Dendreon Corporation (DNDN) reported weaker-than-expected second quarter 2011 sales of its potential blockbuster prostate cancer vaccine Provenge. Subsequently, the company withdrew its revenue guidance for the drug, sending its share price down sharply.
Dendreon’s second quarter 2011 loss (including stock-based compensation expense but excluding other special items) of 69 cents per share was a penny narrower than the Zacks Consensus Estimate. Loss was, however, much narrower than the year-ago loss of $1.02 cents per share, as the company recorded minimal Provenge sales in its very first quarter of launch.
Quarterly Details
Total revenue in the reported quarter climbed to $51.4 million (excluding rebates and charge-backs) from $2.8 million in the comparable quarter of 2010. The jump was attributable to the higher Provenge revenue in the current quarter.
Revenues were also up approximately 81% over the sequentially preceding quarter but were below the company’s internal expectations. Revenues also disappointed the Zacks Consensus Estimate of $59 million.
Provenge sales in the months of July and August also belied the company’s expectations. Management surmised that though the physician interest in the vaccine remains solid, its uptake will be slow and gradual.
Despite the much favorable reimbursement environment for Provenge following the final Centers for Medicare and Medicaid Services (CMS) decision and implementation of the Q-code (discussed below), management believes most physicians are still unaware of these developments.
The other problems which are affecting the sales of the vaccine include lack of easy access to Provenge and inability on part of physicians to identify eligible patients for Provenge treatment.
Dendreon is working towards addressing these issues by building confidence in Provenge reimbursement. Moreover, Dendreon is expanding and optimizing its patient assistance programs to ensure that eligible patients have easy access to Provenge. Dendreon will also work to provide doctors with greater education and earlier screening to identify the correct on-label patients.
Accordingly, management withdrew the Provenge revenue guidance ($350–$400 million) for 2011 due to lack of visibility on how long it would take for the doctors to turn more comfortable with positive reimbursement developments. The company now expects modest sequential revenue growth in the remaining quarters of 2011.
The number of centers (where patients can be treated with Provenge) increased from 135 at the end of the first quarter to more than 265 at the end of the second quarter, much above the company expectations of 225 centers. At the end of July, Dendreon had 300 centers infusing Provenge. Dendreon targets to have 500 centers by the end of 2011.
Dendreon’s total operating expenses for the quarter jumped 81% to $123.6 million due to increased manufacturing and commercialization activities for Provenge in the US. The company will have to reduce expenses going forward to cope with lower Provenge sales, including workforce reduction.
Provenge Update
In late June 2011 the CMS agreed to fully reimburse the very expensive Provenge vaccine. The agency issued a final National Coverage Decision (NCD) for Provenge which will require Medicare contractors to cover the use of Provenge for treatment of asymptomatic or minimally symptomatic metastatic castrate resistant (hormone refractory) prostate cancer, consistent with its label.
The agency did not propose to cover off-label use of the vaccine at the national level due to insufficient evidence.
Provenge also has the Q-code, effective from July 1. The Q-code is a product specific code that enables electronic submission of claims, which in turn can expedite payment, thereby facilitating the reimbursement process further.
In June this year Dendreon received clearance from the U.S. Food and Drug Administration (FDA) for its Los Angeles (LA) facility which can now be operational with 36 workstations. Earlier, in March 2011, Dendreon’s New Jersey facility with 48 workstations received FDA clearance. The LA and NJ facilities, geared for manufacturing Provenge, now total 84.
The company is also building additional capacity in Atlanta for which the FDA is expected to give its decision in this month. All the three facilities are thus expected to be manufacturing commercial material by year end.
Our Recommendation
We currently have a Neutral recommendation on Dendreon. The stock carries a Zacks #3 Rank (short-term Hold” rating). Successful commercialization of Provenge is crucial for the financial performance of Dendreon as it can drive the company to profitability. We believe the company’s efforts to expand capacity and CMS’s decision to reimburse Provenge for on-label usage could subsequently spur sales at Dendreon. However, following the second quarter developments our visibility on the performance of Provenge for the next few quarters has become clouded. Moreover, in the long run, we remain concerned about the company’s dependence on Provenge and the lack of a robust pipeline. We believe Dendreon has little to fall back on if Provenge fails to keep its promise. We also remain cautious of the continuous up tick in operating expenses, particularly in the light of weaker-than-expected sales.
Besides, the competitive milieu is intensifying with products currently under development for the treatment of prostate cancer. Johnson and Johnson’s (JNJ) Zytiga (abiraterone acetate) received FDA approval in April 2011 and Medivation’s (MDVN) MDV3100 is in late stage trials. If these products prove to be successful, the prostate cancer market will become more crowded and competitive.
DENDREON CORP (DNDN): Free Stock Analysis Report
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
MEDIVATION INC (MDVN): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment