Drug Baron

Dendreon proves the risk of investing in “Silver Medal” companies


Once upon a time, getting a drug approved by the FDA was an automatic green light for commercial success.  If a drug was good enough to pass muster with the regulators, it was a virtual certainty it would find favour with physicians, payers and patients.  There was no such thing as market risk for an approved drug.

But times have changed.

Today, winning a regulatory approval in any major jurisdiction is as hard as it has ever been – but garnering that approval is no longer the magic golden ticket it used to be.

Early in 2010, just ahead of the approval of Dendreon’s Provenge the industry consensus was for blockbuster impact. Yesterday, David Nierengarten of Wedbush Securities valued Dendreon at precisely zero (although the market still ascribes a value of around $500m to the company).

Nierengarten’s analysis takes into account the disappointing sales of Provenge, as well as the mountain of short-maturity debt that was taken on to support the manufacturing scale-up and launch for Provenge (an eye-watering $620million due by 2016).  Such leverage made perfect sense if the approval of Provenge had augered blockbuster sales – but history has proven that to be over-optimistic.  2012 sales were just over $300m, and 2013 sales will be lower, though there is no official forecast as management heads roll at the company.

According to the Wedbush report, shareholders will be lucky to avoid bankruptcy, or at best massive dilution as the convertible debt is restructured.  It is difficult to argue with their conclusions.

The problem can be traced to over-enthusiasm around the approval.  Did it make sense to bet so large on the basis of the available data?

Several factors suggest that, even at the time, it should have been possible to predict the current state of affairs.  First and foremost, the clinical effect of Provenge therapy was relatively modest, albeit somewhat superior to some other new cancer therapies – a 4.1 month increase in overall survival.  Was that sufficient to justify the very high cost (just under $100k driven in part by the complexity and cost of delivering a cellular therapy, compared to a conventional small molecule or even a biological drug)?

On top of that, doubts about the robustness of the data were quick to emerge.  Although a 2010 NEJM editorial was quick to suggest that Provenge would result in a substantial improvement to the poor prognosis for castration-resistant prostate cancer, within months questions were being asked about the analysis of the IMPACT trial data.  At issue was a pre-defined age cut-off that should have been applied, but which was changed apparently post hoc.  While the details are complex, the bottom-line is simple enough: the change improved the apparent efficacy because older patients (the majority) do substantially less well on Provenge.

Even without questions about the data analysis, the statistical significance of the effect (p=0.03) in 512 patients was marginal, and although a similar effect had been seen in two earlier trials, coded D9901 and D9902a, it only reached significance in one of them.  In reality, therefore, even if the data supported regulatory approval there was a very real chance that even the modest extension of overall survival in the trial data was over-stated, and that as physicians and patients began to use (and pay for) the treatment outside of a clinical trial they would be disappointed by the marginal efficacy.

A third factor that might have served as a warning was the lack of enthusiasm to acquire Dendreon from the global pharmaceutical companies.  They read the data with a good deal more sophistication than the public market analysts and rightly (as it turned out) predicted the dismal commercial end-game for this product.  At the very least, they were prepared to put only a lower valuation on the asset than the public markets.  That should have served as a warning for those who enthusiastically loaded the debt to forge ahead into the marketplace on the basis of equivocal clinical data.

Today, the most negative of those predictions is coming true.  Regulators may have approved the product (most likely rightly so) but payers, physicians and patients are voting in the marketplace right now on the commercial success of the product, and the polls make stark reading.

This salutary tale is a timely reminder to public market players about the complex new world of healthcare.  If, a decade ago, it was hard to predict who would win regulatory approval, its now a whole lot harder to predict who will earn the only kind of approval that matters: market approval.

There is evidence that investors are getting the message: Mannkind saw its shares rise 10% when it released positive Ph3 data for its Afreeza inhaled insulin product candidate – data which suggests the product may now be approvable.  But it quickly gave back those gains as a more considered analysis of the broader data package beyond the headline primary end-point yielded a less encouraging picture.  Primary end-points may drive regulatory approval, but market approval requires broader excitement about the clinical profile of a new drug, if that drug is to garner a price premium over generic alternatives.

With Mannkind, and also with Chelsea Therapeutics’ Northera, investors were already wary because of the history of regulatory challenges these products faced.  Whether they would have looked so carefully behind the clinical headlines for a fresh-faced product candidate is open to debate.

And for Arena and Vivus, even a rocky regulatory path did little to quell investors enthusiasm as the regulatory approval was eventually won for Belviq and Qsymia.  Perhaps the ever-growing importance of obesity as a market sector, coupled with the lack of viable therapeutic alternatives, was right to fan those flames – but the jury is still out as to whether either or both of these therapies will garner major sales.  As with Provenge and Afreeza, the clinical data for both these compounds is a curate’s egg: just how effective is Belviq? Just how safe is Qsymia?  It will be the judgment of the marketplace, and not the regulators, on these questions that will determine the size of the return for the investors in these companies.

The lessons for public market investors considering backing a company to take its drug product into the marketplace – and there are likely a lot of those around at the moment given the heat in the biotech IPO market this summer – are two-fold.

First, remember that a company looking to take its product into the marketplace in its own has almost certainly been rejected as an acquisition target by big pharmaceutical companies throughout the long history of the drug candidate in the road to approval.  DrugBaron has called them “silver medal companies” for precisely that reason.  The gold medal product candidates have been snapped up by pharma before they file an NDA or consider a solo product launch.

