On March 10, 2011 a Federal Judge in the Southern District of New York issued a ruling in a case involving Medicare coverage for "off label" drugs that may come to have tremendous importance for cancer treatments, and specifically for Dendreon and its recently FDA-approved, revolutionary treatment for prostate cancer, Provenge. The Judge ruled that Medicare may not deny coverage for FDA-approved drugs which are used "off label" and are considered "medically necessary" by the prescribling doctors, just because the treatments have not been recommended by the treatment Compendia upon which Medicare routinely relies to make "off label" coverage decisions. The judge found it sufficient that the disputed treatments had been reported to be effective in peer-reviewed medical journals--finding that it was not the intent of Congress that Medicare coverage for "off label" drugs be limited to Compendia-listed treatments.
As I reported here earlier in my article Good news for Dendreon's Provenge, the review board for Medicare recently issued a draft coverage decison for Provenge, the company's breakthrough immunotherapy for late stage prostate cancer, that indicated the treatment would in fact be covered by Medicare. This was and is a huge big deal for the company. Provenge is Dendreon's (NASDAQ:DNDN) first FDA-approved product. The company and the investment world are expecting it to be a blockbuster.
The headline news from Medicare was that Provenge will be covered "on label", meaning for the type of prostate cancer for which it was specifically approved--namely late stage prostate cancer that has already come back after intial treatment, and that has spread to other parts of the patient's body. This is by no means a tiny market: In the U.S. alone there are 100,000 men who have this stage of the disease and there are 30,000 new cases each year. Based upon the strict "on label" market, many analysts are projecting multiple billions in revenue for Dendreon in the next year or two.
What I would like to draw attention to here is an aspect of the Medicare decision which received but scant notice in the media and which only received passing comment from the few analysts who noted it. It has the potential to be absolutely gigantic for the company and Provenge. In particular, if the recent Federal District Court ruling is upheld.
In its draft coverage decision, Medicare dealt not only with "on label" coverage, but touched on "off label" as well. The distinction between the two is this: The FDA approves a treatment for the precise sickness in which the treatment was studied in order to gain FDA approval. Thus a treatment for migraine headaches that is approved by the FDA for use in migraine headaches, and is prescribed by a doctor to treat a patient's migraine headache, is being prescribed "on label". Not everyone is aware of it, but the law specifically allows a doctor to prescribe any approved FDA treatment for any reason which the doctor, in the reasonable exercise of his medical judgment, feels is appropriate for the patient. Thus, if a doctor feels that, for example, migraine headache treatment will help a patient who suffers from tension headaches, it is legal and proper for the doc to prescribe it. This would be an example of "off label" use of an FDA-approved treatment.
Doctors, of course, do not regularly prescribe treatments "off label" willy nilly or on a whim. There must usually be a lot of science supporting the decision to do so--as well as real life experience. And the medical world has, of course, adopted procedures to facilitate the orderly handling of "off label" decisions. Publications called Compendia give docs advice and facts and statistics on the efficacy of FDA treatments used "off label".
Here is where we get to an important, little appreciated connection for Provenge and Dendreon: Medicare has set up standards for allowing Compendia to stand in for FDA approval in making coverage decisions for "off label" use of FDA approved drugs. And the recent Medicare decision to cover Provenge did not, as many had expected it would, forbid "off label" coverage for Provenge. Instead, while specifically noting the need to leave the door open for further medical advances to benefit Medicare beneficiaries, they left "off label" coverage decisions to be made by local regional Medicare contractrors on a case-by-case basis.
Why is this important and potentially so big for Dendreon? Because Provenge works by boosting the patient's immune system and giving it the ability to kill cancer cells. Virtually everyone in the medical and cancer research world hopes and expects that when given to men in earlier stage disease, (men with healthier immune sysytems to start with) that its life-extending effects will be even more dramatic. Earlier stage patients are going to be absolutely clamoring to get Provenge from their doctors once the Provenge story has spread wide. And doctors are going to be hard pressed to deny them, because there is so little to lose by doing so. Provenge has almost no side effects--a day or two of flu-like symptoms, while at the same time there is the prospect of dramatic life extension for the patient. Most importantly for investors in Dendreon, over 200,000 men are diagnosed each year with early stage disease in the U.S.--and thus the potential market for early stage Provenge is huge.
And it just so happens that Dendreon already has a Phase three study going on in men with earlier stage disease. While it is not a pivotal registration study designed to obtain FDA approval, there is still the prospect that if it produces good results in delaying the spread of cancer it could lead to a Compendia listing for Provenge for earlier stage disease. This could lead to widespread "off label" prescription--which could lead to a decision by Medicare to cover "off label". Further, should positive results be reported in a peer reviewed journal--as they almost surely would, that alone would require Medicare coverage for "off label" prescriptions of Provenge under the New York Court's recent ruling.
This could speed the movement of Provenge into the treatment of earlier stage disease by YEARS. The earlier stage market is many multiples of that for late stage prostate cancer. Dendreon could be looking at a $10 Billion annual market for Provenge.
Current analyst models are looking only at the late stage market. Nothing is granted to the potential for movement into earlier stage disease. Should that potential pan out, the shares would rightly rocket.
Disclosure: I am long DNDN.