Dendreon Corporation (DNDN) awaits a key event at the end of this month, as the Centers for Medicare & Medicaid Services (CMS) is due to declare its final decision on whether it will allow reimbursement for Dendreon‘s potential blockbuster vaccine, Provenge, for the treatment of advanced prostate cancer.
The CMS is a federal agency that administers the Medicare and Medicaid programs, which provide health care coverage to millions of people in the US.
Provenge is currently reimbursed by all 15 local Medicare contractors. Additionally, Aetna, Emblem Health, Humana, Kaiser and several of the large Blues plans have approved coverage of Provenge.
In March this year, the CMS issued a draft guidance memo proposing to pay for Provenge. The agency believes there is enough evidence to justify the use of Provenge for the treatment of advanced prostate cancer. The agency did not propose to cover off-label use of the vaccine at the national level due to insufficient evidence. We expect CMS’ final decision to replicate the guidance memo.
Last year, the CMS Medicare Evidence Development & Coverage Advisory Committee (MEDCAC) reviewed the safety and efficacy of Provenge use, both labeled and unlabelled, on health outcomes of patients with advanced prostrate cancer. The panel supported reimbursement for on-label use only. The MEDCAC demonstrated a high level of confidence in the survival benefit of Provenge.
We believe the positive panel recommendation and the proposed decision memo could lead to Medicare reimbursement in 2011. Reimbursement of the vaccine by Medicare is crucial for the commercial success of Provenge as it is primarily meant for men older than 60 who are dependent on Medicare for their treatment.
Another action that will benefit the reimbursement process of Provenge is the expected issuance of a product specific Q-code for Provenge, effective from July 1, 2011. The Q-code will enable electronic submission of claims, which can expedite payment, thereby facilitating the reimbursement process further.
Our Recommendation
Currently, we have a Neutral stance on Dendreon. The stock carries a Zacks #3 Rank (short-term Hold recommendation).
We believe that the launch of Provenge has been impressive. Successful commercialization of Provenge is crucial for the financial performance of Dendreon as it can drive Dendreon to profitability. We are encouraged by the company’s efforts to expand capacity and CMS’ proposed decision to reimburse Provenge for on-label usage, which could subsequently spur sales at Dendreon. However, 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.
Moreover, Dendreon’s peers are developing products for 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 are successful, the prostate cancer market will become more crowded and competitive.
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