Provenge - A potential catastrophe brewing for late comers

Drug of wonder???

Provenge, a therapeutic vaccine under development by Dendreon Corp. (DNDN), is on the verge of winning FDA's approval for the treatment of advanced stage metastatic prostate cancer with the PDUFA date scheduled on May 1, 2010. Previously suggested as a short term hit in this blog, DNDN has many qualities of a biotech jackpot (revolutionary product, large market, ~600% return from a year ago). Nevertheless, convincing the FDA has not been smooth sailing for the Seattle-based biotech (see Provenge development history). This makes the light at the end of the tunnel that much more attractive for the company's shareholders, for whom things just get better and better. The most recent pivotal trial updates, released by DNDN a little over a month ago, are summarized below:

Trial summary
- Increased 3-year survival by 38% compared to placebo (31.7 vs. 23.0%)
- Extended median survivak by 4.1 months compared to placebo (25.8 vs. 21.7 months)
- Reduced risk of death [HR=0.775], p-value = 0.032
- Summary: pre-specified primary endpoint of significantly improving overall survival compared to placebo was met in the pivotal trail of Provenge

In addition to the promising efficacy, Provenge, unlike conventional chemo drugs, displays side effects, mainly resembling flu-like illness, that are much more tolerable for cancer patients, thereby presenting a pleasing alternative to the standard of care in castrate-resistant prostate cancer, Docetaxel (Taxotere®).

Trial design
Trial name: IMPACT (IMmunotherapy for Prostate AdenoCarcinoma Treatment)
Patient number: 512 (2 : 1 treatment-to-placebo arm)
Patient population: men with asymptomatic or minimally symptomatic, metastatic, castrate-resistant prostate cancer
Trial type: multi-centre, randomized, double-blind, placebo-controlled
Primary endpoint: overall survival

What's the concern?!

Dendreon Corp's shares leaped from $6.58 (Apr 6, 2009) to $39.40 (Apr 6, 2010) in as little as one year. The whopping ~600% increase may be enticing for investors, but if you just became aware of this company and hope to jump on the bandwagon, you might be in for big trouble. Why? Let's take a look at the risk to reward ratio. To do this, first determine how high DNDN's share price could reach if Provenge was approved (reward) and, conversely, how low it could drop if the drug was rejected (risk)? Based on JP Morgan's price target of $48, there is still room for another 21.8% increase (from today's $39.40), which is a stunning return by itself. Pretty tempting right? Hold on! Let's take a look at risk? Well, normally when FDA rejects a drug, shares of emerging biotech firms with no product on the market, such as Dendreon, are immediately dumped like there's no tomorrow, resulting in 40-80% slash in share price. Read this article on how FDA's rejection or delay drives down share prices. Assuming a 60% reduction in DNDN's stocks follows FDA's denial (something not unfamiliar to the biotech firm), the risk to reward ratio would then be 60% : 21.8% or roughly 3 : 1 (i.e. three times more risk than reward), a ratio that would only be embarked on by irrational casino gamblers. What's the verdict? Well, if you don't own any DNDN shares right now, then you might as well be a spectator and marvel at the ending of this dramatic roller coaster ride, hands off!