Expert Financial Analysis and Reporting

CMS Approval Removes Investor Concern

CMS issued its final national coverage decision on Provenge yesterday and confirmed the preliminary decision that specifically states that treatment with Provenge is reasonable and necessary. This assures provider reimbursement for Medicare beneficiaries when Provenge is used on-label to treat asymptomatic and minimally symptomatic castrate resistant prostate cancer patients. This means that all 15 local Medicare administrative contractors will continue to pay for Provenge treatment.

Despite the positive preliminary CMS decision earlier this year there were reports circulating as late as yesterday that CMS was not going to approve reimbursement. I think the CMS final decision is a major positive on two fronts. Doctors will now have extreme confidence that if Provenge is prescribed in line with its label, they will be reimbursed by Medicare. Concern about reimbursement for the expensive Provenge had negatively affected prescribing. Private insurance carriers almost always follow the lead of Medicare so that nationwide reimbursement for all appropriate patients will now occur. For investors, this takes away a negative that has been overhanging the sock.

Provenge has also been issued a product specific Q-code which allows for electronic submission of claims and should accelerate payment times for physicians. This is also a positive as it reduces accounts receivable outstanding for doctors.

Manufacturing Approvals are Faster Than Expected

On another positive note, the Los Angeles manufacturing facility has been approved and the Atlanta facility should be approved in late August. This is a little faster than I expected

In terms of manufacturing capacity, by the end of 2Q, 2011 or sometime in 3Q, 2011, the original manufacturing facility in New Jersey should have 48 workstations. This would be four times its capacity at the end of 2010. The Atlanta and Los Angeles facilities will ultimately have 36 workstations. They will be brought on in a staged fashion so that by the end of the year, Dendreon should have 120 workstations in the three plants. This is 10 times as large as the 12 stations in New Jersey that were operational at the end of 2010.

I remain a buyer of Dendreon. I think that the performance of the stock will be directly determined by whether the company meets its sales guidance for 2011 of $350 to $400 million. In 1Q, 2011 Provenge sales were $28.1 million, I am projecting sales as follows: 2Q, $60 million; 3Q, $99 million; and 4Q, $188 million which would result in full year sales of $375 million.

Remain Positive on Stock

I remain a buyer of Dendreon. I think that the performance of the stock will be directly determined by whether the company meets its sales guidance for 2011 of $350 to $400 million. In 1Q, 2011 Provenge sales were $28.1 million, I am projecting sales as follows: 2Q, $60 million; 3Q, $99 million; and 4Q, $188 million which would result in full year sales of $375 million.

Disclosure: The author of this article owns shares of Dendreon at the time this note was written. This should be taken into account as it may introduce bias into the conclusions and interpretations that are made. In reading this note, you acknowledge that you have not used it as the sole basis of your decision making and that all investment decisions are based on your own analysis. An investment in Dendreon carries substantial risk and investors could potentially lose much of their investment. The reader acknowledges that he/she has carefully read the Investment Approach, Terms/Conditions and Disclosures sections in the About Us section of the website. The reader acknowledges that he/she will not hold SmithOnStocks accountable for any investment loss that may be incurred if a decision is made to invest in Dendreon.