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Dendreon's Stock Plunges on Low Provenge Sales

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The prostate cancer vaccine falls far short of a sales target. Dendreon pulls its 2011 forecast.

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Dendreon's (DNDN) breakthrough prostate cancer treatment Provenge was supposed to be on its way to becoming a blockbuster product. Instead, Dendreon said Wednesday the drug badly missed a sales target for the second quarter, the company withdrew its revenue goal for the year and said it will cut jobs.

Shares of Dendreon fell 63% to $13.25 in pre-market trading Thursday morning.

The US Food and Drug Administration approved Provenge for advanced prostate cancer last year. Initially, the company's sales were held back by manufacturing issues. On Wednesday, the company said some doctors aren't putting their patients on the vaccine because of the cost and fears that they won't be reimbursed by insurers. Analysts expected Dendreon to report Provenge sales of almost $58 million. Instead, the company reported less than $50 million in sales.

Even worse: Dendreon withdrew its forecast of as much as $400 million in sales this year. Instead, the company expects only "modest quarter over quarter revenue growth for the remainder of this year."

CEO Mitchell Gold tried to explain the disappointing sales in a conference call, often repeating key words and phrases, such as: "Cost density," "near-term issues," "shift in the launch trajectory," "new reimbursement paradigm" and "shifting the curve to the right."

But in the end, the fact is that the company is below where it is supposed to be in terms of sales. And when you have to cut jobs and throw out your sales assumptions, things are bad.

Provenge is a revolutionary treatment. A vaccine, it uses the body's immune system to fight cancer and has shown in company studies to extend survival rates. A patient is given three infusions at a cost of $93,000 for the regimen, a price that has raised questions about insurance reimbursement. The infusions are administered over about six weeks, which is what Gold is talking about when he uses the phrase cost density. Doctors have to administer a pricey treatment over a short time. That has some docs worried about getting reimbursed, Gold says. The CEO says he doesn't believe the lower sales are an indication that doctors and patients aren't sold on Provenge's benefits.

Dendreon has defended the price and surely felt exonerated after the government body that runs the Medicare and Medicaid insurance programs confirmed that the vaccine should be covered. (See Dendreon Wins Medicare Ruling)

Yet here is Dendreon telling investors that the drug isn't meeting expectations. While Dendreon was highly successful convincing doctors in academic medical centers about Provenge's benefit, the company has had a tougher time getting community-based urologists to embrace the drug, Gold told analysts and investors on a conference call late Wednesday afternoon.

There were high hopes for Provenge, which some analysts believed would be a multi-billion dollar drug. Now it's not clear whether the drug will reach $200 million in this year (sales are just under $78 million for the first half of the year).

That doesn't bode well for its outlook, says biotech consultant Michael Becker.

"Any product that's introduced commercially and doesn't do well after launch typically does not go on to be a success," Becker says.

Dendreon execs gave little detail about the cost cuts: "The Company expects to reduce expenses, including workforce reductions, to align with its near-term manufacturing requirements."

"These near-term issues are surmountable," Gold said Wednesday. "They may take some time to navigate."

Analysts ratings and price targets are coming down. The bulls suddenly sound pessimistic about the drug's prospects.

"We cannot get past the fact that despite management's depiction of short-term
headwinds, the company will implement workforce reductions -- typically indicative of a longer-term issue," Robert W. Baird analyst Christopher Raymond says in a note Thursday morning. "Altogether, these concerns make us fear that the tempered outlook may indeed be demand-driven."

He lowered his investment opinion to a hold from a buy and slashed his price target to $20 from $56.

Twitter: @brettchase

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No positions in stocks mentioned.
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