SEC Probe Into Dendreon Cancer Drug "Conspiracy" Could Put Rumors to Rest

Last Updated Feb 8, 2010 11:15 AM EST

The SEC's Office of the Inspector General will investigate allegations that Dendreon (DNDN) stock was manipulated in an infamous "bear raid" last April.

Dendreon supporters -- who are hoping its prostate cancer drug Provenge will be approved by the FDA in May -- believe that the drug has been unfairly kept off the market due to the influence of FDA panelists with conflicts of interest, and that the company has been the victim of a complicated conspiracy that involves short sellers, CNBC host Jim Cramer and investor Michael Milken.

The OIG promises to publish its results in the next reporting period. Here's the full text of the OIG's statement (see page 106):

The OIG has opened an investigation into complaints from an investor alleging that the SEC failed to investigate instances of market manipulation and other misconduct in connection with the review, and eventual nonapproval, of a developmental drug. The investor also has alleged that the SEC failed to investigate a recent bear raid on the stock of the company that developed the drug, causing a severe plunge in the stock price. The OIG has reviewed several hundred pages of documents, including numerous e-mails and attachments provided by the complainant. The OIG expects to complete its investigation and issue a report of investigation in the next reporting period.
The OIG report offers another opportunity to put to rest rumors that the FDA was hoodwinked into not approving Provenge in 2008.

A major plank of the conspiracy theory concerns the role of Dr. Howard Scher of Memorial Sloan Kettering Cancer Center and Dr. Maha Hussain, a University of Michigan cancer researcher. They both had conflicts of interest when they sat on the FDA panel that initially reviewed Provenge. Scher was an advisor to a company with a competing cancer drug and Hussain's husband owner stock in competing companies.

The panel they sat on voted to approve Provenge, but the FDA ultimately rejected that recommendation and asked Dendreon for more data. (The FDA will give its final judgment in May.)

The conspiracy theorists believe that the FDA was swayed by a "disparaging letter" about Provenge written by Scher to the FDA commissioner, and that coupled with his conflict of interest this maneuvering unfairly kept Provenge off the market -- and doomed many men to die unnecessarily from prostate cancer.

On its face, it does look messy: It's always bad to have people with conflicts of interest in positions of power.

But a closer look reveals that both Scher and Hussain's conflicts were disclosed prior to their sitting on the panel, and Scher's letter contains an entirely reasonable and highly persuasive argument for not approving Provenge at the time -- the company didn't have enough data.

In fact, Dendreon had only presented "secondary endpoint" results, not primary endpoints. In other words, they had cherry-picked their data from two studies in which Provenge failed to meet the primary endpoint goals. Scher's letter begins:

My vote was based on the fact that neither of the two trials presented met their primary endpoint, which renders the significance of results from any subsequent analysis "exploratory" and "hypothesis generating".
Even if you assume that Scher was motivated by a potential financial gain in keeping Provenge off the market, you still can't get past the fact that Dendreon didn't have enough properly generated data to pass muster. What Scher is alleging is either true or false, and easily verifiable regardless of his conflicts.

The conspiracy theorists are hanging their hat on a small redaction in a set of emails the FDA produced for a Freedom of Information Act request. The email chain features a discussion in which Scher discusses whether he should write his Provenge letter. Will this censored material "prove" that Scher was somehow manipulating the FDA against Dendreon?

We don't know. But the OIG now has the power to find out. Its report will hopefully be detailed and candid, and contain at least a summary of the redacted material. This nonsense needs to be put to rest soon.