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Expert Financial Analysis and Reporting

Physician Survey on Provenge is Encouraging, Upgrading Dendreon to Buy (DNDN, $6.55))


Over the last few months, I have been speaking to physicians and researchers who are using and studying Provenge. Based on my research, I am recommending purchase of Dendreon.

This note summarizes the opinions of the diverse group of people that I listened to and interviewed. I have grouped their comments into four categories: (1) negative comments on Provenge, (2) positive comments on Provenge, (3) other comments on Provenge and (4) comments on Dendreon’s marketing of Provenge.


This note starts with the negative views on Provenge. If you only read this section, you might rush to short the stock. However, as is the case with all new drugs, there is no universality of opinion and there are opposing points of view that are encouraging. It is also apparent that Dendreon made some major marketing blunders when it introduced Provenge which negatively impacted the launch.


Investment View

I have put together this note so that a reader can draw their own conclusions. My view is that this note supports buying Dendreon, but I understand that others might not reach that conclusion. The primary reasons behind my buy recommendation are as follows:

  1. Provenge is at the forefront of a paradigm shift in the way that physicians think about cancer treatments. Cancer vaccines like Provenge, immunomodulators like Yervoy and targeted therapies act differently than chemotherapy in that they do not necessarily produce a quick shrinkage in the tumor or halt its progression even though they are effective. I think that many of the criticisms directed against Provenge and these other drugs are the result of doctor’s being unable to use traditional measures to determine if a drug is working.
  2. I have never seen a drug peak in its first year of marketing barring the emergence of an unforeseen side effect which is not the case with Provenge. Usually, a drug enjoys three to four years of rapid growth following launch. Dendreon made major mistakes in introducing Provenge that hurt the launch. Even so, Provenge with estimated sales of $215 million for 2011 would come in as the second most successful new cancer drug introduction that I am aware of, lagging only Celgene’s Revlimid which had first year sales of $305 million. I think that the marketing mistakes are correctable.
  3. Investors have dismissed the potential of Provenge in Europe. I think that the market potential may be of the same magnitude as the US. I think that a launch is possible in 2013.
  4. Investors are concerned about emerging competitive threats to Provenge, but I do not think that it will be the case that physicians will have to make a choice between using Provenge or Zytiga or MDV3100. In the asymptomatic castrate resistant disease setting in which Provenge is indicated, I think that these drugs will be used in sequence or perhaps in combination and that Provenge will probably be used first. It is likely that most patients at this stage of prostate cancer will receive each of these drugs at some point during their treatment.
  5. There is an economic incentive for physicians to use Provenge that reinforces the clinical value as one course of Provenge therapy produces the same level of reimbursement as two radical prostatectomy surgeries.
  6. Provenge has the advantage of being the first mover in the prostate cancer vaccine space. This provides enormous advantages as much academic and industry research will investigate various ways to use Provenge because it is the only approved prostate cancer vaccine. This will lead to the generation of enormous amounts of data that could expand the role of Provenge in prostate cancer.
  7. The ultimate role of Provenge in treating prostate cancer will take many years to determine. However, it is likely that over time it will be used more widely in other stages of prostate cancer and in combination with other therapies, both of which will expand usage.
  8. I believe that Provenge has been the whipping boy for criticism of pricing of cancer drugs, but it is really priced pretty much in line with other cancer therapies. The concern over pricing as it is specific to Provenge should fade.


There are things that I worry about.

  1. I may be underestimating the concern about high prices of new cancer drugs and this coupled with only moderate efficacy and lack of understanding about how Provenge works might cause physicians to shy away from the drug.
  2. The initial marketing mistakes made by Dendreon may be harder to correct and take longer than I am estimating.
  3. I have just gone over a recent report presented at ASCO 2011from a group led by Solo that suggests that the number of new asymptomatic castrate resistant prostate cancer patients each year is only 4,600, significantly below the 30,000+ that Dendreon indicates to be the market. If this is the case the addressable market for Provenge is only $430 million per year instead of $2.8 billion. However, given the difficulty in making this estimate and given the takeoff of Provenge in its first year even though it has barely penetrated the urology market which is the largest potential market segment, I am inclined to discount the 4,600 estimate of Solo. Others may give it more weight.


