Seeking Alpha
Profile| Send Message| ()  

By Brandon Rowley

A Medicare advisory panel is scheduled to vote tomorrow on whether to accept Dendreon Corporation's (NASDAQ:DNDN) prostate cancer drug, Provenge. The fate of the company - and certainly its stock price - hangs (in the near term) in the balance of this decision. While the panel is supposed to consider only whether Dendreon has produced sufficient evidence proving that Provenge extends patients' lives, many have doubted approval based on the price tag.

The drug, Dendreon's only product, costs a whopping $93,000 for the one month, three dose treatment. Provenge is truly on the cutting edge of cancer medication. It is the first of its kind fighting prostate cancer by training a person's immune system to fight the cancer itself in much the same way the body fights other illnesses. Yet, clinical trials have shown somewhat modest success with the drug extending life by 4 months to a total of 2 years when compared with the control group. It is worth noting, though, that tests were only performed on late-stage cases and may see improved results if and when used in earlier stages. The Medicare approval is absolutely necessary for Dendreon's success as 70% of men eligible for Provenge are covered by the program.

When the drug was initially cleared for sale in the United States on April 29th, shares of DNDN surged to an intraday high of $57.67, up 46% in just two days. Yet worries quickly mounted over the high price and modest results, and with the broader market sell-off, shares collapsed 55% before rebounding in July. Currently at $35.74, the stock still remains 38% off the highs.

According to a Bloomberg survey, shares could rally 60% on an approval from Medicare as Provenge is expected to generate $1.75 billion in 2014 sales. Soros Fund Management, for one, is making a big bet on the company, buying up 1.8 million shares ($75 million) in the third quarter making it a new addition to their portfolio and their 9th largest holding. Apparently they're not worried about approval!

With 192,280 new cases of prostate cancer in the United States in 2009, and with Europe being a market of approximately 1.5 times the size, Provenge has huge room for growth. Since approval Provenge has received 1,000 prescriptions and expansion of facilities in New Jersey, Georgia and California are on track for mid-2011.

Should the Medicare panel approve Provenge tomorrow, shares of DNDN will likely see considerable upside. Without approval, investors will have a tough time supporting the $5.2 billion market capitalization without the clear path to profitability.

Disclosure: No position, subject to change.

Source: Wednesday's Vote Will Determine Dendreon's Fate