Dendreon Doubles Up

It's not often you see a company post revenue that's more than 30% lower than analysts' guesses, but still trade 17% higher the following day.

But then, every company isn't Dendreon (Nasdaq: DNDN).

The two months of sales during the quarter didn't really matter, compared to the slope of the revenue growth:

Source: Company release.

Dendreon may be new to posting sales, but it knows how to keep investors happy. Shareholders would have been very pessimistic without the July number, which wouldn't normally be announced in a second-quarter earnings release. With it, they're rightfully giddy.

Unfortunately, there may be only one more double possible for the immediate future. Dendreon's plant was working at full capacity for two weeks in July, although there was also 10 days that month in which the plant was shut down to facilitate its expansion. Call that about $10 million per month of Provenge that Dendreon can produce until further plant expansions come online early next year.

And there's no doubt that the company should be able to work at full capacity. Dendreon has treated around 86 patients so far, but has received prescriptions for more than 500 patients already. And that doesn't even include any patients on waiting lists at the 50 sites that are set up to prescribe Provenge.

The risk of doctors shunning Provenge in favor of sanofi-aventis' (NYSE: SNY) Taxatore has all but vanished, at least for the early adopters. But that doesn't mean that Dendreon is riskless, either.

It still has to be sure that people are willing to pay for the $93,000 treatment. Dendreon has secured reimbursement from Aetna (NYSE: AET), Humana (NYSE: HUM), Kaiser, and others, but Medicare will likely be one of the most important payers, given the age of men with prostate cancer.

For now, local Medicare contractors are currently still in charge of establishing reimbursement for Provenge; 14 have issued some form of confirmation that they will cover the treatment, but one has confirmed non-coverage. Ironically, Dendreon doesn't currently have a site in Louisiana, Arkansas, or Mississippi, where coverage has been denied, so it's not losing sales at the moment. But the lack of reimbursement isn't a good sign, either, since the Centers for Medicare & Medicaid Services (CMS) has opened an analysis to determine whether national payment guidelines should be put in place.

The other major risk for Dendreon lies in its manufacturing expansion. The company is guiding for 2,000 patients treated in Provenge's first year on the market, but it simply can't hit that number without the plant expansions coming online in 2011. Having demand that's higher than its supply is better than vice versa, but it puts a lot of pressure on the timing of Dendreon's new capacity.

Any slip-up, and shares will be headed in the opposite direction of today's gains.