DADN Drama

DNDN Drama

Chapter 1 The Panel meeting (March 29, 2007)
Chapter 2 The perfect Storm (March 30, 2007)
Chapter 3 The battle between the longs and the shorts (April 2-4, 2007)
Chapter 4 The longs is winning the battle (April 5, 2007)
Chapter 5 The massive panic shorts covering (April 9-10)
Chapter 6 The hedge funds fight back (April 11-13)
Chapter 7 The battle continues (April 16, 2007)


Chapter 1 The Panel Meeting (March 29,2007)
It is relatively quiet, normal, and no-events trading day on New York and NASDAQ stock exchanges. The world stock markets have slowly bounced back from the plunges triggered by about 10% free fall of China stock market on Feb 27,2007 that was mainly caused by the speculative and free-borrowed Japan money flowing back to Japan from the oversees after the Japan bank raised it's interest rate. The renewable energy stocks (TSL, FSLR, ASTI) are still hot following the growing popularity of "An Inconvenient Truth", a controversial Academy Award-winning documentary film about climate change, specifically global warming, presented by former Vice President Al Gore. The sub-prime mortgage and home builder stocks (NFI, LEND, AHM, BHZ) are still under pressure after the New Century Financial Corp., the second sub-prime mortgage company, declared bankruptcy and it's stock NEWC.PK is trading on pink sheet. The institutional money is still in love with oil companies (XOM), oil refiners (SUN, VLO), deep ocean oil drillers (RIG, NE), and uranium companies (CCJ, FRG). The hot money seems to have no interests in the bio-tech industry even SCOR and ONXX have had big run-ups recently. The stocks of the leaders of this industry such as DNA and AMGN just keep declining. But, it is the judgement day for a small bio-tech company Dendreon Corporation (DNDN) in Seattle, a special day for many terminal prostate cancer patients, and a big day for many small DNDN traders and investors and as well as the so called "smart money', the hedge funds. This stock is having the trading halt due to the ongoing advisory panel meeting sponsored by Food And Drug Administration (FDA) for DNDN's drug Provenge , (what is it? http://www.dendreon.com/dndn/provenge), a revolutionary medicine that may change whole landscape of cancer treatments. So, the focus is on the meeting but the huge bids have been placed already. Many small investors have done their own DD (due diligence) and bet in favor of the YES vote from the panel. On contrast, the hedge funds have bet against the YES from the panel. The hedge funds have done their home work too. They have almost unlimited sources, the insider information, deep connections to drug industries and the network of doctors. They have the friends in FDA. They have been well advised by paying sizzle money to big consulting firms specializing in investments on bio-tech industry. The UBS' analyst Maged Shenouda and Brean Murray's Jonathan Aschoff are on their side. The two strongest vocal voices against DNDN. Huge numbers of naked call options (without holding the stock) on $5 and $10 have been written for high premium and many put options have been sold to small investors. So, the huge amount of the money is at stake. This is the classic fighting scene: small investors (the longs) vs big institutional money (the shorts).


The points from the shorts:
1. The drug did not meet its primary goal (the time to progression of the disease) in two phase III trials (Studies D9901 and D9902) .
2. Although the median survival time between treatment group and placebo group is significantly different in Study D9901, the difference may be due to other factors because of the imbalance of the two groups (for example, the health conditions of patients in placebo group may be worse than those in the treatment group).
3. FDA will not accept the results of the analysis that is not predefined. In other words, you cannot change the predefined goal and the methods of the analysis. You cannot do all kinds of data mining by slicing data and adopting various modeling to get the favorable results.
4. The 2 completed phase 3 trials are too small and there is an ongoing big phase III trial. Why not just wait for the result of this big trail coming out.


The points from the longs:
1. The drug just marginally missed the primary goal (p=0.06) in the Study D9901.
2. Survival rate is the gold standard and the drug shows the great promise based on this standard. In Study D9901, patients receiving Provenge had a median survival of 25.9 months compared to 21.4 months for patients in the placebo arm, a 4.5 month improvement (p-value = 0.01 from the conservative log rank test, hazard ratio = 1.7). This hazard ratio implies that patients receiving placebo have a relative risk of dying that is 70 percent higher than those patients receiving Provenge. In addition, 34 percent of patients receiving Provenge were alive at 36 months compared to 11 percent of patients receiving placebo (p-value = 0.0046). To take account of the impacts of differences of other potential survival factors between treatment group and placebo group, the prevailing Cox proportional hazards regression model had been adopted for accommodating the imbalance of the two groups . The results tuned out to be even better with p-value <0.001.
3. Cox regression model is the prevailing method used for survival analysis. The FDA seems to agree that this is the right method for the analysis and the survival rate should be the primary goal because that the FDA agreed that the ongoing phase III trial (D9902B) will use the Cox model for the analysis the survival time is the primary goal.
4. FDA knew the data and it still said that the data from Study D9901 with supporting Study D9902 was sufficient for ting the BLA in terms of providing the evidence of the efficacy of the drug. The outcome of ongoing Study D9902B cannot be available until 2009 or 2010. 2-3 years delay would have huge impacts (we are talking about the lives) on those patients with the terminal prostate cancers.
5. The drug is safe and much tolerable than current chemo therapies. Over 50% patients refuse to take the chemo therapies because of the side effects and the quality of the life.

