Last year PDL BioPharma (Née Protein Design Labs back in the 90s) spun-out its drug development operations from its royalty-bearing patent estate. The drug development operations became Facet Biotech (Nasdaq: FACT) while the royalty-bearing patent estate (the Queen patents) covering all humanized biologics in development remained with PDL BioPharma (Nasdaq: PDLI).

PDL BioPharma has thus become a pure play on the Carey Queen patent estate and the humanized biologics on the market and in development. These humanized biologics are the drugs with generic names ending in “zumab” such as Roche’s bevacizumab (trade name: Avastin) and Biogen Idec’s natalizumab (trade name: Tysabri)

THE INVESTMENT THESIS

PDL’s stock is currently trading at a $6.96 per share. PDL May 2010 $7.50 call options* (symbol: PDIEUX) currently have a bid/ask of $1.15/$1.35 and if the options expire in the money they also require the option seller to come up with $1.67 per share ($167 per option contract) in addition to the standard option terms. (click on the underlined to see the terms of the existing PDL options contracts)

If you buy PDL shares, sell a May 2010 call, and wait for the option to expire here are the possible gain/loss scenarios from this covered call selling scenario:

IF PDL SHARES ARE AT OR ABOVE $7.50 AT THE END OF MAY 21, 2010

Your returns would be:

$7.49-6.96= $0.53 in share price appreciation that accrues to you (the call strike price is $7.50)

plus

$1.15 per share in premium for the calls you sold

plus

one of two regular dividends unannounced at this date but likely at least $0.20 total (was $0.50 in 2009 but monetization of assets will highly likely reduce this amount in 2010)

minus

$1.67 per share that must be included as part of the executed call option sale

equals

a return of at least $0.21 per share (depending on the size of the dividend payments), which is a 3.01% return over approximately six months if you close out this trade at the time of options expiration.

BREAK-EVEN ON THE DOWNSIDE

PDL shares would have to fall approximately $1.15+0.20= $1.35 per share to $5.61 a share from your $6.69 a share purchase price for your six month investment in PDL to be result in a return of 0%. Even though PDL’s patent estate is a wasting asset and the dividend is likely to be reduced a large amount in 2010 due to the 2009 monetization of 60% of its royalty stream, PDL shares falling to $5.59 a share appears unlikely based on the discounted net present value of its royalty stream.

BEST CASE SCENARIO ON THE UPSIDE

This trade performs best if PDL shares are trading at $7.49 at the close of May 21, 2010. If this occurs and PDL pays out $0.20 a share in dividend payments in the first half of 2010 then this trade nets a gain of:

$0.53 (share price appreciation)

plus

$1.15 in option premium

plus

$0.20 in dividend payments

equals a return of $1.88 a share on your $6.96 a share cost basis. This best case scenario results in a 27% return (ignoring tax and frictional trade costs).

RISKS TO THIS TRADE

This is obviously not a riskless trade and there are several variables that could cause this trade to turn south pretty quickly

1. Interest rate risk: If interest rates jump then PDL shares are heading south

2. Drug risk: If Avastin, Herceptin, or any other of the key drugs that PDL receives royalties on experiences sales declines then this will   adversely affect PDL shares. On the flip side, if Roche changes the geographic mix of its Avastin and Herceptin production, PDL shares stand to gain from a flat 3% royalty rate on the portion of drug produced outside the U.S. versus the tiered royalty rate it receives on production of these drugs in the U.S.

3. Changes to the tax code: If most PDL shares are held in taxable accounts and taxes on dividends are increased, this will adversely affect high-yield dividend stocks like PDL.

4. Patent litigation risk: There are several challenges to PDL’s patents going through the courts right now. Any one of them could have a severe effect on PDL’s abilities to collect royalties on its patents.

It’s worth repeating and remembering that PDL’s patents are a wasting asset. PDL’s shares are not going to be worth what they are today when 2014 rolls around. PDL’s shares should slowly decline to account for the lessened remaining patent life. Our bet is that the decline is slow enough (and that PDL’s shares are undervalued enough) that this trade will pay off.

