Updated with new stock price.
SEATTLE (TheStreet) -- Dendreon (DNDN) shocked investors Wednesday by announcing that Provenge sales are growing much slower than expected because doctors are concerned about getting reimbursed for using the expensive prostate cancer drug.
Some thoughts, observations and questions for Thursday morning after watching Dendreon shares plunge 62% to $13.65 in Wednesday's after-market trading session. On Thursday morning, Dendreon is trading around $14:
"WTF just happened?" Dendreon blames the "cost density" of Provenge for the setback, which is jargon for doctors unwilling (or unable) to shell out $93,000 for a treatment course of Provenge before receiving reimbursement from their patients' insurance companies.Provenge is certainly not the only high-priced cancer drug, but when prescribing Provenge doctors are on the hook for a lot of money ($93,000) in a relatively short period of time -- let's say one month. [That's the "density" issue.] By contrast, the cost and reimbursement risk of other high-priced cancer drugs -- Roche's Avastin, for example -- is spread out over many months, even longer. For investors, this is a somewhat rough reminder that doctors are business people too. Cash-flow issues affect a doctor's business, which in this case, means doctors are unwilling or hesitant to have a lot of prostate cancer patients on Provenge, Dendreon says. This situation won't change until reimbursement for Provenge improves to the point where doctors have confidence that they can recoup their cash outlays quickly. Take a guess at a revised Provenge sales estimate now because no one, including Dendreon's management team, seems to have a reliable forecast. Visibility into Provenge sales has dropped to near zero, which is a situation that investors hate. Dendreon pulled its 2011 Provenge forecast of $350 million to $400 million and said to expect "modest" growth in the third and fourth quarters. Modest growth? Gee, thanks for being so specific. Provenge sales in the first half of the year totaled $78 million. Dendreon said Wednesday that July sales were $19 million and that August sales were a bit higher. Is 10% quarterly sequential sales growth "modest?" If so, that would imply third-quarter Provenge sales of $55 million. Assume 20% growth in the fourth quarter and you get $65 million in Provenge sales. Add it all up and round to an estimate of $200 million in Provenge sales for 2011. That's just a guess, but one that's well below Wall Street's $370 million consensus estimate for Provenge before Wednesday's shocker.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV