Expert Financial Analysis and Reporting

I spoke with two key opinion prostate cancer opinion leaders about their views on the potential for Dendreon's Provenge.

 

Investment Issues for Dendreon’s Provenge

After some initial enthusiasm that drove the price of Dendreon to $56 on May 3, 2010, investor uncertainty has caused the stock to settle back into the mid to high $30s.A major factor has been a slower than expected sales ramp for the launch that began in May 2010. There is concern that the slow takeoff is because the drug is over-priced at roughly $93,000 per course of therapy and that gaining reimbursement is holding back drug sales. We did some field work with physicians that suggest that price and reimbursement are not substantial negatives. Somewhat surprising to us, physicians point out that Provenge therapy is very profitable to their practice and offers a substantial inducement to use it. One course of Provenge therapy, according to one physician, is as profitable as performing three radical prostatecomies, a staple of urologists’ incomes. Our best judgment is that the slow take off is in large part because Dendreon is currently supply constrained and is doing minimal promotion until they are in a position to supply adequate amounts of the drug.

 

Some investors have been concerned about a potential negative impact on Provenge of Johnson & Johnson’s new chemical castration drug abiraterone (obtained through the acquisition of Cougar) when it comes on the market, which could be as early as 2012. Our field work suggests that Provenge and abiraterone should not be viewed as an either/or choice. Patients are very likely to see both during the course of their disease. However, the drugs can not be used in combination because abiraterone is used in combination with steroids that depress the immune system and blunt the therapeutic effect of Provenge. The consensus view seems to be that Provenge should be used first because it takes longer to be effective and that abiraterone should be used next.

 

We must point out that our sources are somewhat uncertain on what causes the efficacy of Provenge while clearly seeing the value of abiraterone. Patients and doctors are used to seeing a drop in PSA levels as an indication of efficacy for prostate cancer treatment. This does not always occur with Provenge. Some doctors wonder just what Provenge is doing. Abiraterone on the other hand causes a significant drop in PSA. This is a point of unease for me.

 

Provenge is indicated for the approximately 35,000 new cases each year of patients who have failed hormone therapies and for whom their only option is chemotherapies with harsh side effect profiles. I think that the clean side effect profile of Provenge and its efficacy will encourage many, not all, of these patients to try Provenge before chemotherapy. This is an addressable annual market opportunity in the US of $3.3 billion. If Provenge achieves just one-third of this market, it would be a $1 billion drug in the US and I think that this is achievable. Rest of the world potential is about the same as the US or $1 billion plus. Dendreon has, of course, held on to all worldwide rights.

 

Introduction

I recently spoke with two physicians who have experience in prescribing Provenge. This note summarized their views on some issues that are being hotly debated by Wall Street.

 

Issue 1: Because of the high price of Provenge there are questions as to whether physicians will have trouble getting reimbursed. This is a serious concern because physicians or the institutions for which they work first buy Provenge and then seek reimbursement from Medicare or private health insurers. Provenge is priced at $93,000 for the three dose course of therapy. The Provenge price while high is not unprecedented. Avastin can cost up to $100,000 per year; Revlimid comes in at $90,000 and Herceptin at $63,000. Stem cell transplants can cost as much as $250,000.

 

Physician 1 He has treated 11 patients with Provenge and has received payment for 9. Roughly half of the payments were from Medicare and roughly half by private health insurance. Initially he experienced delays with Medicare, but now payments are coming quickly. However, he noted that there are 11 Medicare geographic areas and each has a different overseer so that he could not speak about experience in other regions. His Medicare region pays $26,000 per infusion, which compares to the listed price of $31,000 per infusion. On the private side, he noted that Blue Cross is usually a lousy payor, but he was surprised at how quickly and easily that they paid for Provenge.

 

Physician 2 When a patient is approved for therapy, Dendreon representatives immediately contact the payor and help their institution in the reimbursement process.

 

Issue 2: There are concerns that the uptake of Provenge has been slower than expected.

 

Physician 1 He has no waiting list of patients. He said that Dendreon is not marketing the drug to him and other physicians in his institution and that he has seen no advertisements that might alert potential patients that Provenge is available. He speculated that Dendreon is purposely not marketing the drug to doctors and patients. They are supply constrained and don’t want 10,000 (his words) patients clamoring for Provenge when they can’t supply the drug.

 

Physician 2 The CMS review of Provenge on November 17, 2010 caused some confusion and may have slowed uptake.

 

Issue 3: When do physicians begin to use Provenge?

 

Physician 2 He is using Provenge according to the label in patients who have progressed after first line hormone therapy has failed. These patients need to be off their previous drug for 4 to 5 months before Provenge is started.

 

Physician 2 Provenge is considered a standard of care in their hospital for hormone refractory prostate cancer.

 

Physician 1 Patients treated with Provenge have to be asymptomatic. It is difficult to determine when Provenge should be started.

 

Issue 4: What are some of the issues in using Provenge?

