Expert Financial Analysis and Reporting

CMS may issue on March 31, its draft guidance for the national coverage analysis of Provenge for use in asymptomatic or minimally symptomatic hormone resistant prostate cancer; Along with most investors, I expect that the guidance will recommend coverage of Provenge for patients as described in the label.

It is my belief that the primary intention of CMS is to make sure that Provenge is not prescribed for off label usage. I think that there might be a modest uptick in the stock if this indeed what the draft guidelines indicate. I think that the chances for another outcome are diminishingly small, but not quite zero. In the event of some unexpected and negative decision that imposes some types of restrictions on the use of Provenge, there could be a significant negative impact. The final decision on national coverage will be issued on June 30, 2011.

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 2011. Provenge was approved in the U.S. on April 29, 2010. It recorded sales of $2.7 million in 2Q, 2010; $20.2 million in 3Q and $25.0 million in 4Q bringing full year 2010 sales to $47.9 million dollars. Dendreon is providing guidance for 2011 sales of $350 to $400 million with half of sales occurring in the fourth quarter. Possible quarterly sales trends in 2011 are as follows: 1Q, $28 million; 2Q, $60 million; 3Q, $99 million; and 4Q, $188 million which would result in full year sales of $375 million.

The company remained capacity constrained in 1Q, 2011 so that it is unlikely that sales will be much different from 4Q, 2011 and if the company reports around $25 to $30 million of sales, it will be in line with analyst expectations and the effect on the stock will be minimal. The 2Q, 2011 will be a critical quarter for the stock. If sales are somewhere around my estimate, I think that DNDN’s guidance for 2011 will be given greater credibility and the stock could have a reasonable up move. Going on into the second half of 2011, if DNDN can meet its guidance, the stock should respond very well on the upside.

I am anticipating the approval of JNJ’s abiraterone at any time. There is the potential for competition down the road for some patients between Provenge and abiraterone However, the abiraterone approval has no near term implications for Provenge as the approval will almost certainly be for use in patents who have failed Taxoterre or other chemotherapies. Provenge is indicated for use primarily for patients before they go on chemotherapy. Initially, the drugs will not be competitive, I expect an interim look at data from the trial of abiraterone in the pre-chemotherapy setting in late 2011, but do not expect approval until 2012 at the earliest and more likely 2013. Please refer to my March 21^st report “Comparing Medivation’ and Johnson & Johnson’s Prostate Cancer Drugs” for more details on the clinical trial program for abiraterone.

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.