Investing on FDA Approval: Beware the 15th of May
By Ian L. Cooper
Twenty-two days and counting… that’s how much time the FDA has remaining on its legal deadline to make a decision that’ll make or break Dendreon. Sure, the company scored big points when a panel of FDA advisers recommended that Provenge (a prostate cancer drug) be approved, but you’re dealing with the unpredictability of FDA politics here, and the fact that approval may have already been priced into the stock.
In my honest opinion, buying this stock ahead of the decision may welcome more trouble that it’s worth. We’re not looking for the FDA to fully reject Provenge. What we are looking for is an approvable FDA letter, which will say that the drug will be approved if conditions are met. And that, my friends, would result in a horrifying gap down.
Here’s why an approvable letter is likely. According to Forbes.com, “Dendreon's application to the FDA contains two late-stage studies with a combined total of 225 patients. That's tiny; many drugs are tested in studies of thousands of patients. Both studies missed their main goal, but the more recent one -- a three-year, 124-patient study -- shows that patients on the drug lived, on average, an extra four months. But statisticians, and the FDA, tend to toss out studies that don't make their main goal. To cancer patients, this can sound insensitive. But there's a real reason for it. When a study gives a result that scientists didn't predict ahead of time, it's simply more likely that the result happened by chance.”
Plus, the drug doesn’t come without critics. Remember four of the 17 panelists did not green light approval. Howard Sher, for one, a urological oncologist, says that the FDA cannot approve the drug based on current data and that approval should be deferred.
There’s a high likelihood that the FDA’s decision will burn Dendreon bulls. I don’t want you to be one of them. We’re looking for an approvable letter, which will result in a gap down by May 15, 2007. Please keep this in mind if you’re thinking of buying DNDN shares beforehand.