Can Dendreon Become the "Next Dendreon"?

Today, Dendreon

CEO John Johnson appeared on CNBC to discuss the company's flagship drug Provenge and its future prospects. Provenge is a revolutionary treatment for prostate cancer that has allowed patients to live up to 4 months longer. Johnson stated that he felt positive about the momentum of the business citing strong earnings last quarter. Investors have voiced concerns over the past few months over the drug's high cost as well as smaller margins than expected. Dendreon previously reported cost density problems related to sales and marketing of Provenge. The drug's hefty upfront cost of $93,000 posed a serious problem to prospective doctors, as they would need to cover the cost upfront while awaiting reimbursement from insurance providers. As a result, many doctors found it difficult to prescribe Provenge given the constraints it could have on their business. While most cancer treatments retail for $6,000 to $7,000 a month on average, the monthly cost could be spread out over time, lessening the burden on doctors' office budgets. Dendreon faces a problem in that Provenge cannot be mass manufactured and must be specially tailored for each patient. Each patient must have a sample of white blood cells extracted, then sent to the production factory where it is incubated to create the vaccine, where it is directed to an incubation center to be infused into the patient. It then creates an immune response to fight off cancer cells. This process is incredibly time and resource intensive, and may restrict Provenge to a small niche of cancer patients. Dendreon faces additional problems in that new prostate cancer therapies have emerged since Provenge was approved by the FDA in 2010. Johnson & Johnson's Zytiga and Sanofi's Jevtana have proven to have similar anticancer profiles, without the complexity or cost. While Dendreon believes that it can break even on Provenge with $500M in annual sales, it does not appear that it will obtain the blockbuster status that investors had originally projected a year and a half ago. There are a few silver linings in the pipeline. Dendreon still owns the full rights to Provenge, and plans on applying for European approval in early 2012. The company also has $500M in cash, roughly equivalent to $3.36 per share. Medicare also announced that it would give full coverage of the drug and issued a Q Code which would allow physicians to claim reimbursement within 30 days. The number of sites approved for Provenge treatment increased from 135 in March 2011 to 680 last September. The company also recorded strong earnings last quarter, as the company posted revenues of $202.10M vs $120.80M Est including a royalty payment. While some investors showed concern that the company's guidance was conservative, a Dendreon analyst stated that the guidance was consistent with previous Dendreon statements. While Dendreon faces major hurdles in Provenge distribution, one cannot argue the fact that the company's revenue from the drug has grown in every quarter since its release. Investors who believe in modest growth potential could snap up some shares if they still believe in Provenge's potential. However, there are still risks in the drug's costs, margins, and potential competitors, so it may be wise to monitor these factors and how they affect Provenge in the coming quarters.