CONCLUDING THOUGHTS

To be clear, PDL BioPharma’s patent estate is a wasting asset with the patents set to expire in 2014 and thus also PDL’s key source of revenue. There is a slight possibility for PDL to continue receiving royalty income beyond that time period but we are completely discounting that possibility right now. Therefore the discounted net present value of PDL’s royalty income that gets returned to investors through 2014 needs to exceed PDL’s current share price for PDL to be considered a good investment.

It’s worth repeating and remembering that PDL’s patents are a wasting asset. PDL’s shares are not going to be worth what they are today when 2014 rolls around. PDL’s shares should slowly decline to account for the lessened remaining patent life. Our bet is that the decline is slow enough (and that PDL’s shares are undervalued enough) that this trade will pay off.

Anyone looking at the biotech and pharmaceutical sectors will notice an odd phenomenon. Some of these drug developers have share prices trading for less than the net cash on their balance sheet.

Our ears perk up anytime we can possibly buy $1 worth of assets in a stock for less than $1. Our interest definitely grows when we can buy shares of a drug developer for close to or less than the value of its net cash and in addition get whatever value of the rest of its assets like its pipeline compounds and any marketed drugs have.

The upshot is that some of these drug developers valued at less than their liquidation cash value even have FDA approved drugs on the market and are profitable. Here is the list of drug developers with shares that are trading for less than or only a little more than the value of the net cash on their balance sheet.

Adolor (Nasdaq: ADLR)

Share Price: $2.25
Net Cash Per Share: $2.48

Adolor is best known for its postoperative ileus (POI) drug Entereg. It was approved for marketing by the FDA last May albeit with a very strict Risk Evaluation and Mitigation Strategy (REMS) plan.

Adolor is still burning through its cash and Entereg’s uptake has been relatively slow with revenue from the drug only reaching $1.4 million in the first quarter this year. Adolor’s cash burn in the first quarter was $15.6 million so it’s still far away from profitability considering Entereg’s market potential in POI with its restrictive label.
All that being said, Adolor does have a commercialization deal with Pfizer (NYSE: PFE) to develop moderate-to-severe pain drugs in addition to its existing deal with GlaxoSmithKline (NYSE: GSK) for Entereg in POI. Without knowing if any of the details of its partnership deals would prohibit such a course of action, Adolor is exactly the sort of extremely cheap acquisition candidate that Pfizer or Glaxo often scoop up.

Although Adolor shareholders would be unlikely to get much of a premium to Adolor’s existing share price in any acquisition, with a market capitalization of only $104 million (as of May 1) and nearly $115 million in net cash (cash burn was $35 million last year), Adolor’s shares don’t deserve to be worth too much less than its net cash under many scenarios.

Adolor doesn’t exactly excite us with its early stage pipeline or with the restricted market opportunity for Entereg. Right now it also does not overcome our required return threshold considering. If its shares fall too far below its net cash and Entereg sales ramp up enough to cut into cash burn rate, then it could potentially become an investment candidate that meets our returns criteria for a company with its risk profile but right now we’ll pass.

Facet Biotech (Nasdaq: FACT)

Share Price: $9.26
Net Cash Per Share: $15.89

Definitely the most tempting investment on this list, paradoxically (paradoxerweise) Facet Biotech also has one of the longest histories of destroying shareholder value when you include its former parent PDL BioPharma in its history.

Nevertheless, Facet Biotech is an extremely interesting investment prospect when you consider that it has $15.89 per share in net cash on its balance sheet, a moderately interesting lead drug candidate, and a mostly value-oriented class of shareholders (Seth Klarman’s Baupost Group holds 17.8% of outstanding shares and D.E. Shaw another 3.2%).

Consider this: If Facet were liquidated today (May 1) and the net value of the cash on its balance sheet returned to shareholder, investors who bought its shares at today’s $9.26 a share closing price would see an immediate 72% return on their investment and this assumes that Facet’s pipeline has zero value.