If you exam the points from both sides, there is a stunning difference in terms of the viewing angle. The shorts is reasoning more from the point view of government regulators (the FDA) and the longs is reasoning more from the patient's angle. Being conservative, being cautious, being afraid of making changes by sticking with established rules, and playing safe seem to be the image, the tone, and the style of the FDA since the public outcry over how VIOXX was handled by the FDA. As patients with terminal deceases, they are desperately looking for the novel treatments that can prolong their life and allow them to live dignifyingly without lowing the quality of their lives. They want to have the right to choose the treatments and the drugs, to make decision, not by the governments, not by drug companies, not by doctors, not by lawyers, because it is their lives at stake. We are living on the promising lands with the liberty and freedom. We have the rights for almost everything even for the gay marriage. How can we don't have the right for choosing the treatments and drugs for saving our lives. Many small investors of DNDN are the patients or have the connections to the patients. Yes, some of them are very emotional for investing in DNDN and this often results in bad investment decisions. But how can you sneer at them being hopeful and being optimistic in the fighting for their lives, the lives of their beloved ones, relatives, and friends.

The odds seems greatly against the small investors at least historically. If you take a look at the stock price of DNDN since 2005 until 3/28/2007, every piece of good news and every positive progress from this company just brought a short-lived rally, "a dead cat bounce" called by the shorts. The stock price went down all the way to $4.00 level from $6.00. The company had to give up the clinical studies for it's other promising drugs to save the capital and resource for this drug. It had to raise the capitals from the markets at the bargain price $4.00 level to enable it to survive itself. Actually, it is not only it's survival but the whole field of cancer immunotherapy. Three or four years ago, cancer immunotherapy as one the hot fields (the others were monoclonal antibody and small molecule development) was the darling of the wall street. When we talked about immunization, it was all about vaccines for prevention. If the immunotherapy and the cancer vaccines could be used for slowing the progress of the cancer or/and curing cancer, what a revolution and landscape changes event we were predicting? More promisingly, DNDN's drug was the active cancer immunotherapy, the only product that was customer made for each individual patient. The wall street aclaimed the revolutionary field and the same UBS analyst ,who has the sell rating on DNDN with the target price $1.5, was the cheerleader for DNDN. But, the fade came and went. The reality clicked in. The series of poor results of studies ( missing the primary goals) from this field cooled the wall street. So, it went to the opposite extreme just like every such a case. The investors started questioning even the concept of cancer immunotherpy. The voices of "the wrong concept" and "it would never work" were so louder that the whole filed was deserted. DNDN, CEGE, AGEN, BIOM all went down and never recovered.

When would be the turning point for DNDN and the whole field? Where would be the light of the end of the tunnel? So, the march 29, 2007 comes and the DNDN stocks price stops here. The history is going to be made on this day, the March 29, 2007.

The panel meeting starts in the morning. There are 17 experts sitting as the panel members. The FDA presents the case. It is good. The statisticians from the FDA report the results of their analyses, it is OK. the company presents and the panel raises questions. It is not bad. The company is well prepared. Then, the patients representatives start their turns. Their testimonies are so moving that bring tears to eyes of many. These are begging for Provenge approval so that they might have a chance for the few more months/years that Provenge has to offer, without the side affects of chemo.Their talks are so emotionally and appealing that may be the decisive point of this meeting. Once again, you can never underestimate the power of human feelings. Finally, the voting starts. It is about 3:30 PM. Is the drug safe? 17 yes and 0 no. Does the the data establish efficacy? The first 4 votes are no. It seems the panel is confusing about the question. So, the question is rephrased as "does the data provide substantial evidence of the efficacy?" The voting restarts. The final outcome is 13 yes and 4 no. One of 4 members voting "No" is Dr Scher. He will be a central figure as the drama goes one. The price of DNDN is still $5.20, no movement because of the trading halt. But the stock price of CEGE starts moving from $3.30 to $3.4, $3.5, $3.6, $3.7 in the last half hour trading in the increased volumes. It closes at $3.50 up $.28 from the previous close.

What will tomorrow bring for the longs and the shorts? The longs are talking about beers, wines, restaurants, parties, and eventually the tomorrow's stock price, $10, $15, $20, or $25? What is the shorts mood? A trader in Seattle, who shorted 50 K shares at price $5+ on March 28 and did not realized there would be no trading on March 29, posted a message on Yahoo message board saying that he may lose everything including his girl friend because he also used the money on her account to short the stock. The profiles of risks of being the long and being the shorts are quite different. As a short, there is an unlimited risk because you just don't know how high is the high for you to buy back. This might be a very long and sleepless night in Seattle for this guy.

Why is it going wrong with the hedge funds? They had been right and triumphed over small investors all the time until this day. They may still not figure out. The answer is that the changes have been taking place in the FDA since Andrew von Eschenbach took the position of the acting commissioner (now the commissioner) in the end of 2005. Von Eschenbach is a surgeon and prostate cancer survivor from Texas. Since coming to the National Cancer Institute from the University of Texas M.D. Anderson Cancer Center, he has won both friends and critics for his professed goal of making cancer a chronic disease that patients can live with, rather than a fatal disease, by 2015. Many oncologists have criticized von Eschenbach for promising more than the science will likely be able to deliver. Being a cancer survivor would give you the experience of a cancer patient. You would be no longer thinking as a regulator only when a policy decision is related to the human lives




Chapter 2 The perfect storm (march 30,2007)