Second, remember that it is market acceptance, rather than regulatory acceptance that is the true arbiter of value.  And the ability to predict the behavior of physicians, patients and payors lies in the reading of the clinical data beyond the headlines of the primary end-points.

And this second point ties into the first – the detail of the clinical data that is made public is often a tiny fraction of what the company itself knows.  Quite often it is difficult, if not impossible, to find enough information to make a proper call.  But remember that if the product candidate looks sufficiently exciting you can be pretty certain one of the major pharma companies (at least) at some point in the history of the company took a proper look under the bonnet.  Big pharma may have its detractors, but those guys really understand how to do due diligence.

The million dollar question has to be: if it wasn’t good enough for them, why do you think it will be good enough for the small biotech to make it a commercial success?

Its not to say there are never any surprises out there.  But small public companies launching drugs are, in general, a risky proposition.  Anyone still holding Dendreon stock knows that only too well.  And Dendreon is unlikely to be the last time this story plays out.









  • Steve

    Zytiga, the market leader drug in terms of sales for advanced prostate cancer drugs failed to show a statistical significance survival result and the Kaplan Meier curves remained overlapped for the first 18 months before separating in the pre-chemotherapy trial, yet the FDA approved the drug on this weak data. When you take the monthly costs into account, both Zytiga and Xyandi are of comparable cost to Provenge. With Provenge a patient completes the full course of therapy in 4 to 6 weeks. With Zytiga the patient needs to be routinely monitored for liver and heart function as these are known side effects of the drug. Provenge basically has no side effects. None of the competing therapies offer a superior survival advantage to Provenge. Given a single choice among Provenge, Zytiga, and Xtandi, I as an informed patient would chose Provenge as my choice. The age related “controversy” was fabricated by Marie Huber, a hedge fund employee with no medical training, and was completely debunked by the National Cancer Institute (see attached journal article). Your article is yet another biased attack on Provenge, a truly helpful and innovative therapy.


    • davidgrainger

      Thanks for your comment Steve.

      It certainly wasnt intended to be an “attack on Provenge” at all (biased or otherwise). The facts speak for themselves, in terms of sales. My article was instead trying to look for predictive markers that could have (and should have) warned investors about this outcome.

      The fact that other approved medicines for prostate cancer are also only marginally effective does not really change the principle argument that the efficacy of Provenge was always likely to be inadequate to drive strong uptake in the marketplace.

      I dont have an axe to grind – Im not and never have been an investor in Dendreon, nor do I stand to gain from a share price movement down or up. But companies like this, which expend hundreds of millions launching drugs that insufficient patients, physicians or payers are prepared to use makes drug development across the industry uneconomic. We all (in the industry) need to find ways of making better judgments in future.

      • Adam


        Thoroughly enjoyed your article. Wanted to pick your brain on Amarin, very intrigued by the future prospects with Anchor indication forthcoming Dec. 20th. Amarin to date has been FDA approved for the Marine indication, continued growth in scripts, 17+ patents registered w/ USPTO, two successful phase 3 trials and parts of the executive team (Reliant Pharm) have previously sold Lovaza to GSK.

        Any insight into future prospects?



    • Mark P

      For those that prefer to think for themselves, here is a link to Marie Huber’s article, published in the Journal of the National Cancer Institute http://jnci.oxfordjournals.org/content/early/2012/01/09/jnci.djr514

      She later proved that the questionable age data which first raised her suspicions came from a pre-specified analysis that had been filed with the FDA in their statistical analysis plan, but which was never published. Dendreon et al published a less troubling analysis, and lied when they claimed it was the pre-specified analysis. They even had the audacity to accuse Ms Huber of “retrospectively picking apart the data”, which they, not she, were guilty of. http://www.reuters.com/article/2012/10/11/us-drugs-dendreon-provenge-idUSBRE89A15420121011

    • Mark P

      … and neither Kantoff et al, nor Dendreon, have ever provided a single satisfactory answer to any of the multiple problems with the Provenge trial data that Huber et al raised in their JNCI paper and subsequent correspondences.

      Look at the data and the facts, and ignore all the ad-hominems with which defenders of Provenge are trying to distract inquiring minds.

  • Steve

    The link to the journal article in my comment was truncated. Here it is:


  • Steve

    David, thanks for removing my last post. Fact is that Provenge is at least as effective as its competitors Zytiga or Xtandi. Provenge’s health benefits are not all “marginal”. In fact, Provenge’s health benefits are quite strong. Why didn’t you interview physicians that actually use Provenge to treat patients rather than you quantifying out of ignorance the drug’s medical benefits. Zytiga the current sales leader in the advanced prostate has failed to show a statistically significant survival benefit and the patient survival curves to not separate at all for the first 18 months on treatment. Provenge. Provenge side effects are lower than any of its competitors. Provenge current sales levels at $300 million per year are higher than most of its competitors. You are doing patients a disservice by constantly steering prostate cancer patients to this misinformed article via Twitter.

    • davidgrainger

      Steve – your last comment is still here for people to read, as is my response to it.

      You repeatedly miss the point of the article, but I am not depriving prostate cancer patients (or anyone else) the opportunity to hear your opinion alongside my own, and make up their minds.

  • frsalemme

    Great Article. I agree that any product launched by a biotech has already been extensively shopped to and scrutinized by big pharma. That said, big pharma has done quite a few huge deals, for hundreds of millions, that could hardly in retrospect be called “gold”. More like fools gold.

  • http://www.hollyip.com/ Suleman Ali

    The existence of more sophisticated buyers and investors is presumably going to mean post-approval issues like this will crop up more often. I suppose biotech companies will adjust to that new reality