Obviously we are ignoring the frictional costs that would be associated with transitioning to shutdown Facet and the fact that it will continue to burn through its $405 million in cash until shareholders are able to shut it down or get it sold to Biogen Idec. The other obvious downside to buying shares of Facet today for its cash is that you are relying on its other outside shareholders voting to shut it down or return a large chunk of this cash to shareholders through other methods. If that doesn’t happen then Facet will continue on burning through its cash, of which it estimates it will use $95 million to $100 million this year.

Maxygen (Nasdaq: MAXY)

Share Price: $5.65
Net Cash Per Share: $5.14

Like the aforementioned Facet Biotech, Maxygen was also spun-out from a famous biotech, in this case Affymetrix (Nasdaq: AFFX). It is also a money losing development stage biopharma like Facet but the difference is that since last year, Maxygen’s management team has been working on evaluating its “strategic options” and actively selling off parts of its operations.

In June, Maxygen sold a portfolio of hemophilia drug candidates to Bayer ‘04 for $90 million in upfront cash and this is largely why Maxygen’s market capitalization is less than $20 million above the $195 million in net cash on its balance sheet.

Maxygen stands to gain another $30 million from the Bayer deal in potential milestone payments and later in the year signed another deal with Astellas for a preclinical autoimmune diseases drug candidate that could bring in further cash

Having already enlisted the help of Lazard Capital to try and find an acquirer, Maxygen is the most likely company on this list to get sold. We like the fact that Maxygen management has also been taking actions to preserve its cash and reduce its burn rate until something happens with the company. The only problem is that Maxygen doesn’t have a lot of assets left to sell aside from its lead drug candidate. We’ll definitely be watching Maxygen’s shares closely because the lower its share price goes then the more likely a reasonable acquisition offer will pop up that values the company more than an approximate $20 million enterprise value

Pain Therapeutics (Nasdaq: PTIE)

Share Price: $4.43
Net Cash Per Share: $4.38

Pain Therapeutics’ top pipeline asset is its “abuse deterrent” opioid pain reliever Remoxy. In late 2005 Pain Therapeutics signed a commercialization deal with King Pharmaceuticals (NYSE: KG) to develop Remoxy and “no less than” three other abuse deterrent versions of already marketed pain drugs.

In conjunction with that deal, King paid Pain Therapeutics (PTI) $150 million in upfront cash and this is where the vast majority of the $187 million in cash that PTI has on its balance sheet came from. PTI expects to burn through only around $10 million of this cash in 2009.

The bad news is that PTI’s future rests almost solely on the fate of Remoxy. If the FDA refuses to accept King and PTI’s abuse deterrent claims and doesn’t allow Remoxy on the market then PTI’s clinical stage pipeline is reduced to one monoclonal antibody for melanoma still in phase 1 testing.

QLT (Nasdaq: QLTI)

Share Price: $2.07
Net Cash Per Share: $2.13

QLT is an interesting company because it has two drugs already on the market, a good amount of cash on its balance sheet, and is cash flow positive. The problem with QLT is that it is embroiled in a fair amount of litigation and just recently had to pay out $127 million after an appeal of a patent infringement judgment went against it.

QLT’s management have used its cash in the past primarily to reduce its share count. After several Dutch Auctions and open market buyback programs have cumulatively reduced QLT’s share count more than 40% (although often overpaying on their buybacks).

What gets our attention is that QLT’s cash flows are finally starting to stabilize after a precipitous drop in revenue in recent years. The investment case that can be made for QLT is that since its top-line is growing again due to growth with its hormone therapy Eligard eclipsing the sales declines of macular degeneration drug Visudyne, QLT will be generating more cash in the coming years and hopefully returning it to shareholders.

Targacept (Nasdaq: TRGT)

Share Price: $3.15
Net Cash Per Share: $3.19

With its lead drug only in phase 2 testing, Targacept is more like Pain Therapeutics or Facet Biotech than Adolor or QLT. The other thing that binds Targacept to PTI and Facet is that it is relying on the financial backing of large pharma partners, in its case AstraZeneca and GlaxoSmithKline, to help shepherd its drug candidates through the costly clinical trial pathway.