If I am right, I think that the Dendreon investment thesis will develop in two phases. The first will be a regaining of confidence that Provenge still has significant growth opportunities and that the shortfall in expectations resulted from naivety on the part of management in setting expectations way too high. I expect this to cause a significant bounce back in stock price over the next half year. The second phase of the stock price movement will be driven by honing in on long term sales and earnings prospects. This phase will begin sometime next year when management, investors and analysts can have enough confidence to put together longer term sales and earnings forecasts. I recently wrote a detailed report on what management is saying that might be useful background information.



Negative Physician Comments on Provenge


1. The 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 is providing a 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.


2. Provenge has a delayed therapeutic effect. How long do I wait until I go on to the next therapy? There are no biomarkers to measure its effectiveness. Do I wait six months to try to determine if the therapy is working and even then not be really sure? This is a major conundrum. I just don’t know where Provenge fits into the continuum of therapy.


3. Patents and physicians want immediate gratification. They want to take a drug and see PSA drop and tumors shrink. This doesn’t happen with Provenge.


4. About 20% of the eligible patients in my practice have decided not to go with Provenge. Most of these patients have had prostate cancer for 10 years and are highly knowledgeable about therapy. They want to see PSA going down. Some patients freak if their PSA goes up.


5. There is a concern that physicians are so turned off by the initial marketing of Provenge and the pending introduction of Zytiga and potentially MDV 3100 in the pre-chemotherapy setting that they might just skip Provenge.


6. The Provenge phase III registration trials were small as there were only 512 patients and with 2:1 randomization only about 340 patients received the drug. I would have expected and would like to have seen 1,100 to 1,500 patients in the trials. The paucity of data is a concern. The positive outcome might have occurred by chance.


7. I don’t understand the mechanism of action of Provenge. It contains other cells than just the activated dendritic cells that Dendreon maintains provide the efficacy of Provenge. It is a gimash of cells and how can I know if the activity of Provenge is dependent on something more than activated dendritic cells? If the effect is dependent on additional cells or chemokines, how can I be sure that each batch of Provenge is equally effective?


8. Provenge is such a complicated product to make that I was surprised to see that it worked in the clinical trials. There are huge quality control issues with obtaining blood and processing it to produce Provenge. There is a lot of packing and unpacking and shipping back and forth that can create problems with quality.


9. I think Provenge will go down the tubes. Because the mechanism of action is unknown, it is dead in the water. We don’t know how to combine it with other drugs.


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


11. 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. I have some hesitancy in using such a costly drug for such a modest effect.


Positive Physician Comments


1. Immunotherapy has crashed into the chemotherapy paradigm that maintains that a cancer drug is only effective if there is improvement in time to disease free progression and tumor shrinkage. A drug not meeting these criteria is viewed as ineffective. Targeted therapies like Sutent and Nexavar have proven this paradigm wrong. It is also being proven wrong by cancer vaccines like Provenge and immunomodulators like Yervoy. Many of the criticisms of Provenge are the result of its not behaving like chemotherapy drugs. Doctors have to be open to new ways of determining effectiveness for the new non-chemotherapy drugs. These drugs are the future and chemotherapy with its highly toxic treatments is the past.


2. I believe that every new patient should first receive Provenge. The unanswered issue is what comes next. How should I sequence Zytiga and MDV 3100 when they become available in the pre-chemotherapy setting? Patients should receive all three drugs-Zytiga, Provenge and MDV 3100- at some point in their disease.


3. Patients like the idea of trying something new like a vaccine. They also like the idea of almost no side effects. I have been asked by some patients to prescribe them Provenge. Demand for Provenge is often driven by patients.


4. Provenge is considered a standard of care in my hospital for hormone refractory prostate cancer.


5. The importance for patients of all of the new drugs now coming into the market is that they will probably be combined synergistically or used in sequence. While each drug on its own may only have a mean survival benefit of 3 to 4 months, in the aggregate the survival may be increased to a year. This is an important benefit for most of these men who will die from prostate cancer in three years or less.


6. I feel that Provenge and Zytiga should not be viewed as an either/or choice. Both can be given to a patient over the course of their disease. However, the drugs should not be used in combination because Zytiga is used in combination with steroids that depress the immune system and blunt the therapeutic effect of Provenge. The consensus view among my peers seems to be that Provenge should be used first because it takes longer to be effective and that Zytiga should be used later on.


