This year will go down as the year that investors figured out that drug launches matter. They were important before this year, but the amount of skepticism has reached gargantuan proportions.
We can thank Dendreon
The year started out with Dendreon not able to meet demand. The company got its prostate cancer treatment, Provenge, approved in early 2010 but wasn't able to keep up with demand. The company sold just $48 million worth of Provenge in the fourth quarter of last year.
Provenge is produced specifically for individual patients. Immune cells are taken from the patient, primed to attack the tumor, and then infused back into the patient. Until additional workstations came on line, Dendreon was limited to the workstations it had built before the approval to support the clinical trials.
Expansion of the original manufacturing plant in New Jersey was approved in March. Considering the special way Provenge is made, an approval wasn't guaranteed; getting the FDA to sign off seemed to decrease the risk.
A new plant came on line in June with another scheduled for approval at the end of August. The company seemed well on its way to meeting its 2010 sales guidance of between $350 million and $400 million, with approximately half expected in the fourth quarter.
But this isn't the feel-good story of Vertex Pharmaceuticals'
In August, Dendreon pulled its sales guidance after a disappointing second quarter made the company realize that demand wasn't keeping pace with the new manufacturing availability.
The company blames the slower ramp on its underestimation of the ability of doctors to front the cash to buy Provenge and then bill insurance companies or Medicare. The "buy and bill" model isn't specific to Provenge; any drug administered by a doctor -- such as Regeneron Pharmaceuticals'
What's different about Provenge is that the three doses of the drug are delivered just two weeks apart. The patient gets the entire $93,000 treatment in a month. Many drugs have price tags that high or higher -- Bristol-Myers Squibb's
Initially, doctors at academic institutions were the ones prescribing Provenge. Fronting the money wasn't causing major issues because those institutions have large cash flows. But as Dendreon expanded into community doctors, it ran into problems. Smaller offices may be willing to try Provenge on one or two patients, but they're not going to front the cash on a boatload of them until they're sure they'll be reimbursed in a timely fashion.
At least that's how the company tells it
The price density issue seems like a reasonable explanation for the missed guidance, but it's also possible that doctors just don't think Provenge is worth prescribing. Provenge's only real competition is Sanofi's Taxotere, if you can call it that. Provenge has fewer side effects and seems to be helping prostate cancer patients live longer than those taking Taxotere.
The big issue is whether new treatments -- Sanofi's Jevtana and Johnson & Johnson's
Check back later in the month when we'll look at what's in store for Dendreon next year. You can get a little reminder by adding Dendreon to the Fool's My Watchlist service. And don't miss out on our special free report "The Motley Fool's Top Stock for 2012." Our analysts strongly believe one company is poised for such monster returns; they boldly named it our top pick for next year. Hint: It's not Dendreon.
Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson and Dendreon. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson and Vertex Pharmaceuticals; and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.