's management as is necessary. Cut costs to the bone. Assuming an $80 million per quarter run rate, if you can't generate $8 million of profit on that, you should get out of the business. If there is revenue that can't be made to generate a profit, jetison it.

Having watched variously poorly managed technology companies for years, I will ball park what I would expect to see if I were a Rackable manager reviewing SGI. Sure, if you spend $1 million on a product, and it is a good product, and offer it for sale at $800,000, someone is going to buy it. What you need to do is price the product at $1.1 million. If your customer will not pay $1.1 million for the product that cost you $1 million, you don't need that customer. So first you try to raise the price, and if that does not work, you close that product line down. Let the managers and workers find jobs elsewhere (good luck). Or if they want to keep their jobs, and sell their product for $800,000, they need to find ways to reduce product cost, and if necessary give back enough of their compensation package to make that work. There a business people lacking high school diplomas who could tell you this; MBAs could tell you this; but technology guys often are mesmerized by their toys and forget they are in business.

SGI has some pretty nice products. Supercomputers. Those should be priced to generate a profit. Graphics software. Why should that not make a profit? Servers - lots of companies make profits selling servers. Professional services - how can you not make profits on professional services? (Technology geniuses have found a way to do that: pay your staff more than you charge the clients! Fail to take overhead into account!)

Rackable's last acquisition did not go well. Management said that RapidScale storage technology would be the Next Big Thing (back in 2006) but it was a failure that apparently could not be sold once Rackable no longer wanted it.

On the bright side, Rackable does have some pretty amazing talent, so maybe management can turn the company around and make hay with the SGI assets too. Rackable got big quickly because it took the need to lower power consumption at data centers seriously. It is still very, very good at that. It has clients like Amazon, Microsoft, Facebook, and Yahoo, and it has been making advances internationally and in new specialties like Defense and Oil exploration.

SGI looked like it should be valuable in the 1990's because it put technology first, before profits. Some times that works, but usually it does not. The best business model wins when the technology is good enough. The best business technology solves enterprise problems at a price that beats the alternatives. Profits have to be part of the model, or else you can't keep up research and development efforts. The leading edge wanders off to ATI or NVIDIA.

Because SGI is selling itself off through a bankruptcy, rather that directly with a merger, it is possible that debts will disappear. This, in itself, might help it move towards profitability, but even if it is the case, can't change the need for better management.

I'm not selling my Rackable stock, but I'm not buying more right now either. I'd like to see what Rackable does with the SGI assets over the next six months or so. If Rackable runs SGI like SGI ran SGI, this merger will sink it.

See also my Rackable Systems page, with links to Rackable analyst conference summaries.