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Dendreon Adds Ammo to Provenge Defense

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Some analysts believe the company's stock is depressed on Medicare, sales worries.

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When a drug maker charges $93,000 to treat one patient, it's going to have some haters.

New analysis suggests that Dendreon's (DNDN) prostate cancer vaccine Provenge may extend life as much as 10 months longer than patients who aren't given the treatment. That's longer than the previously reported median four months of survival benefit shown in company studies.

Since the drug was approved last year, the analysis does little more than add to the debate over cost and benefit of breakthrough treatments. Bulls continue to like Provenge and say Dendreon's stock is undervalued. Meanwhile, that sticker price is going to continue to raise eyebrows.

Despite company research showing that the treatment extends life, the big price tag stirred much discussion last year over how much we spend as a society on life-extending drugs.

"I'd like to think cost doesn't need to come up when it's a slam dunk," H. Gilbert Welch of the Dartmouth Institute for Health Policy and Clinical Practice told the Washington Post last November. "But when it's a close call like this, it certainly has to be a factor."

The folks who decide what medicines Medicare reimburses are reviewing Provenge, a factor that's depressing Dendreon's stock (see Dendreon's Provenge Overhang.) The officials aren't allowed to make a decision based on price. They say they're merely analyzing the benefit of the treatment. In November, a panel of experts advising the bureaucrats on reimbursement recommended the vaccine be covered by the government health plan (see Dendreon Passes Medicare Test.)

Dendreon traded above $55 a share after Provenge was approved for sale in the US last spring but the Medicare review scared off some investors. The stock was little changed at $34 in midday trading Friday. Some analysts predict the shares will rise again to the mid-$50s range or even higher.

The high price of Provenge, the fear that Medicare won't pay for the product, and concerns about manufacturing enough supply are all holding the shares back. Expect the stock to move up dramatically once there's clarity on the government reimbursement and production. A draft decision by the Medicare officials is expected by next month. Provenge is estimated to exceed $1 billion in annual sales.

"The company has continued to hit on most all metrics and delivering on execution of sales in 2011 and toward the goal of blockbuster status into 2012 should push the stock higher this year," RBC Capital Markets analyst Michael Yee says in a note today.


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No positions in stocks mentioned.
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