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Dendreon: Parsing Provenge's Problems

That sounds plausible, but Dendreon also blamed its new woes on the inability of doctors to identify patients in their practice who are eligible for Provenge. Often, the company says, doctors don't screen prostate cancer patients until it's too late and their prostate cancer has advanced to the point where using Provenge becomes impractical or more difficult to justify reimbursement.

OK, but spun another way Dendreon's explanation could easily be construed as doctors being skeptical about Provenge's efficacy and survival benefit claims, thereby not bothering to push Provenge to patients even if they're eligible. Or patients, even when presented with the option of Provenge treatment (and told about the high cost) are saying "No, thanks."

Expect the debate about Provenge reimbursement issues versus patient demand to continue in the absence of real numbers from Dendreon.

ISI's Schoenebaum emailed clients Wednesday night the following on Provenge patient demand:

"This is actually the single most important question as it relates to the stock, of course. My basic view at this point is that the revenue miss and guidance revision reflected BOTH demand related problems and logistical/perceptual reimbursement issues. We have all spoken to doctors that have worried about reimbursement. However, we've also all spoken to doctors that just aren't all that enthusiastic about the clinical profile of Provenge. In addition, the company did say on its call that doctors aren't identifying many patients in their practices that are, indeed, eligible for Provenge. Given that the labeled patient population is easy to identify, we viewed this as an (unintentional?) admission by the company that there is a demand problem. And therein lies the greatest risk to our new model: Even though we now model what seems to be very modest growth (only about $1M/month), what if that just doesn't happen?? We'll have to keep a close eye on this, but admit that we know of no reliable way to monitor real time Provenge demand. [Emphasis his.]

Bristol-Myers Squibb (BMY - Get Report) and Johnson & Johnson (JNJ - Get Report) have both launched high-priced cancer drugs recently without the reimbursement issues claimed by Dendreon. Just sayin...

Kudos to two analysts who, in different ways, warned investors in advance about the risks in Dendreon:

David Miller of the Biotech Stock Research newsletter is known -- deservedly so -- as the Dendreon axe. He's also a major bull on the stock, except that he's been writing about the risks of reimbursement and "cost density" of Provenge since May. Spot on, David!

Citibank's Lucy Lu, mentioned above, came about her cautious stance on Dendreon based on data suggesting that there are far fewer Provenge-eligible patients than Wall Street was modeling. Dendreon's management validated her concerns in some of their comments Wednesday night. Well done, Lucy!

Will Dendreon have to raise money? The company is cutting costs and laying off employees but will likely still have to raise money unless it decides to seek a partner for Provenge in Europe. Dendreon was asked about partnering on the conference call and didn't reject the possibility.

Dendreon executives, most notably CEO Mitch Gold, sold a lot of Dendreon stock in July, right around the time that Provenge's reimbursement issues were coming into their view. To be fair, many of the insider stock sales were pre-scheduled, but still, the optics aren't pretty.

--Written by Adam Feuerstein in Boston.

>To contact the writer of this article, click here: Adam Feuerstein.

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>To submit a news tip, send an email to:
Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.
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