7. The first mover advantage of Provenge in the prostate cancer vaccine space is huge. The ultimate role of cancer vaccines is likely to be in combination or in sequence with targeted therapies and chemotherapies. This will require a tremendous amount of research which will be led by academic centers to determine how Provenge can be used sequentially or in combination with other drugs. Because Provenge is available for such clinical investigations, it will be incorporated into many, many trials. New drugs in development will first have to be shown to be efficacious as a single agent and then gain approval before they can be looked at in this manner. In cancer therapy, data is everything and Provenge will have an enormous advantage in time and quantity.


8. Most of the major medical uses for new drugs and the way they are used are determined after the drugs are introduced to the market. Provenge is initially indicated in asymptomatic castrate resistant prostate cancer, but I believe that the real role of Provenge will prove to be at a much earlier stage of the disease, around the time of surgery or even before. The market may be much larger than the asymptomatic castrate resistant patients for which the product is initially indicated.


9. There is now animal data that shows that Provenge and chemotherapy can be used synergistically. There has been a dogma that because many chemotherapies are immunosuppressive that they would knock down the effect of cancer vaccines. However, memory T cells created by Provenge apparently can survive this assault of chemotherapy so that sequential use of chemotherapy and Provenge seems possible. Provenge should probably be used first, but this is still unclear. There is an argument to first use chemotherapy to shrink the tumor as it is believed that Provenge works better in smaller tumors.


10. T-cell memory response can be seen with cancer vaccines that allow the therapy to go on working long after dosing. Chemotherapy and targeted therapy are only effective if the drug has been recently given. Targeted therapies based on monoclonal antibodies circulate for many days, but are eventually eliminated. It is this immune memory that makes cancer vaccines so different and so promising.


11. In mice models, there have been results that show improvement in response when chemotherapy is used after Provenge as compared to Provenge alone. In the phase III trials, the use of Taxoterre after Provenge did not negatively affect survival. This group which was 39% of the population treated in phase III showed a survival of 34.5 months for Provenge followed by Taxoterre. This was better than the control group without Provenge which showed 25.7 months survival.


12. On the margin, Provenge versus Zytiga prescribing decisions may be influenced by financial concerns. Doctors don’t get paid for prescribing a pill like Zytiga. 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 two radical prostatectomies. The average urologist is working harder every day and is making less money; this is a powerful economic incentive.


13. 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. I wouldn’t stand in the way of a patient who wants to take Provenge.


14. I have never seen a drug reach peak sales in the first year of marketing barring some major negative event like a new and dangerous side effect. It usually takes three to four years to get to sales levels at which a drug begins to plateau or grow at modest rates. This suggests good growth through 2015.


15. Provenge has been the whipping boy for perceived high cancer drug prices, but it is not the only cancer drug that costs a great deal of money. Zytiga costs $72,000 per year and the duration of therapy is probably 1 to 3 years so that it can cost up to $216,000 for a course of therapy. Similarly, Revlimid costs $91,000 per year and may be taken as maintenance therapy for several years. Avastin can cost up to $100,000 per year. A bone marrow transplant can cost $250,000. Provenge has been a criticized for a pricing practice that is industry wide so that the pricing concern as it relates to Provenge should wane over time. Provenge costs $93,000 for one and only one course of therapy.


Neutral Physician Comments


1. There has been a lot of discussion about median overall survival for Provenge being only 4.1 months. Some consider this as being meaningless. Why should any individual (payor) spend $93,000 to extend life for 4.1 months? This is an ethical question that can only be answered by the people involved in the decision to prescribe. There are however, important points to be considered. Median survival is only what the median person in the group can expect to live. Some will live longer. Those who respond to Provenge can expect to live much longer. In the phase III trials, there was no separation of the Kaplan Meier curves in the first eight months of Provenge treatment and yet the results were statistically significant. This suggests that a minority of patients experienced very long term, durable benefits.


2. The FDA feels that cancer drug developers should focus on unmet medical needs; these are usually late stage cancer patients. This steers companies away from earlier stage cancers in which there is currently available effective therapy. This means that drugs are developed in very sick populations in which they might have less of a role than in an earlier stage. This may be even more the case in immunotherapy.


