Of the four aspects of a SWOT analysis -- strengths, weaknesses, opportunities, and threats -- understanding the threats is often most important. Without knowing what can go wrong, terribly wrong, it's impossible to know whether a company is worth your investment.
Getting it paid for
Proving that a drug works and getting it past the Food and Drug Administration is only half the battle these days. Drugmakers still have to get their drugs paid for.
Private insurers are important, but given the late onset of prostate cancer, getting the Centers for Medicare & Medicaid Services, or CMS, to pay for Provenge is priority number one.
When CMS decided to investigate whether it would pay for the costly, $93,000 treatment, investors were rightfully a little worried. Excluding or reducing the number of Medicare patients that can take Provenge would take a major bite out of Dendreon's revenue.
Fortunately that doesn't seem to be an issue. CMS issued draft guidance yesterday stating that the Provenge was "reasonable and necessary" for patients when used as indicated. Assuming the agency doesn't do a 180 when it issues final guidance after the public comment period, this threat appears to be averted.
Ramping up production
Provenge isn't your typical drug that can be made ahead of time. The treatment is specific for each individual patient. In order to increase revenue, Dendreon had to ramp up the number of workstations it uses to produce the treatment.
Considering the novel nature of Provenge, there was always the possibility that the FDA would be sticklers when signing off on new manufacturing capacity. So far though, that doesn't seem to be a problem. Earlier this month, Dendreon got expanded capacity at its New Jersey approved, which quadrupled the potential output of the facility. The approval should give investors confidence that the FDA will also sign off on new plants in L.A. and Atlanta that are next in the cue.
Up and coming drugs
Herein lies the biggest threat to Provenge.
At the moment, Provenge has little competition. sanofi-aventis
Coming up from behind though, there are a couple of drugs that could give Provenge trouble.
Johnson & Johnson's
There's also OncoGenex Pharmaceuticals
They're threats for sure, but these drugs still need to prove that they can extend survival beyond what Provenge has done before they'll be legitimate issues for the drug.
The wall of worry
While these threats are real, as Dendreon avoids them and investors become more confident, the share price is bound to rise. Considering it topped $55 per share in the post-approval euphoria last year, I don't think it's impossible that we might see that level again if the threats are averted.
Speaking of threats, this just-released video message reveals the real threat to your wealth.
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