Dendreon -- a sell?

Ming asked about my thoughts regarding an analyst who initiated coverage on Dendreon (DNDN) at a Sell.
Mike Huckman from CNBC wrote about it here: http://www.cnbc.com/id/27216583/site/14081545?__source=yahoo%7Cheadline%7Cquote%7Ctext%7C&par=yahoo

First, Huckman does a decent job of describing the situation. Let me be quite clear here – the only reason I bring up Huckman is that he references the report, which I have not seen directly.

The analyst, Joe Pantginis from the firm Merriman Curhan Ford, makes several statements that are either false, misleading, or simply humorous.

Let’s start with funny. Here’s a quote I especially loved:
“"We believe a positive...outcome could significantly drive the stock forward. (But) we believe this singular event does not warrant owning the shares (except for very short-term oriented investors who want to bear the risk)."

Why in the world is any investor considering biotech stocks unless they are able to bear risks? And if he believes a positive outcome would be a “significant “ driver, why doesn’t that warrant owning shares?

Let’s review the interim results: They found a 20% reduction in risk of death by taking Provenge. Prior trials had similar results at similar timepoints.
And with a positive result, share price would advance.
And that timepoint is less than a year away.
… And yet, he recommends not only holding, but selling. Yikes.

Elsewhere, Pantginis advises there is potential competition from Cell Genesys (CEGE), a different immunotherapeutic vaccine called GVAX. Too bad just yesterday, CEGE announced they would be abandoning their Phase III trial with GVAX (http://www.cnbc.com/id/27214656/?for=cnbc).

He also advised that the price would be prohibitive, and threw out $75,000 for the course of treatment. Now, I cannot state what the cost would be – the company has NEVER addressed this question. But to be in line with Taxotere (chemo – really the only other choice for patients at this time) the price would be closer to $30 - $45 thousand instead. Add in the clear efficaciousness over Taxotere and I think price is not really an issue, anyway.

Too, he complains that Dendreon would have a hard time partnering ex-US. Let’s see – in April Takeda paid $50M upfront for Rest-Of-World rights to GVAX, with $270M in milestone payments – plus royalties on sales. Schering Plough paid Novacea $65M upfront and $350 in milestones + royalties for Asentar.
Hmmmm… both Asentar and GVAX are dead in the water now.

Provenge is THE ONLY immunotherapeutic left in Phase III trials for late stage prostate cancer – and yet partnering is hard? Big pharma is DYING to find compounds to acquire right now.

Here’s another quote, "We believe the stock has been too emotionally charged from both an investor and political standpoint and we would avoid the shares at this time."

Here’s a newsflash to Pantginis. Drugs don’t care if people love them or hate them. They work or don’t work. And if Provenge does work, then the stock will take off.

The really amusing thing is that Pantginis evidently admits that the IMPACT trial has a 50/50 shot at success. On failure, he says the stock would trade down 60-70%, and does not say what success would do to the share price. I think anyone looking at the price history pre-FDA 2007 would admit the stock will immediately hit the $20s if the final is statistically significant. I would say a $5 stock, at a literal 50/50 chance where the downside brings you to $2 and the upside is at $20+, deserves a modest investment. And that is even before you consider his estimate is pretty conservative.

Regards,
Trond