Dendreon Corporation ( DNDN">DNDN) shares went soaring up following the pre-announcement of better-than-forecast fourth quarter 2011 revenue from its sole marketed product, Provenge, a vaccine for prostate cancer. Management announced that Provenge grossed $82.0 million in revenue in the fourth quarter, 25% above the sequentially preceding quarter and in utter contradiction to management’s guidance of only modest revenue growth in the quarter.
For the full year 2011, Dendreon reported Provenge revenue of $228 million. Full year sales of Provenge was, however, well below the company’s original forecast, in a band of $350 million and $400 million, which was withdrawn last year on dismal performance of the vaccine.
Though expensive, Provenge is currently fully reimbursed by the Centers for Medicare and Medicaid Services (CMS), including the costs of infusion of the vaccine. Provenge also has the Q-code, which is a product-specific code that enables electronic submission of claims, which in turn can expedite payment, thereby facilitating the reimbursement process further.
Despite the favorable reimbursement environment for the vaccine, Dendreon faced tough times in 2011 as Provenge sales failed to live up to management’s as well as investors’ expectations. Provenge’s high cost density was alluding physician acceptance of the vaccine. Other problems which were affecting the sales of the vaccine included lack of easy access to Provenge and inability on the part of physicians to identify eligible patients for Provenge treatment.
Things seem to be changing now as awareness gradually improves on the favorable reimbursement environment. The physicians are more comfortable with prescribing Provenge as the average time to payment for physicians has come down to less than 30 days.
Moreover, management pointed out that out of pocket expenses were negligible for almost 75% of the patients on Provenge treatment. The marketing and physician education initiatives undertaken by Dendreon management have also boosted sales.
The impressive preliminary Provenge sales were also driven by more infusion centers coming online. Dendreon reported that the number of centers where patients can be treated with Provenge increased from 425 at the end the third quarter 2011 to 590 centers at the end of 2011. This was beyond management’s expectations to end 2011 with 500 centers. In 2012 too management expects to add 500 new infusion sites.
Dendreon expects to post modest quarter-over-quarter growth in 2012 and believes it has sufficient cash in hand to function this year. It aims to reduce costs in 2012 and also improve its manufacturing efficiency.
Our Recommendation
We currently have a Neutral recommendation on Dendreon. The stock carries a Zacks #3 Rank (Hold rating) in the short run.
The successful commercialization of Provenge is crucial for the financial performance of Dendreon as it can drive the company to profitability. Though we are impressed by Provenge’s encouraging growth in the fourth quarter, we prefer to remain on the sidelines until we get better visibility on whether the improvement in Provenge’s sales is sustainable.
We are also concerned about competition to Provenge from Johnson & Johnson’s ( JNJ) Zytiga which was launched in the second quarter of 2011 and is doing reasonably well. Moreover, Medivation’s pipeline candidate, MDV3100, recently generated impressive data from a pre-specified interim analysis of a late stage study, AFFIRM. MDV3100, if approved, could pose competition to Provenge.
In the long run, we remain concerned about the company’s dependence on Provenge and the lack of a decent pipeline. We believe Dendreon has little to fall back on if Provenge belies expectations. |