Without digging into the clinical trial data pertaining to Targacept’s compounds in development (which is outside the purpose of this article) there isn’t much more to say about Targacept. Targacept expects its cash to on hand to last “at least through the first half of 2011″ and for cash burn to be less than $35 million this year. It has been behaving like a typical development stage small molecule specialty pharma and unlike a few of the other companies on this list, Targacept has taken no steps to wind its operations down or publicly put itself up for sale.

continued…

Dendreon (Nasdaq: DNDN) October 06, 2008 interim IMPACT phase 3 study results conference call transcript with analyst question and answer session:

MITCHELL GOLD (Dendreon CEO and President) Prepared Remarks

GOLD: Hello everyone and thank you for joining us to discuss the results from the planned interim analysis of our phase 3 IMPACT clinical trial.

Before we discuss the results, let me remind you about the design of this study. The IMPACT trial is a randomized, double-blind placebo-controlled phase 3 study, which enrolled 512 men with metastatic androgen-independent prostate cancer. The primary endpoint of the trial is overall survival. The statistical plan was designed using the integrated results from our two previous phase 3 studies, 9901 and 9902a.

The interim analysis was performed by an independent data monitoring committee (IDMC). The IDMC reported no safety concerns and recommended that the study continue to its final analysis.

While we remain blinded to the data, the committee reported to Dendreon a 20% reduction in the risk of death in the Provenge arm relative to placebo, a hazard ratio of .80. Alternatively this hazard ratio can be expressed as 1.25, representing a 25% increase in the risk of death in the placebo arm relative to Provenge.

At the final analysis, which is anticipated in the middle of 2009, if the study demonstrates approximately a 22% reduction in the risk of death based on 304 events, the company would expect the study to meet its primary endpoint of overall survival.

While we would have liked to received results that would have allowed us to amend our BLA (Biologics License Application) at this time, as we’ve said before, the final analysis, by design, has a higher probability for success.

Here are a few key considerations as we look forward to the final analysis from IMPACT. At the time of the data cutoff for the interim analysis, which occurred in May of this year, the median follow-up time in the IMPACT study was approximately 24 months (or 2 years). As we reported today, we observed a 20% reduction in the risk of death in the Provenge arm, a hazard ratio of .80.

Now if we look at the integrated analyses of 9901 and 9902a, at a similar follow-up time of 24 months, we observed a 22% reduction in the risk of death, a hazard ratio of .78.  Therefore, these results are consistent with those from our previously completed phase 3 studies of Provenge in this patient population at a similar follow-up time.

As you may recall, the final analysis from our integrated studies showed approximately a 33% reduction in the risk of death, a hazard ratio of .67, supporting the hypothesis that there is a delayed treatment effect with Provenge, which tends to get larger over time.

Given that the results reported today are consistent with those seen in our previous integrated analyses, at a similar follow-up time, we are looking forward to the final analysis of the IMPACT study next year.

Prostate cancer is without question a difficult disease to treat, with only one product in the past twenty years that has been approved by the FDA that has shown an improvement in overall survival. Before we conclude, I would like to thank the hundreds of men who have participated in the IMPACT study. In the ten plus years that Provenge has been under investigation for patients with advanced prostate cancer, more than 800 men have participated in clinical studies. These men have demonstrated a courage in their participation in our clinical trials and have contributed to, what we hope, will be an advancement in medical care for prostate cancer patients.

At this time (4:58 mark) I’ll turn the call back over to the operator, who will open the phones for Q&A:

(Q&A instructions….)

Questions from MARK MONANE of Needham & Company (5:51 mark)

MONANE: Good morning and thank you for reviewing the results with us this morning, early in the morning for you in Seattle.

MITCHELL GOLD: Good morning Mark

MONANE: Um question for you, the hazard-ratio that you reported, is that an adjusted log-rank analysis? I remember you talked about adjusting for certain factors. Maybe you can go over those factors and answer that question first.

GOLD: I’ll let Mark Frohlich (Dendreon’s Chief Medical Officer) take that one

MARK FROHLICH: The analysis was an adjusted cox model, which we adjust for the prognostic factors, PSA and LDH.

