Dendreon Corp. is a biotechnology company that develops stem cell cancer treatments. The only drug it has released so far is Provenge, the first treatment to build up the immunity in a patient’s own cells to fight cancer. In April 2010, the FDA approved Provenge for treatment of late-stage, metastatic prostate cancer because it prolongs life by about four months. Three courses of the treatment cost $93,000, which physicians must absorb upfront to be reimbursed by Medicare later.
In January 2011, Dendreon said it expected “significant growth” in revenue from Provenge within the year. In the next several months, its executives repeatedly told investors that the Provenge market was growing and had “very high demand” that was exceeding supply and creating substantial waiting lists. Dendreon reported large revenue growth in the first quarter of 2011 over the first quarter of 2010 and projected it would earn $350 million to $400 million for the year.
In reality, physicians were balking at the high cost for a treatment that prolonged life by only 4 months, and Dendreon was not emphasizing that Medicare had put Provenge on its list of treatments it would pay for. Executives knew the company would not achieve the projected revenue and collectively sold about $86 million of their own stock, including $35 million by CEO Mitchell Gold.
In August 2011, Dendreon announced that revenue was well below expectations and that sales of Provenge would have a “more gradual trajectory” because of “reimbursement knowledge.” The stock price fell 67 percent the next day.
Three shareholders filed class actions against Dendreon, Gold, the chief financial officer, and the chief operating officer, alleging fraud and false financial statements in violation of the Exchange Act. The suits were consolidated.
Dendreon agreed to settle for $40 million, with $38 million paid by insurers.
Citation: In re: Dendreon Corp. Class Action Litig., No. 2:11-cv-01291 (W.D. Wash. Mar. 18, 2013).
Plaintiff counsel: AAJ member Steve W. Berman and Karl P. Barth, both of Seattle; Reed R. Kathrein and Peter Borkon, both of Berkeley, Calif.; Kim Miller, New York City; and Lewis Kahn, Madisonville, La.