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Can This Humpty Dumpty Be Put Back Together Again?

By Sean Williams - Oct 24, 2012 at 9:17AM

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This stock just hit a 52-week milestone. Where will it head from here?

Shares of Dendreon (NASDAQ: DNDN) hit a 52-week low on Tuesday. Let's take a look at how it got there and see if cloudy skies are still in the forecast.

How it got there
It has just been one error after another Dendreon, and unfortunately things just keep getting worse for the maker of Provenge, a very pricey late-stage prostate cancer treatment.

Following Provenge's approval, Dendreon was unstoppable. It was widely expected that the treatment's efficacy would power it to success. Oh, how wrong that estimation has been proven. Instead, physicians have been largely unwilling to prescribe the $93,000 treatment due to fear of not being reimbursed, and it's ceding sales to competing drugs Zytiga from Johnson & Johnson (JNJ 1.46%), Jevtana from Sanofi (SNY 5.95%), and a potential blockbuster in the making: Xtandi from Medivation (MDVN) and partner Astellas Pharma, which was also recently given approval from the Food and Drug Administration and is now seeking European approval.

The most recent goof from Dendreon surfaced last week. According to a Reuters report, it has been alleged that Dendreon didn't follow its own pre-specified protocol when running clinical trials for Provenge. The trial was allegedly supposed to note the effect of survival based on age, with 65 as the cutoff. As Dendreon's own clinical trials noted, however, patients were tested up to age 71. It's unknown whether the FDA would yank Provenge's approval for not following its own clinical trial protocols, but it's well within its grounds if it wanted to .

How Dendreon can get its swagger back
For one, it would really help if Dendreon could get Provenge approved in Europe. Clearly, it'll need to face the same pricing challenges that it's faced in the U.S. abroad, but at least it'd be a new revenue stream. Zytiga and Jevtana are already approved in Europe, with Xtandi attempting to gain approval as well. As my Foolish colleague Brian Orelli notes, Dendreon is still in the early stages of getting its manufacturing operations in place in Europe, but it's at least a step in the right direction.

It also wouldn't hurt if more insurers would follow Aetna's (AET) lead. Late last month, Aetna expanded its insurance coverage of Provenge, providing Dendreon shareholders a rare moment of elation. In order to qualify for the coverage, patients must have cancer that hasn't reached the liver and have a life expectancy of greater than six months (not exactly rosy criteria), but it bodes wide implications for insurance coverage of Provenge than previously existed. 

What's next
Now for the $64,000 question: What's next for Dendreon? That question depends on its ability to get its product prescribed by physicians and approved in Europe, all while keeping its costs under control.

Our very own CAPS community gives the company a two-star rating (out of five), with 83.7% of members expecting it to outperform. I figured I was making a savvy call a few months ago by making a CAPScall of outperform on Dendreon, but it has since turned into a real stinker, down 48 points since my selection.

Although I'm down, I don't consider myself out. Dendreon is progressing at a snail's pace, but it is progressing nonetheless. I would expect the company to eventually gain approval in Europe, which should open up an additional stream of revenue. In terms of survival, the benefits are clearly there; however, the recent findings by Reuters could provide a near-term cloud that drags over the stock. Being a shareholder of Dendreon definitely comes with its own unique risks, but I feel the benefits of Provenge will outweigh these risks over the next five years.

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