Deutsche Bank - Equity Research
Dedreon Corporation {Ticker: DNDN, Closing Price: USD 25.46, Target Price: USD 36, Recommendation: BUY}.
** Top 7 questions & controversies
(1) Is the pivotal data sound? (2) Is there risk to manufacturing?
(3) Can management deliver? (4) Will there ever be a generic
Provenge? (5) How big is the Provenge market? (6) What will the
sales ramp look like? (7) What is the stock worth? We rate the
stock Buy, based on our assumptions that Provenge will be approved
by 1H10 and that it will be a blockbuster therapy for prostate
cancer.
** Initiating at Buy - we assume Provenge will be approved in early
2010
Provenge is a personalized immunotherapy for metastatic prostate
cancer. Recently phase 3 data from IMPACT was released, confirming
two previous trials showing Provenge increases survival by ~4
months. The trial was conducted under a special protocol agreement
with the FDA. Dendreon expects to file in 4Q09, with approval early
2010.
** We believe the FDA is unlikely to find fault with the IMPACT study
Provenge was rejected in 2007 by the FDA following a positive Adcom panel on the basis that the two trials submitted did not define survival as a primary endpoint and statistical analyses were not predefined. We believe the data is strong enough for approval, given the survival benefit was significant across multiple subpopulations, even when adjusting for later lines of therapy. The fact that the data are consistent with previous trials and our view that the FDA will likely face public scrutiny, as it did following its last decision, support our thesis.
**We did a manufacturing deep-dive & believe CMC issues have beenresolved
The primary issues raised by the FDA in its 2007 inspection were bar
coding and lack of data supporting handling multiple samples at a
time. We believe DNDN has resolved all issues. The real risk in our
view is that scale up will not be fast enough to meet demand. We
address key manufacturing hurdles for DNDN in our report.
**We see at least 35% upside upon approval
We believe Provenge has the ability at peak to be a ~$1.8B+ product
in the US alone, with limited generic risk following patent
expiration in 2020. Our NPV analysis suggests 35%+ upside upon
approval in 1H10. Nevertheless, a lack of apparent near-term
catalysts could keep the stock range-bound near term.
**Valuation/Risks
Our one-year $36 target priced is based on a discounted cash flow analysis. Downside risks include FDA rejection of Provenge, delay of
approval, poorer-than-expected sales, and a lower price point.
(Please see pages 5, 9, and 34 for details)
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