3. The most suitable stage for tumor treatment with a cancer vaccine is probably in early stages of the disease when tumor volume is low. However, most clinical trials have been in advanced stages of the disease. This stems from the fact that trials in early stages of cancer when the disease is progressing more slowly may often take five years or more to complete. Few companies or their investors have the luxury of this much time. Hence, trials were often done in advanced cancers hoping to show a dramatic effect in a life threatening stage of the disease so that rapid approval could be obtained.


4. Patients selected for clinical trials are often healthier than those in the broad population. Hence, the efficacy of Provenge in the real world will be less than in clinical trials.


5. Oncologists are not used to Provenge. Urologists haven’t seen anything like it before.


6. Hypothetically, I might use chemotherapy or hormone ablation to reduce tumor bulk before using Provenge as Provenge is likely to be more effective with less tumor bulk.


7. There are no good biomarkers for efficacy of drugs in prostate cancer. PSA is widely watched but it is controversial. Changes in circulating cancer cells have promise, but this biomarker has not been validated in a phase III trial. About the only thing I can depend on are bone scans to give me an idea of the change in tumor burden.


8. We don’t have a molecular marker that will predict which man’s cancer will be lethal.


9. About 50% of prostate cancer caused deaths occur in men over 80. Should we spend so much money to treat patients in the twilight of their life?


10. Cancers may have markedly different antigens from patient to patient and even within an individual patient the antigens may be very different. In addition, they shift over time. The danger for a cancer vaccine is that it targets the wrong antigens or not enough of the antigens. Provenge which only targets one antigen defies this argument.


11. Some tumors progress so rapidly that the immune system cannot produce an immune response in the time needed to slow the tumor so that there is irreversible clinical deterioration or death before the vaccine has a chance to act.


12. Many cancer vaccine trials have relied on the measurement of immune responses and have presumed that patients showing the strongest responses were those most likely to benefit from the cancer vaccine. However, it may be the case that patients who showed the strongest response were those who were the healthiest and not those who were benefiting most from the therapy. By relying on what might be an invalid marker for effective treatment, companies often went down the wrong road in trying to identify those patients who would most benefit from the drug.


13. Dendreon is conducting a trial of Provenge in the post-prostatectomy setting, which has many more patients than the castrate resistant segment of the market in which Provenge is now approved. 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 may need to consider measures such as the one in this trial as an endpoint.


Comments on Dendreon’s Marketing of Provenge


1. Dendreon failed to educate physicians about the uniqueness of Provenge, justify the pricing and explain reimbursement. This is in part because it is more difficult for key opinion leaders to accept honorariums to speak about their experience. Dendreon just wasn’t smart in trying to educate physicians.


2. Dendreon misjudged the reaction of urologists to Provenge. It has actually done quite well in academic centers but the big market is urologists working in the community setting. I would have expected just the opposite. Dendreon didn’t understand the aversion of urologists to the perceived risk of getting reimbursement.


3. Dendreon did a terrible marketing job. Many urologists, unaccustomed to high priced biological therapy, concluded that they would have to write a check for $93,000 for Provenge before they treated their patients and then would face uncertainty on whether they could get reimbursement. In actuality, the current terms offered to doctors almost always results in their being reimbursed for the drug before they are required to pay for it.


4. Dendreon widely discussed that there was a product shortage because of lack on manufacturing capacity. This discouraged some doctors from prescribing Provenge. Who wants to disappoint a patient?


5. Provenge was priced at $93,000 for the three dose course of therapy. This raised concerns among some investors that this could trigger a pushback from government and providers. This concern was heightened by CMS scheduling a meeting on November 17, 2010 to discuss Provenge. Some felt that CMS wanted to reduce pricing or restrict usage of Provenge. In the end, the CMS meeting focused on trying to make sure that Provenge is used only for labeled indications and didn’t get into pricing or ways to limit usage.


6. When CMS jumped into the picture it raised the concern in physicians’ minds that pricing might be reduced and that usage of the product could be limited to a smaller patient population. This could have put them at risk of being denied reimbursement or being reimbursed at a level below acquisition price. This hindered early adoption.


7. Dendreon has put a new marketing team in place. The marketing situation is absolutely salvageable.


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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