MONANE: Ok that was helpful and then in follow-up, I guess the question is; Will the final analysis now be representative of the interim analysis and of course, those patients, the patients that are alive, will continue to contribute data points to the trial and the patients that are dead will not, but the question is: in the trial recruitment, the patients that were recruited later in the study, can you tell us if those were similar to the patients that were recruited earlier in the study? Is there any reason to believe that those patients would be different?

GOLD: No I think, what we’ve said in the past and what we know is we’ve conducted a Halabi analysis on the total patient population from the IMPACT study and compared it to that from both 9901 and 9902a and we see that the patient population is very similar to what we saw in 9901 as well as the integrated analyses. So the Halabi Model shows that the baseline demographics are consistent with what we’ve seen in our other previous studies.

MONANE: And when you say that with the 22% reduction in risk, you are talking about a hazard ratio of 0.78? Is that how we should interpret it?

GOLD: That’s correct

MONANE: And at that point, when you say “meet the primary outcome”, you’re saying that the p-value would be less than .05 with the hazard ratio not eclipsing 1?

GOLD: Uh, we meet the level of the statistical significance that’s described in the statistical analysis plan for the final analysis…yes.

MONANE: And we can assume then today, that the data that you reported did not meet…that…that… endpoint? Is that a fair assumption?

GOLD: That is correct. It did not meet the pre-specified criteria to allow us to amend our BLA. That being said, I think what we can take away from the data that we received on the interim analysis, is that it is very consistent with what we saw on the integrated analyses of 9901 and 9902a and that in those studies we saw that the treatment effect tended to increase over time.

I guess another caveat to that is not only in the integrated analyses but both in 9901 and in 9902a, we saw the treatment effect increase over time.

MONANE: Have any patients been lost to follow-up? Do you have data points on all the patients going forward?

GOLD: Uh, you know, right now it’s difficult for us to say but there has been very few patients lost to follow-up, it’s not 100% as we had in 9901 but it’s very close.

Questions from JOEL SENDEK of Lazard Capital Markets (9:02 mark)

SENDEK: Can you tell us what the p-value was at the interim analysis?

GOLD: You know Joel, as we’ve said in the past, we keep the details of the statistical analysis plan, we look at that as proprietary to the company but what I can say is that the final number of events, 304 events, and we’ve preserved a substantial amount of the alpha for the final analyses.

SENDEK: Ok that’s my second question. Which is, what is that (meaning the alpha figure)?

GOLD: And let me just emphasize, as Mark just mentioned to me, the company did not receive a p-value from the IDMC for the interim analysis.

SENDEK: Ok and how about, can you tell us what the alpha spend is at this point? To know what the statistics you’ll need at the final analysis will be?

GOLD: What we can say is that we’ve preserved a substantial amount of the alpha for the final.

SENDEK: So, but in the answer to Mark’s (Monane’s) question, you said that you’d need a .05 but presumably it would be less than .05, right?

GOLD: No, Mark said .05. We never said .05 but I think probably the best way to look at it Joel, is to look at the sentence where we say “if we meet a 22% reduction in the risk of death in the final analysis, that we would expect to achieve the statistical hurdle”

SENDEK: And presumably what you’re saying this morning is you just missed it. You know, if the interim were .78 as opposed to .8, you would of stopped the trial?

GOLD: You know, all I can tell you is that we did not meet the pre-specified criteria for stopping and amending our BLA. But I think going forward, we see that we need a 22% reduction, we’re at 20% today, and historically we’ve seen an increase in treatment effect over time in our clinical studies, so we look forward to the analysis that we’re going to see next year.

SENDEK: If it’s (the interim results) kind of in-line with what you thought but you missed the interim, I’m wondering did you make a mistake when you kind of came up with your interim statistical analysis plan? You know, because there is a disconnect there, in my mind. I’m just wondering if you could explain.

FROHLICH (we believe): The power was….the study was powered on the final results of…the integrated results of “01” and “02a”, which was risk-reduction of 33%…and so the interim analysis has less power than the final analysis by design so we still feel reasonably comfortable with our projections for the final analysis.

