Dendreon Shares Get a Reality Check

Bears breathe easier on doubts about Provenge approval.
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The

Dendreon

(DNDN)

bears are fighting back.

Critics of the company -- and its effort to get FDA approval for its Provenge prostate cancer vaccine -- had to be heartened Wednesday after investment bank Leerink Swann held a conference call for clients that was strongly negative on Dendreon.

Three outside regulatory experts gathered by Leerink to discuss Provenge all predicted confidently that the Food and Drug Administration would not approve Provenge by the agency's May 15 deadline.

A Provenge approval now, they suggested, would require better and stronger clinical data to prove the drug's efficacy, which all three experts said was lacking.

Furthermore, all three Leerink consultants believed that the positive recommendation given to Provenge by an FDA advisory panel on March 29 was not a definitive endorsement for approval. Therefore, the FDA will find it relatively easy to ignore the panel's vote.

Dendreon shares tumbled $3.92, or 18%, on Wednesday to close at $18.23. Volume was once again heavy, with more than 50 million shares trading hands. (The stock was down another 2% in Wednesday's after-hours trading to $17.85.)

I was

neutral on Provenge going into the March 29 advisory panel but turned

bullish on the drug's approval chances after listening to the panel debate and vote. I'm not ready to give up on Provenge -- I still think odds for FDA approval are greater than for rejection.

But it would be foolish to dismiss the negative views of these Leerink consultants. Their arguments, coupled with the

insider stock sale last week by Dendreon CEO Mitch Gold, has me feeling a tad queasy.

Dendreon is a high-risk biotech stock. If that wasn't clear before Wednesday, it should certainly be crystal by now.

The shares had gone from around $5 to more than $25 in just seven trading days --

volatility and

trading volume have gone through the roof.

It's important to recognize that while it's perfectly reasonable to be more bullish on Dendreon after the FDA advisory panel recommendation, it's not OK to forget that fast money and momentum investors (not long-term oriented fundamentalists) were largely responsible for the stock's rapid ascent.

Very few, if any, of these traders will be sticking around for the FDA decision on May 15. It would be foolish to predict every future tick of Dendreon's stock price between now and the FDA approval decision, but given the risk and uncertainty involved, it wouldn't surprise me to see the stock take a round trip back to the low-teens, where it stood on the day after the FDA advisory committee.

So, if you're long Dendreon and are still sitting on a nice profit, have you locked in those gains yet? As Jim Cramer always says, it's much nicer to play with house money.

Fatal Flaw?

Two of the regulatory experts on Wednesday's Leerink Swann conference call, Drs. Lawrence Goldkind and Lee Simon, are former FDA division directors. (Simon is a full-time consultant for Leerink on FDA regulatory matters.) The third consultant, Robert Makuch, a Ph.D., is an expert in biostatistics and has served as a special government employee of the FDA and as an FDA panel member on various subcommittees.

If you've been following the Dendreon story closely, you'll recognize many of the arguments against Provenge proffered by the Leerink consultants Wednesday.

Essentially, all three agreed that the Provenge clinical studies were flawed because they failed their primary efficacy endpoint. The survival benefit for Provenge reported in the study was, therefore, an artifact of post-hoc data-mining and didn't meet the FDA's standards for statistical rigor or approvability.

In discussing the FDA advisory panel's deliberations and vote on March 29, both Goldkind and Makuch felt that the oncologist's perspective was under-represented and likely skewed the vote in Provenge's favor.

Goldkind further opined that the 13-4 vote affirming "substantial" evidence of Provenge's efficacy did not meet the FDA's regulatory standard requiring "adequate and well-controlled studies" necessary for a drug's approval.

"A majority of the

advisory committee members didn't feel the data was definitive, just suggestive, of efficacy," said Goldkind.

When asked to predict what will happen on May 15, Simon said the FDA will issue an approvable letter for Provenge, which would require Dendreon to produce more clinical data. This data would likely come from the ongoing phase III trial which is expected to be completed in 2010.

Makuch agreed: "I cannot imagine an approval. An approvable letter is the right thing," he said, adding that the FDA should work with Dendreon closely to get results from the ongoing trial as soon as possible.

Is there any reason to doubt these regulatory experts? Sure -- their arguments aren't new and were debated in detail during the FDA advisory panel meeting.

Yet the panel members still voted in favor of Provenge. If they felt as certain as Leerink's consultants do that Provenge has no business being on the market now, then why didn't the panel members vote "no?"

The Leerink consultants made a big deal about the poor quality of the current Provenge data, but the FDA panel didn't seem to have much problem with it at the March 29 meeting. It seems to me that Dendreon went out of its way to conduct analyses trying to disprove Provenge's efficacy, but each time, it seemed like Provenge was, in fact, having some positive effect on survival in prostate cancer patients.

No one argues that the Provenge data is pristine from a statistical standpoint, but statistics are not always the make-or-break factor in approving a drug.

Finally, I have no doubt that the Leerink panel is sincere in believing that Provenge should not be approved, but do you think Leerink would have held this call if these experts were positive on Provenge? Leerink, after all, depends heavily on hedge fund trading commissions for its livelihood -- and hedge funds are largely short Dendreon.

In the end, I'm still siding with the Dendreon bulls. I believe the FDA will approve Provenge on May 15. But yes, I'm nervous about this call -- and more worried than I was when I first made it last week.

I don't believe the bear thesis can be blithely dismissed. The FDA will struggle with its decision, and the risk here is great.

Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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