latest quarterly disaster is a reminder that groundbreaking medicine doesn't necessarily translate into a successful or profitable business.
More and more, Dendreon is looking like
, the once high-flying HIV drug company that unraveled because its novel HIV drug was too costly to make and too difficult to sell.
Provenge sales rose 30% to $64 million in the September quarter over June but Dendreon's expenses grew even more, most notable in a horrific 10% gross margin.
Gross margin in the second quarter was 42%.
The unexpected rise in Provenge's cost of goods coupled with management's admission that sales of the prostate cancer therapy will slow down for the rest of the year sent Dendreon shares tumbling 23% to $8.10 Thursday's pre-market session.
Dendreon will not survive long with a 10% gross margin, or as cancer consultant Michael Becker of MD Becker Partners
: "Dear Dendreon -- 'We lose a dollar on every sale but make it up on volume' is not a viable business model."
Provenge is a real scientific breakthrough -- a first-of-its-kind cancer "vaccine" that trains a patient's immune system to seek out and destroy tumor cells. But the high fixed costs and complex logistics required to manufacture and deliver the personalized therapy is proving to be Dendreon's undoing.
The company still insists it can reach cash-flow break even at $500 million in U.S. Provenge sales, but when that happens and whether Dendreon can ever achieve profit margins investors expect from drug makers isn't clear. The poor third-quarter financial picture doesn't inspire confidence.
Stepping back from the numbers, perhaps Dendreon's larger problem is that Provenge is already being eclipsed by other more promising prostate cancer therapies. When Provenge was being developed, drugs that extended the lives of patients with advanced prostate cancer were rare. Now, doctors have a growing menu of life-extending drugs to choose from, including
Johnson & Johnson's
Looking ahead, the buzz in prostate cancer is about
cabozantinib, all still experimental but which also have the potential to dramatically extend prostate cancer survival.
Provenge might already be approaching irrelevancy in a crowded prostate cancer treatment market, weighed down by complex logistics, a hefty $93,000 price tag and the lack of a biomarker to measure efficacy.
Which is why Dendreon today reminds me of my days covering Trimeris earlier this decade. Trimeris' HIV drug Fuzeon was a scientific breakthrough, the first HIV drug developed and approved that prevented the virus from infecting T cells.
Unfortunately, great science made for a lousy business. Fuzeon required patients to inject the drug twice a day -- a major inconvenience in a HIV treatment market dominated by pills. On paper, Fuzeon was a highly effective HIV drug. In the real world, few doctors and patients wanted to use it because competing pills were just as potent and more convenient. Fuzeon was also very difficult and expensive to manufacturer, which caused Trimeris and its partner Roche to run into supply issues.
Fuzeon launched in early 2003 amidst investor excitement and analyst forecasts for sales to reach $400 million one year later. That never happened. Fuzeon was a bust commercially, pulling in less than $90 million in sales in 2010. Trimeris never turned Fuzeon into a sustainable, profitable business and the company was recently merged out of existence.
Sounds a lot like Dendreon's problems today.
--Written by Adam Feuerstein in Boston.
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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;
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