Questions from DAVID MILLER of Biotech Stock Research (11:43 mark)

MILLER: The interim would have had to have a much lower hazard ratio than .22 to be successful, correct?

GOLD: Well “much” is a descriptive term….

MILLER (interrupting):…would have to have a “lower than” (referring to the HR of the interim study results goal)

GOLD (continuing): would have to have had a lower hazard ratio than we observed today for us to meet the pre-specified criteria for stopping.

MILLER: Right, but you had said that if the hazard ratio…I’m sorry…if you had a 22% (reduction in the) risk of death…or a .78 hazard ratio…that will be sufficient to get a success at the final analysis, correct?

GOLD: That’s correct. So two things to take into consideration: one is, the treatment effect and the other is the increasing number of events.

MILLER: Right, right, but if had shot the hazard ratio of .78 today, because of p-value spend and things like that, that have to do with the interim, (then) it would not have been successful?

GOLD: We have not talked about that specifically, i.e. ”What would we have needed at the interim to be successful” but I think what would we have wanted to give the investment community color on going forward, is that if we shot a 20% reduction in the risk of death today and based on how much alpha we preserved for the final, we’d need to meet a 22% reduction in the risk of death.

MILLER: Can any of the patients on the control arm roll over now or are they all past that point?

GOLD: The patients that are in the control arm can still roll over if they want and the rollover rate to the frozen version of the product (Sipuleucel-F), has been consistent with what we’ve seen in our previous phase 3 studies.

MILLER: The first sum number of patients into the trial had a lower Gleason score by trial enrollment and you have said that “in our previous trials”, or in the previous trials, that the hazard ratio improved. How would you…can you talk a little bit about how you would respond to the question or to a charge that while this data kinda shows the healthier patients… the patients later on in the trial, just by definition…by Gleason score…were sicker… therefore it’s unlikely they (the patients) would see the same (relative-risk of death?) improvement as the trial goes forward…as they did in the previous data?

GOLD: What I would emphasize first off, is that the patient population as a whole in IMPACT is based on Halabi. Very similar to what we saw in 9901. And then second, what I would point you to, and I know that you are familiar with this poster, is the poster that Eric Small presented at ASCO Prostate cancer meeting a couple years back, where he actually showed that the biggest percentage differences in survival were in patients with the highest Gleason scores…and I think one of  the take-home messages is that the survival benefit that we’re seeing is independent of Gleason scores.

MILLER: And then my last question is, given that there is this clear tail effect…and that the data looks better the longer out you go….are you worried now or do you have any second-thoughts about moving that final analysis forward?

FROHLICH (we believe): So the final analysis is pre-specified under a special protocol assessment that happened at 304 events, so we can’t change that at this time but as I noted before, we feel comfortable that the trial was powered for an overall treatment reduction of 31% (15:25 mark) (I believe he meant 33% though), which is consistent with what we saw in our prior phase 3 studies and integrated analysis

GOLD: And David, what I wanted to emphasize and I don’t know if you picked it up in my prepared comments, the data cut-off date for the interim analysis actually occurred in May of this year.

MILLER: Yeah I did pick that up. You guys made an amendment that essentially accelerated that final analysis from sometime in 2010 to…I assume it’s still second-half…are we still second half of next year for the final?

FROHLICH: We said middle of this year.
GOLD: Excuse me, we said middle of 2009

MILLER: So you accelerated that from sometime in 2010. Given that there is a tail-effect, are you having second thoughts about doing that?

GOLD: No, because I think…you know what we see is that we shot a 20% reduction in the risk of death today, with a mean follow-up of 24 months…very similar to what we saw in the previous phase 3 studies…and if that occurred in May and the final is going to occur sometime in the middle, I think we are pretty comfortable….if the treatment effects repeat itself (compared to the previous studies) and it tends to increase over time…and in fact, as it did in 9901 and 9902a and the integrated analyses…then I think we’re comfortable with that.

MILLER: I just want to make sure I understood your answer to Mark’s first question, so this is the adjusted cox hazard-ratio?

