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What Dendreon Can Learn From Robots


If Intuitive Surgical can get urologists to front millions of dollars for robots to perform surgeries, why can't Dendreon convince them to float $93,000 for a month of Provenge?


My firm has been covering Dendreon (DNDN) for most of the last decade. When the company splashed posters at the May 2011 American Urological Association meeting telling urologists Provenge was "Now Available Nationally Without Supply Restrictions," we started asking questions. Why? Because at that point Wall Street still believed Provenge sales were limited solely by manufacturing capacity, and would be until late in 2011.

What we learned from talking to urologists was that Provenge is what my firm termed "uniquely expensive". I've already explored how the cancer drug is not more expensive than comparable treatments, so this was a surprise to me.

What was even more surprising was that while urologists agreed that Provenge wasn't expensive compared to other therapies, they still complained about the effect of prescribing it on practice cash flows. My firm expected urologists to fall all over themselves to prescribe Provenge because of the significant revenue source it provides ($5,800 per patient, the single biggest potential profit center in their practices). Now we were hearing of a barrier to adoption.

What we called "uniquely expensive" back in May, Dendreon has since called "cost density" and blamed it for their inability to forecast future sales, an announcement erasing billions from its market cap. While this issue (plus news of NCCN guidelines allowing for use of competitor Zytiga in pre-chemo patients) led us to recommend August puts as insurance to our clients, I have to be honest and say I am still surprised the impact was this bad, this fast.

Learning From Robots to Fix the Problem

In 2000, Intuitive Surgical (ISRG) received FDA approval for using robots to perform surgery. In May 2001, they received clearance from the FDA for using robots to perform laparoscopic prostatectomy -- prostatectomy being the primary treatment modality for newly-diagnosed prostate cancer. In 2004 and 2005, major studies were published claiming better outcomes for patients undergoing prostatectomy by robot versus by hand. And while the issue of robot versus 'manual' surgery remains a hotly-debated topic at urology meetings, ISRG has seen the benefits.

Click to enlarge

Until the last couple of years, ISRG's revenue and machine placement growth has largely come from urologists. This despite price tags exceeding a million dollars for the initial machine and hundreds of thousands of dollars per year in service agreement and consumable costs.

This begs the question: If ISRG can convince urologists to shell out millions for the hardware and hundreds of thousands of year for ongoing costs, why can't Dendreon convince docs to float $93,000 for a month until Medicare pays them back?

This is what Dendreon can learn from robots.

ISRG methodically created an arms race amongst urologists. The company mounted a relentless sales effort regarding how their robots could perform prostatectomies with fewer side effects. Crucially, ISRG backed this sales push with direct-to-consumer efforts telling men they'd have fewer sexual and other side effects. You also shouldn't underestimate the "cool" factor of being operated on by a robot.

This combination of push and pull advertising worked. ISRG convinced urologists they would lose business if they did not offer robotic surgery. ISRG's direct to patient advertising caused a rise in the demand for robotic surgery. This reinforced the sales message to urologists and started a robotic arms race in the field.

You don't just need the graphs above to tell how well this worked. Data published in the journal Cancer in May this year shows the effect on urology practices. Where urologists couldn't afford the infrastructure themselves, they grouped up with other urologists to form larger practices that could afford the robots. Alternately, they worked with local hospitals to fund robot purchases on a co-op basis. Whichever path was taken, the outcomes are clear -- urologists bought into ISRG's central argument: "If you don't offer robotics, your patients will go somewhere else."

Dendreon needs to copy ISRG's playbook. Dendreon needs to create a Provenge Arms Race.

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