Mitchell Gold, the CEO of cancer drugmaker Dendreon (DNDN), sold $34 million of the company's stock prior to announcing in August that he would not be able to meet his revenue guidance for the year, a move that cut the value of DNDN by 67 percent, according to a lawsuit.
The suit was brought by Michael Wendt, a Dendreon investor who, like a lot of people, believed that Dendreon's Provenge would become a blockbuster prostate cancer treatment. At $93,000 per patient, Provenge is one of the most expensive drugs in the U.S.
Gold had previously told investors Dendreon would see revenues of up to $400 million in 2011 because it expected 2,000 patients would be treated with the drug. Most of those patients would be covered by Medicare, which in theory made the drug a lucrative prospect for the company.
In August, however, Gold and his management team admitted that "reimbursement knowledge" among cancer doctors was retarding sales of the drug. (Translation: docs were balking at the $93,000 out-of-pocket cost prior to Medicare reimbursement.) The company dropped its $400 million guidance and said it expected only "modest" sales.
Between Oct. 18, 2010 and July 31, 2011, Gold and other company insiders sold $87 million of DNDN stock in gross proceeds, the suit says. (See a list of the insider sales here.) The CEO, CFO and COO sold $40 million alone, the complaint alleges. Gold sold $33.7 million between April and the end of July, the suit states.
Here's the timeline, per the suit:
- April 29, 2010: COO Hans Bishop told a conference call: "Over the next 12 months, we'll provide Provenge to approximately 2,000 patients."
- June 23, 2010: Gold told investors with "just the 25% [factory] capacity ...even on that low end you are in the range of meeting the 2,000 patients."
- Aug. 3, 2010: On a conference call, Bishop says, "I would like to reiterate our guidance of increasing approximately 2,000 patients over the first 12 months of launch."
- Nov. 3, 2010: When asked about the 2,000 patients by analysts, Gold says "we expect that number to be hit some time mid-year."
- Jan. 7, 2011: Gold reiterated his revenue guidance at up to $400 million for the year.
- March 1, 2011: Bishop says "We are on track with providing PROVENGE to approximately 2,000 patients by the end of July."
- April 29, 2011: Gold sells $20 million in DNDN, in a series of sales netting him $33.7 million in gross proceeds.
- May 2, 2011: The company reiterated its guidance. Bishop told analysts, "We believe we have carefully budgeted our capacity to meet our revenue guidance for 2011 of $350 to $400 million. In addition, we're on track to providing PROVENGE to approximately 2,000 patients by the end of July."
- Aug. 3, 2011: Q2 revenues were just $49.6 million, and the company said "reimbursement knowledge" among doctors was the problem. The $400 million guidance is abandoned.
- Aug. 4, 2011: Shares fell $24.15 or 67.38 percent, to $11.69 per share:
The complaint alleges stock fraud, and implicates $540 million in senior debt the company floated in January 2011. The suit claims Gold and his team must have known earlier than August that Provenge was not on track to treat 2,000 patients, at $93,000 a pop, which would have generated $186 million in revenue.
The problem from management's point of view is that perception is reality. It may have been the case that these were scheduled sales -- the suit doesn't say, and Dendreon has yet to respond. It may also have been the case that Gold et al. were simply being rewarded for the years they spent getting the controversial drug through the FDA approval process.
From a PR point of view, however, that doesn't cut it. Dendreon and Provenge have been the subject of rumor and speculation -- to do with stock manipulation and whether the drug even works -- for a long time. In April, Brad Loncar, an investor with a single share of DNDN and a Twitter account, wrote a scathing review of the company, describing it as a non-transparent nest of undisclosed material information whose insiders sold stock ahead of previous failures to meet their guidance. In other words, management was on notice regarding insider sales and guidance misses.
It's almost as if Gold is trying to make himself look bad.