GOLD: Correct.

MILLER: Ok great. Thanks. I’ll jump back into the queue

GOLD: And David…the last thing to that is…when we gave you the .78 number at 24 months for the integrated analysis, that’s also on an adjusted cox as well.

Questions from WILLIAM HO of Banc of America Securities (17:13 mark)

HO: Hi guys, thanks for taking my question. I just wanted…was hoping you guys could discuss for a little bit about the recent failures that some of the other companies have had in this area of immunotherapy and what perhaps makes you different and increases your confidence of success next year?

GOLD: Without getting into the specifics of other studies out there, I think in general, prostate cancer has been a very difficult disease to treat, and we’ve seen several studies as of late reported out that have actually shown a negative treatment effect on overall survival. So I think we are very encouraged by the results that we’ve seen today at the interim analysis showing a 20% reduction in the risk of death.

I can’t speculate as to why those studies have failed and we’ve seen the data that we’ve seen today but I think there are some inherent differences that I should highlight: first, we use a recombinant protein as our antigen delivery cassette and that recombinant protein technology I do think is a key piece of why we are able to generate a substantial immune response against the antigen delivery cassette. Second, we use an ex-vivo process to load up the dendritic cells and as a result, we take it out of the immunosuppressive environment that exists in-vivo within the cancer patient (and???) are able to activate the dendritic cells, and we give it a very large number of activated antigen-presenting cells back to the patient. So I think there’s probably a whole host of factors that may be contributing…I don’t think there’s anything that we can conclude right now but I think we are encouraged by the results that we’ve seen today….particularly by some of the results that we’ve seen from other studies come out over the last year or so.

Questions from RENI BENJAMIN of Rodman & Renshaw (18:59 mark)

BENJAMIN: Can you just let me know if a futility analysis was part of this interim analysis as well and if so, what would have been required to stop the trial with this futility?

GOLD: Sure, as we’ve said in the past, there was no futility analysis as part of this interim analysis.

BENJAMIN: Ok and then, the hazard ratios that were reported…it seems it’s in a different manner than how it was reported in the past…is there a reason why there was a switch here?

GOLD: You know I think, there is a lot of debate I think in the scientific literature about what is the best way to report these hazard ratios…I think we’re seeing the way that we reported it today as one that is becoming an increasing trend in the literature and we just felt it was important to go to that trend. When we look forward to publishing the data that is consistent with what the scientific community thinks.

BENJAMIN: Ok, and then I guess a final question, based on the rate that you’re seeing right now, the impression (???) rates that you’re seeing right now, is there any chance that your final analysis comes in even earlier than what you are predicting now?

GOLD: You know, I think right now as we said in our prepared comments, we are comfortable with projecting it out into the middle of 2009.

Questions from AARON RINGS of Wachovia Securities (20:20 mark)

RINGS: Thanks for taking my question. The first question I had is that I was wondering if you could provide us with the confidence interval for the 24-month hazard ratio that you provided us, .78

GOLD: I don’t have that right now Aaron

RINGS: Ok, with data cutoff being in May, can you just walk us through basically what needed to occur between data cutoff and now and was it expected to take five months to gather the data just for the review or were there other things that were affecting the ability for the data safety monitoring board to get together and review that data?

FROHLICH: Just to clarify, we had to clean the entire set of database and not just the survival (information) but obviously all the safety information that are required to actually file a BLA should the interim have been positive. So that’s the amount of time at more than eighty clinical sites to bring all the data in, clean it, and actually lock the database.

RINGS: OK, thanks for that clarification.

Follow-up questions from MARK MONANE (21:33 mark)

MONANE: In the previous dataset we saw some long survivors, a certain percentage of people that were still alive three years later. Can you tell us anything about that at this point in time with the new dataset?

GOLD: No, we’re blinded to the data Mark, so we have no additional data on, say for example, the shape of the curves, or long-term survivors, etc.

MONANE: How about the standard deviation of the trial? Obviously that’s going to be important in statistical analysis. Can you describe that today or can you tell us if that was consistent with what you saw with the previous 9901 analysis?

