Dendreon: Anticancer Immunotherapy, Reimbursement, and New Promises

**This is Part I of our special report on the state of immunotherapy in the public markets. This report looks at promising anticancer immunotherapy technologies, and the major issues in bringing these technologies to the general public.

Part I looks at Ground Zero for immunotherapy issues — Dendreon Corporation and its Provenge vaccine — a survey of how logistics related to Cost of Goods Sold (COGS), manufacturing, delivery and reimbursement have threatened an entire sector. This piece looks at Dendreon’s inevitable and unforeseen shortcomings in rolling out Provenge, as well as how the company has rebounded one year after the ‘crash’. This piece also covers how ‘big pharma’ has approached immunotherapy in the wake of the ‘Dendreon flu’.

Stay tuned for Part II, where we identify the emerging public immunotherapy companies with powerful technology, responding to the Dendreon disaster with a tangible plan for impressive and properly forecast revenue.**

Immunotherapy involves little tricks that must be played on the body, precise and measured response that act in a homeostatic concert with one another in order to tell the body to attack certain pathogens and agents.

This process can be utilized to fight cancers, alleviate allergic reactions and even to fight against MS (see: Opexa Therapeutics) as well as Crohn’s Disease or Colitis – utilizing modified bacterial pathogens along with therapies designed to help with the digestive process.

As several pioneering companies have shown us, immunotherapy – once science fiction reserved for Hollywood directors in disaster movies and to fight alien attacks – works. Numerous drugs successful in clinical phase have proven this technology to be tangible, effective, and safe.

Now, the scientific community is exploring yet another baffling question: how can the drug developers make anticancer immunotherapy cost-effective? How can companies work with manufacturers and develop logistics to bring Cost of Goods Sold down? How can companies work with reimbursement agents and physicians to properly forecast sales? How can the healthcare complex make this groundbreaking therapy cost-effective for patients?

Dendreon Corporation (NASDAQ: DNDN) is perhaps the best example of the consequences of prohibitive logistics related to the production of such a complex therapy.  Its Provenge line (Sipuleucel-T) became the first cancer therapy to reach the domestic market – approved by the FDA in April 2010.

The median life extension benefit for Provenge is 4.1 months. The company has reported a 38 percent improvement in 3-year survival (this claim has been challenged, as data may not have been collected at 34 months but rather 20 months), and a 22.5 percent improvement in risk of dying.

Provenge, like other leading immunotherapies (of which our readers point out big pharma’s main projects — more on this below — have not yet displayed the promise of Provenge, yet boast similar pricing),  is very costly.

This is due to the labor and time sensitivity – the therapy carries a one-time cost of $93,000 for three courses of treatment.  On August 4, 2011, Dendreon shares plummeted 67 percent upon the company’s announcement of a over-estimated projected sales, sparked by issues of cost that had frozen a large percentage of the physician population.

Dendreon announced doctors were not confident enough about getting reimbursement – in which physicians would be required to keep a prohibitive line of credit; analysts subsequently cut sales predictions by as much as 50 percent.

Insurance companies will not reimburse on a therapy that has too high of a cost, and cost control with no precedent is one of the most difficult aspects of marketization to predict.

Dendreon announced it had abandoned its forecast for Provenge, a decision estimated to cost the company about $3B. The company’s share value dropped more than 80 percent between July 2011 and July 2012. Dendreon’s announcement also sent shockwaves throughout the sector, starting a “Dendreon flu” that dragged down biotech stock indexes and temporarily demolished the immunotherapy subsector.

Full-year revenue of Provenge reached $214MM in 2011, far short of the company’s original projection of $350MM. In Q12012 the company reported $82MM in sales for Provenge, at a profit margin of an underwhelming 27 percent. A summer 2012 Seeking Alpha story estimated the company would have to reach $340MM in sales (at 40 percent profit margin) to break even. The company is reporting strides in reimbursement as well, and those familiar with the Provenge story estimate that 75 percent of patients have no out-of-pocket expenses.

With the closing of its plant in New Jersey recently, production has shifted to plants in California and Georgia. In a July 31 earnings call the company projected that these two plants alone can produce $1 billion in annual product revenue. Following the close of New Jersey operations, the company expects the cost of goods sold of less than 50 percent, down from 77 percent in Q2-2012 quarter.


Looking at the market as a whole, Dendreon has some very formidable competition and the progress of big pharma represents a steep road to recovery. Alongside competition from drugs such as Xtanti from Medivation (NASDAQ: MDVN) — FDA-approved and marketed as a pre-chemotherapy solution for prostate cancer — and Johnson & Johnson’s (NYSE: JNJ) Zytiga, the space is becoming crowded. Still, the Journal of Clinical Oncology recommends Provenge and Zytiga to be sequenced.

Zytiga is approved for post-chemotherapy applications, and will be reviewed for pre-chemo applications. However, phase 3 trial data for expanded-label use was not unanimously received as positive. Data did not achieve statistical significance for overall survival, one of two primary endpoints. This insightful article highlights the details of the trial outlines.

JNJ estimates over $5,000/cycle, not including blood tests and other adverse events treatments, bringing the estimated cost to over $80,000. Xtandi will cost even more. The drugs are reimbursed as part of Medicare Part D, which suggests patients may find themselves in the ‘donut hole’ at some point in their treatment.

Despite doctors favoring the prescribing of Zytiga in Provenge’s space (off-label), according to Baird, doctors are indicating less Provenge use in favor of Zytiga at a smaller rate than previous quarters.

Subsequent earnings reports demonstrate modest climbs in revenue, however reflect the issues surrounding the decline of the stock – off over 54% YTD: that Provenge represents irreconcilable COGS for a promising, though not life-saving, technology.

Recently, however, the company has shown some life after reporting positive data that Provenge is effective in earlier stages of prostate cancer. This news can perhaps demonstrate that Provenge can in fact curb the killer of 250,000 men a year worldwide, a potentially huge victory for the company and the space. Favorable early-stage disease data will also lead to more confident reimbursement strategies, and with the company’s pledge to dramatically lower production cost we may see some resurgence.

The company also announced in 2011 the implementation of Q-code issuance and uniformed reimbursement procedures for all Medicare payers, which is projected to help sales growth. It is estimated reimbursement time has dropped to between 14 and 28 days.

*Note: This story was updated on October 19 to clarify statements made in previous editions. Special thanks to readers for providing additional information.*

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