Dendreon rise looks overdone


Anyone looking at the early share price reaction to the interim data for Dendreon’s prostate cancer vaccine Provenge could be forgiven for thinking that the drug had shown such amazing survival data that the independent monitoring committee had decided to halt the trial and encouraged Dendreon to file there and then. In morning trading the shares had at one point shot up 45% to a year-long high, before falling back to $6.26, a still impressive 20% gain.

The rise is surprising given that rather than the wishes of die-hard Dendreon fans coming true, what the IDMC had actually done was allow the study to continue to its final analysis. What was also perhaps more eyebrow twitching was the fact that the interim IMPACT analysis showed that the drug may struggle to meet its primary endpoint when the final results are assessed next year.

Instead of the run-away success that the share price indicated, what the data revealed was that patients in the treatment arm showed a 20% reduction in the risk of death. But to meet its trial goal in the final analysis, Provenge will have to demonstrate a 22% reduction in the risk of death. While this is achievable, the fact that it has not happened at the interim stage also shows that there is still risk attached. There is now an awful lot riding on the data due in the middle of next year to achieve the extra 2% to push it over the finish line.

Bad omens

Also, while the market looks as if it is betting on Dendreon being the first company to come up with an effective cancer vaccine, the omens are not good. Provenge has seen many of its fellow drugs fall by the wayside. In May Favrille announced that SpecifId, its treatment for follicular B-cell non-Hodgkin's lymphoma had failed in phase III trials; before that Genitope’s Myvax drug for the same disorder bit the dust in December, following underwhelming results.

It is perhaps this lack of a champion in the sector that is behind a fall in sales forecasts for Provenge. Since the beginning of the year, 2012 sales forecasts for the drug have fallen from $162m to $122m. But if today is anything to go by, those forecasts could recover, even if there appears to be little logic to support an upgrade.

Even if Provenge is successful, there are still issues around how successful the drug will be, as it is manufactured using patient's own cells, meaning that the production process is lengthy and costly. It also means that ramping up production to meet demand remains an issue, despite the group recently completing the construction of a manufacturing facility in New Jersey.

Gambling on the future

As such, what might be causing the shares to jump so dramatically is the fact the stock is heavily shorted. Although the data was less than fantastic, the rise in share price could be attributed to a combintation of short-sellers dumping the stock and other investors buying the shares outright on the bet that the full IMPACT results will prove to be positive.

This looks like a very risky strategy and in more rational times what should really have caused the shares to move as much as they have today would be either the group announcing that it had found a partner for the drug outside of the US, or some highly significant survival data.

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