Pricey Provenge Pumps Up Dendreon

Second time's the charm for Dendreon (Nasdaq: DNDN  ) ; the Food and Drug Administration approved its prostate cancer treatment, Provenge, yesterday.

Earlier this week, I said that shares would probably jump on approval of Provenge simply because there was some chance of a rejection. But I wasn't expecting Dendreon to jump quite that much. Shares closed up more than 26% after the early afternoon announcement, and they're up a further 13% this morning.

Then again, I wasn't expecting the company to charge $93,000 for the three-infusion treatment. That's a steep price for a drug that's only shown to extend lives by an average of 4.1 months.

Cancer drugs have gotten expensive over the past couple of years, but Provenge's sticker price seems awfully high. An article in The New York Times last year pegged the cost of Eli Lilly (NYSE: LLY  ) , Merck KGaA, and Bristol-Myers Squibb's (NYSE: BMY  ) Erbitux at $10,000 per month, which works out to about $50,000 for the average patient. Biogen Idec (Nasdaq: BIIB  ) and Roche's Rituxan costs between $5,000 and $15,000 per month. Novartis' (NYSE: NVS  ) Gleevec runs about $3,600 per month, while Provenge's main competition, sanofi-aventis' (NYSE: SNY  ) Taxotere, costs $4,900 per month.

Dendreon is ready to start selling Provenge right now, but the ramp-up will take time as it builds other plants. In the first year, the company expects to treat 2,000 patients.

So let's do some math: 2,000 patients at $93,000 each is $186 million. At the current market cap, that's a price-to-sales ratio in the mid-30s. Mighty steep, but of course Dendreon will be able to grow sales substantially. For now, Provenge is limited to treating only those with advanced prostate cancer. According to the National Cancer Institute, 27,000 men died from the disease last year.

Dendreon has removed the regulatory risk from its stock, but it's far from risk-free. Selling the drug will be easy -- patients have been awaiting its arrival for three years -- but Dendreon still needs to persuade insurance companies to pay the high price. To support its inflated market cap, Dendreon can't stumble on the manufacturing front either.

Letting your winner run is probably a prudent move at this point, but keep a close eye on Dendreon. It's not out of the woods yet.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Novartis is a Motley Fool Global Gains recommendation. The Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (8)

Comments from our Foolish Readers

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  • Report this Comment On April 30, 2010, at 1:25 PM, TMFKris wrote:

    This situation makes good point about the increasing cost of health care. Should insurance companies refuse to cover an expensive drug that extends life (only) four months? I think that is the kind of decision that has to be made in any serious effort to control costs.

    Kris (TMF copyeditor)

  • Report this Comment On April 30, 2010, at 1:37 PM, CrankyTexan wrote:

    As usual, you guys did minimal research about DNDN. You fail to mention that Provenge extends the lifespan of some patients by years, not months. You fail to mention that doctors will use Provenge off-label for healthier patients. You fail to mention other drugs in DNDN's pipeline.

  • Report this Comment On April 30, 2010, at 1:41 PM, ragedmaximus wrote:

    hey all shorts on dndn all healthcare is expensive and you are all missing the shortside point of view on provenge because if used on early stages of all kinds of cancer the effect may be greater than only late stage prostate cancer so your selling yourself and dndn short because time will tell but i bet dndn are on to something with provenge so i'm up in dnd and want to hold for a few years and the we'll see.

  • Report this Comment On April 30, 2010, at 1:49 PM, fatherknowsbest wrote:

    what they should be tooting their horn about is 33% 3 year survival vs 19% on the placebo arm.

  • Report this Comment On April 30, 2010, at 3:18 PM, pcme2008 wrote:

    $93000 is less than most hospitals WASTE in a day. If this treatment works as it claims it will help millions of men and their families. $ months or 4 years- doesn't matter- I don't think anyone would complain about living longer. I am a candidate for Provenge and will wait until my health care provider will cover it- hopefully!

  • Report this Comment On April 30, 2010, at 4:41 PM, tgauchat wrote:

    @pcme2008: But would you pay for it out of your own pocket if your insurer does not???

  • Report this Comment On April 30, 2010, at 5:02 PM, pcme2008 wrote:

    if i had the money - ABSOLUTELY!

  • Report this Comment On April 30, 2010, at 5:45 PM, pcme2008 wrote:

    if I had the money- absolutely!

  • Report this Comment On May 17, 2010, at 12:10 AM, mjg6233 wrote:

    The real key for this drug is in the future whether it will prevent high risk patients form developing prostate cancer similar to the way Tamoxifen is now used in advanced breast cancer but is also protective of the opposite breast. For this, the price of treatment will need to be lower than $93000

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