Putting a Value on Provenge
Updated from 2:07 p.m. EDT
Last week, reader J.D. emailed to ask about Dendreon (DNDN). Specifically, he wanted to know how I came up with a valuation for the company's prostate cancer vaccine Provenge.
"I'd like to learn more about how to value a company's pipeline," he wrote. "I'd like to gain some insight into how you might determine how much a successful drug could actually add to the bottom line."
Great question, J.D., and timely with Dendreon set to go in front of a Food and Drug Administration advisory panel on March 29. Prompted by J.D.'s email, I sat down this week and built a revenue model for Provenge.Based on my conservative assumptions, if Provenge is approved (and that's an "if" still very much up in the air), peak sales in the U.S. could top $1 billion. Based on this Provenge sales forecast, Dendreon would be worth about $27 a share today in my valuation model. Upside to my conservative sales forecast would, naturally, lead to a higher stock price. Now, I'm not teaching J.D. or anyone very much by simply giving you my estimates. So let's walk through the process of building a Provenge revenue model. It's a really helpful skill and one that can be used for any drug or biotech company, in case you don't give a hoot about Dendreon. Before I get started, I want to make one thing perfectly clear. I remain on the fence about Provenge's chances at next week's advisory panel meeting, so please don't construe that this Provenge revenue model has me somehow leaning toward a positive outcome. This revenue forecast, then, is helpful if (pay attention to that little word) Provenge is approved. Let's start with a chart of my first of three Provenge revenue models:
Prostate cancer -- Revenue Model 1
|Newly diagnosed PrC patients||219,000||222,285||225,619||229,004||232,439||235,925|
|% patients with AIPrC||35%||35%||35%||35%||35%||35%|
|Total AIPrC patients||76,650||77,800||78,967||80,151||81,354||82,574|
|% patients choosing immunoTx||65%||68%||70%||72%||75%||75%|
|Eligible Provenge patients||49,823||52,904||55,277||57,709||61,015||61,930|
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