 

Physician 1 A problem with Provenge is that the physician and patient can’t assess clinical benefit. There is generally no shrinkage in tumor size detected with CT scans and usually there is no change in PSA levels. It is hard to persuade a patient that Provenge will have benefit when there is no effect on measurable disease. Prostate cancer patients are particularly attentive to changes in their PSA levels. They want and expect PSA levels to drop after therapy begins.

 

Physician 1 The Provenge trial was small for a cancer trial as there were only 512 patients and with 2:1 randomization only about 340 patients received the drug. He would have expected and would like to have seen 1100 to 1500 patients. The paucity of data is a concern.

 

Physician 2 About 20% of the eligible patients in his practice decided not to go with Provenge. Most of these patients have had the disease for 10 years and are highly knowledgeable about therapy. They want to see PSA going down. Some patients freak if PSA goes up. He would like to use Provenge earlier in the disease but it can’t be given if the patient is on prednisone.

 

Physician 2 No one knows how Provenge works and what is in the bag of cells that makes up a dose.

 

Physician 2 The Medicare CMS review termed Provenge as having moderate efficacy with just four months median survival benefit and also noted that it has a limited effect on measurable disease. He has some hesitancy in using such a costly drug for such a modest effect.

 

Physician 1 The bottom line is that a doctor can make $5,000 in fees just by hanging three bags of cells and infusing them. There is a powerful economic incentive to put patients on Provenge. He wouldn’t stand in the way of a patient who wants to take Provenge.

 

Physician 1 A key issue is what you do with a patient if PSA is unchanged or higher after a month or so.

 

Issue 5: What kind of a competitive threat is Johnson & Johnson’s new drug abiraterone?

 

Physician 1 He feels that Provenge and abiraterone should not be viewed as an either/or choice. Both can be given to a patient over a course of therapy. However, the drugs can not be used in combination because abiraterone is used in combination with steroids that depress the immune system and blunt the therapeutic effect of Provenge. The consensus view among his peers seems to be that Provenge should be used first because it takes longer to be effective and that abiraterone should be used later on.

 

Physician 2 Abiraterone is ketaconazole with tailpipes. Ketoconazole is widely used off label but is toxic and makes patients feel awful. Abiraterone is an oral drug that was developed at Royal Marsden. Biologically, it works upstream of the production of testosterone. Abiraterone showed real improvement in patients who had failed ketoconazole and chemotherapy. It will replace ketoconazole. However, it will be expensive. That will hinder it from being moved up before chemotherapy. It is speculated that it could cost $5,000 per month. Because it must be taken for three years, the total cost would be about $180,000. Provenge is only given for one year at a cost of $93,000.

 

Physician 1 If abiraterone demonstrates a five months survival advantage over placebo in an ongoing phase III trial, it could possibly receive a quick review and reach the market in late 2011.

 

Physician 2 Many doctors would probably use Provenge first and then proceed to abiraterone. Provenge can’t be used with prednisone. Provenge requires sitting three hours at an infusion site while abiraterone is just popping a pill.

 

Physician 1 Provenge versus abiraterone decisions may be influenced by financial concerns. Doctors don’t get paid for prescribing a pill like abiraterone. With Provenge, Medicare pays for the ASP plus 6% so that the doctor is making about $1,560 for each infusion and also gets paid for his time so that he can make over $5,000 for a course of Provenge therapy. For an urologist, this is the same economic return as doing three radical prostatectomies. The average urologist is working harder every day and is making less money; this is a powerful economic incentive.

 

Issue 6 Many investigators believe that Provenge will be more effective in earlier stages of cancer rather than in the late stage clinical setting that it is initially approved for.

 

Physician 1 It is reasonable to hypothesize that Provenge might be more effective in earlier stages of prostate cancer, but there is just no data.

 

Physician 2 Denderon is conducting a trial of Provenge in the post-prostatectomy setting. The endpoint is time to bone metastases. There are 130 patients randomized 2:1. The natural history of patients with prostate cancer is very long and hard to follow making survival a lengthy endpoint to reach. The FDA will consider measures of the effect on metastatic disease as an endpoint.

 

Issue 7 Medivation is developing MDV 3100 as a potential drug for testosterone ablation.

 

Physician 2 MDV 3100 is a souped up version of Casodex. Extraordinary declines have been seen in PSA levels during phase I. In phase III, there were extraordinary declines in PSA and tumor volume at her institution, which is participating. MDV 3100 may be targeted against all stages of prostate cancer. It has minimal side effects. Medivation will try to position the drug directly against Casodex.

 

Issue 8 How will Bavarian Nordic’s therapeutic cancer vaccine PROSTVAC, which is about to enter phase III, compare to Provenge in prostate cancer?

 

Physician 1 PROSTVAC was developed by Therion Biologics and the National Cancer Institute. Bavarian Nordic picked up PROSTVAC when Therion went bankrupt; it is delivered by a pox virus. It probably stimulates the immune system better and faster than Provenge and then uses booster shots to further enhance immune response. It will be in phase III shortly. As with Provenge, there is no tumor shrinkage effect. Phase II results suggest an 8 month survival advantage. The drug has been hanging around for awhile. Prior to the latest phase II trial, no benefits were seen in 300 patients treated.

 

 

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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.

 

 

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