GOLD: Mark, everything we received from the independent data monitoring committee was included in the press release today.

MONANE: OK, very good. I know that the company published some information about the role of a booster shot and the utility in a trial that you did in some Provenge patients. Can you talk about that in data a little bit more and did any patients get the opportunity to get a booster? I know it would probably be a frozen booster. Was that opportunity given to patients in this trial?

GOLD: So the boosting data that we’ve shown is in the P-11 study, and that’s in an earlier stage prostate cancer population. No patients in 9901, 9902a, or IMPACT have been eligible for a booster but we’re happy to talk about the concept of boosting if you’d like.

MONANE: So no patients in this trial got a booster. Is that correct?

GOLD: That is correct.

MONANE: Ok, that was what I was concerned with. And basically, last question is, did the company have any expectations of this interim analysis? Are you happy with this analysis? Are you disappointed with this analysis? What have you really learned from this analysis in terms of Provenge development going forward and thinking about it as a part of the company?

GOLD: Oh, I think we are encouraged by the data that we received from the DSMC. I think consistency and reproducibility are one of the hallmarks of biological activity of any product and the ability to impact survival, particularly in a disease like late-stage prostate cancer, is potentially very meaningful. So the fact that we’re seeing data today, 20% reduction in the risk of death, that’s very consistent with what we’ve seen in our previous phase 3 studies and that’s very encouraging to the company.

As Greg and I said as we meet with the investment community, we always position the interim analysis as an opportunity to accelerate the regulatory pathway but that the final analysis, by design, has a higher probability of success.

The fact that we shot a 20% reduction in the risk of death today and the target that we’re shooting for in the middle of next year is a 22% reduction and that in our previous phase 3 studies, we’ve seen this increasing treatment effect over time, I think we’re looking forward to the results of the IMPACT study next year.

MONANE: Thanks for the added information

Follow-up question from DAVID MILLER  (24:40 mark)

MILLER: You mentioned that…would you assume that there was going to be a faster clean of the data next time or would we be back to more like the five months that it was this time (from the time of the interim data lockdown in May to getting the results in October)

GOLD: You know, I don’t think we can speculate on that. Mark Fiend (SPELLING??) did a tremendous amount of work to get ready for this interim analysis. David, as he said he had to do a tremendous amount of cleaning of the database to get it ready for the IDMC. So I think it is difficult for us to speculate at this time how long it is going to take. We are going to do it as rapidly as possible.

MILLER: You wouldn’t have to repeat this (scrubbing the data) on at least any of the the patients that have died already, alright?

FROHLICH: That is correct.

MILLER: OK, so you theoretically have fewer patients?

OK I guess maybe not… to answer my own questions here.

Are you going to meet with the FDA with these data?

GOLD: This data has already been discussed with the FDA

MILLER: OK…and anything you can characterize from their comments on it?

GOLD: No, I don’t think there is anything meaningful for us to disclose other than the fact that we are encouraged by the data and we did not meet the pre-specified criteria for us to be able to amend our application on it so we look forward to the final data.

MITCHELL GOLD final remarks (26:06 mark)

GOLD: We look forward to the final results of the IMPACT study in the middle of next year. In the meantime, we’ll continue to update you on our latest phase 2 trials of Provenge and the other products in our pipeline that we are excited about. Thanks again for participating in today’s call and have a great day.

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The accompanying interim IMPACT study results press release from Dendreon can be seen here:

investor.dendreon.com/releasedetail.cfm?ReleaseID=338495

The design of the IMPACT study can be seen below:

www.clinicaltrials.gov/ct2/show/NCT00065442?term=dendreon+provenge&rank=1

Copious amounts of information and data from Dendreon’s two previous phase 3 studies, d9901 and d9902a, can be seen below:

www.fda.gov/ohrms/dockets/ac/07/briefing/2007-4291B1-00-index.htm

For the Week starting May 26 and ending May 29:

The Nasdaq Biotech Index (NBI) gained 3.7% this week compared to a 0.3% gain the previous week. Since the start of 2009 it is down 4.3%

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us selling out but be our guest and click below