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Dendreon, Other "Cancer Biotechs" Get Investor Ratings

Team Biotech at the boutique firm of Rodman & Renshaw is picking up coverage today of the highly controversial therapeutic cancer vaccine space. In a 330-page research packet for clients analyst Ren Benjamin provides a nearly 200-page primer on the technology and then individual notes on four therapeutic cancer vaccine companies. He's initiating coverage of three of them with Market Perform ratings: Cell Genesys, Dendreon and Favrille. IDM Pharma gets a Market Outperform designation.

The only pertinent disclosure R & R makes is that it wants to do investment banking for any or all of those companies "following publication of the research report". When analysts pick up coverage of a space or a stock it is often viewed--depending, of course, on the reputation of the firm and the analyst--as recognition or validation of the potential of a company, its pipeline, technology, intellectual property, etc.

Caveat emptor. One of the key points that Benjamin makes at the outset is, "High risk, high reward. Failure is to be expected." That said, he believes that "Cancer vaccines represent a paradigm shift on the horizon." A therapeutic vaccine is different from a preventive vaccine in that it is given after you're diagnosed with cancer to try to power your body's own defenses to kill the bad cells. Benjamin thinks if all goes well the first such vaccine could be approved as early as 2009 and that there could eventually be multi-billion dollar market potential for this class of cancer treatments.

IDM Pharma is a micro-cap with $41 million in market value. But Benjamin says it "represents an undervalued and overlooked company in the oncology space."

Favrille has a market cap more than double that of IDMI, but Benjamin writes that "we believe that shares of Favrille are trading in a fair value range."

He says the same about Cell Genesys but adds that "we believe that Cell Genesys'…therapeutic cancer vaccine can become a first-in-class drug to treat (a certain type of) prostate cancer."

And drumroll, please. Benjamin says that "shares of Dendreon will likely be range bound until critical binary events have passed." DNDN shares, by the way, went up about nine percent in the third quarter. A binary event in small-cap biotech usually involves the release of major clinical trial data or a regulatory decision that can send a stock to the moon or crashing to the ground.

For now, he sees DNDN shares trading in a fair value range but adds, "Although we believe that Provenge (Dendreon's prostate cancer vaccine) is an active cancer vaccine that has the potential to address a large unmet need by prolonging the survival of prostate cancer patients, the final proof of the drug's efficacy remains to be seen."

That proof will come either the middle or second half of next year if or when the interim data are available from the ongoing late-stage clinical trial of Provenge. Or, it might not occur until the full and final results are in two to three years from now. (see my previous blog post)

Overall, Benjamin is telling clients that "the next five years will prove to be very significant for cancer vaccine companies and their shareholders. With an ever-increasing list of clinical trials underway, we believe today's cancer vacine companies have designed 'better mouse traps' and are well positioned to develop therapeutics with outstanding efficacy and safety."

Questions? Comments? Pharma@cnbc.com

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