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False Dendreon Rumors Spur Market Action

By David Miller Jul 09, 2010 12:40 pm
Investors thought a center that prescribes Provenge was backing out because of a Center for Medicaid Services announcement.

The decision by the Center for Medicaid Services (abbreviated CMS) to conduct a National Coverage Analysis (known as NCA) for Dendreon’s (DNDN) Provenge has spooked investors
. Surprises are par for the course in biotech land, and experienced investors learn to set aside the surprise. When surprises come, experienced investors start digging to see if the direction Wall Street
takes the price is correct or not.

After digging around, my firm has come to the conclusion there's little chance CMS can refuse to cover Provenge according to its FDA-approved label. Congress has been very specific about how cost may not factor into CMS coverage decisions or FDA approval decisions. CMS knows this well, highlighting this fact in its own guidance documents on the NCA process.

That said, only the most naïve would suggest Provenge’s $93,000/patient lifetime cost didn’t have something to do with CMS’s decision. But taking that line of logic to an assumption that CMS won't cover Provenge for the approved label indication requires assumptions not supported by the facts.

Those facts are the topic for another day, however.

I wanted to write today about Thursday’s trading action. Dendreon shares were up significantly with nice volume on the overall macro market rally, overselling on recent news and a rumor that AstraZeneca (AZN) was thinking of bidding $50/share for the company. My firm is on record saying we doubt an acquisition of Dendreon happens before 2012 at the earliest, but we still expect these “Pharma X for Dendreon” rumors to happen regularly.

In the midst of the rally, the Financial Times published an article that derailed the rally. Setting aside for a moment that I’ve never seen such grammatical gymnastics as was contained in this article in a dizzying attempt to keep the myriad of unnamed sources straight, the article made a claim that caught my eye.

First, a bit of background. Any center that prescribes Provenge has to be certified by Dendreon in advance. This certification is part of the FDA-approved process for Provenge. My firm coined a term for these centers, “Provenge Authorized Dealers,” or PADs for short. There are about 50 PADs around the country, though not one in every state.

The Financial Times article claimed either a “source familiar with Dendreon” or a “physician familiar with Dendreon” said one of these PADs backed out “after the CMS announcement.”


This is not true.

After the article appeared, my firm started digging to determine the accuracy of this claim. It rang false for a few reasons:


* Demand for Provenge far outstrips supply with significant waiting lists at every one of the 50 or so PADs that are keeping waiting lists.

*
More than 30 million lives are covered for Provenge by both private insurers and Medicare subcontractors. This number is growing every week and includes the top Medicare subcontractor in the nation.

*
Given number two above, it’s unlikely a PAD that wanted to prescribe Provenge would back out because it couldn’t find someone with insurance coverage
.
My firm’s digging confirmed not a single one of the PADs has pulled out -- due to CMS or any other reason. There were institutions that decided to not become PADs in the early going, but none of them cited the NCA process as a reason.

Launching an oncology product is never easy, but I can confirm this is something Dendreon has been working toward since the very beginning. In my first conversations with the company nearly a decade ago, they described how some of their earliest lab bench successes never made it out of the lab because they believed they would be unable to manufacture and commercialize them. It's no accident Provenge was the first across the finish line of the active immunotherapies.

I should also mention Dendreon has on board top commercialization talent from Bayer (BAY), Roche-Genentech, and others. These individuals launched drugs like Avastin. (I’ll note Avastin went through the same CMS process for off-label uses and achieved added reimbursement indications from CMS despite its “high” cost.)

I fully expect Dendreon bears (and a few greedy bulls looking to add at lower prices) will continue to make hay out of this CMS process via similarly suspect rumors. That’s the nature of the game, unfortunately. If you're interested in this name, follow along in this space over the next little while. See whether you believe this CMS issue is an important risk factor, as the stock price implies, or a significant buying opportunity because Wall Street has it wrong.

http://www.minyanville.com/businessmarkets/articles/dendreon-provenge-medicare-reimbursement-astrazeneca-biotech/7/9/2010/id/29103?camp=syndication&medium=portals&from=yahoo