Is a treatment that extends life by an average of 4.1 months "reasonable and necessary"?
But the Centers for Medicare & Medicaid Services (CMS) isn't quite sure, yet. The agency has opened an analysis of the coverage of Dendreon's
Dendreon's shares were down as much as 13% today because of the uncertainty the inquiry induces. Coverage of Medicare patients is essential to sales because most men don't get prostate cancer until an advanced age.
That uncertainty isn't going to end anytime soon, either. A proposed decision is expected by March 30, 2011, with a final ruling in June 2011. That's an awfully long time to have long-term sales uncertainty hanging over a company's head.
In the meantime, regional Medicare administrators are able to make their own decisions about coverage. Private insurers Aetna
But once Dendreon gets its additional plants on line, the company needs CMS to be willing to foot the bill for the additional patients. The agency is only supposed to make its decisions based on the medical facts -- the reasonable and necessary quoted above -- but one has to wonder how much Provenge's pricey $93,000 cost has to do with the coverage inquiry. The cost-effectiveness train has left the station.
I'll go on the record and say there's no way CMS turns down Provenge completely. If it did, we'd see a revolt that would make the Greek riots look like an old folk's home. You'd see men with walkers marching on Washington asking for a few more months with their grandkids.
The bigger risk for Dendreon is that CMS limits coverage of Provenge for only certain men; perhaps some retrospective analysis shows that Provenge works best in men with certain characteristics. The agency has investigated changing the coverage of Johnson & Johnson
The news and subsequent drop could make Dendreon a bad news buy, but we won't know for certain for another year. That's an awfully long time to wait.
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Johnson & Johnson is a Motley Fool Income Investor selection, and Motley Fool Options recommended buying calls on the stock. The Fool has a disclosure policy.