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Dendreon Wins Medicare Ruling


Fears that the government health plan wouldn't reimburse for the prostate cancer treatment Provenge weighed on the stock.

A Medicare review of the prostate cancer vaccine Provenge weighed heavily on Dendreon's (DNDN) stock since last summer.

Now that the agency overseeing the government health plan decided that Provenge is worth reimbursing, the stock should start heading higher, analysts say.

"We sensed a high degree of investor anxiety around this event," Robert W. Baird analyst Christopher Raymond says. "As a result, an important overhang has now been removed."

The positive ruling from Centers for Medicare and Medicaid Services late Wednesday afternoon is actually a preliminary decision. A final ruling will be issued by June 30. But the draft was positive, saying Provenge "improves health outcomes for Medicare beneficiaries" with advanced stages of prostate cancer and "is reasonable and necessary for that indication."

Shares of Dendreon rose 4% to $36.95 in pre-market trading. Raymond recommends buying the stock and sets a price target of $56 a share.

Provenge is a vaccine that works by triggering the body's immune system to attack cancer cells. The company's research shows that the vaccine extended the lives of patients with advanced prostate cancer by an average of four months. Priced at $93,000 for a course of treatment, Provenge is expected to become a blockbuster product and Dendreon doesn't have to share revenue with another company because it developed the product without the help of a partner. While other companies are developing treatments -- active immunotherapies -- that work the same way against cancer, Provenge hit the market first. (See Bristol-Myers' Skin Cancer Drug Gets FDA Nod.)

One of the things the Medicare officials will assess between now and June are public comments. The agency is initiation a second comment period following yesterday's initial decision. An earlier comment period produced overwhelming support for Provenge. Of 657 comments submitted to the agency, more than 94% supported Medicare coverage of Provenge.

Dendreon also benefited by winning over a panel of Medicare advisers in November. The panel recommended paying for the treatment. (See Dendreon Passes Medicare Test.)

Medicare reimbursement is critical for such a treatment -- most of the patients would eligible for the government health plan. Private insurers also look to Medicare to determine their own reimbursement policies.

From a broader standpoint, a negative decision would have sent a message to drug and biotech investors that even after companies win approval for sale of promising treatments, insurance coverage will be a serious hurdle.

In the end, the Provenge review "was not a signal of a sweeping change in the reimbursement environment," Leerink Swann analyst Howard Liang says. He also recommends buying Dendreon with a price target of $55.

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