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Dendreon (NASDAQ:DNDN) has made a lot of news over the last few years, with its Provenge prostate cancer therapy. This is the immunological "cancer vaccine" treatment that had such a wild ride through the FDA (and gave DNDN and its investors such a wild ride in the stock market, including some weirdness that I'm not sure ever was explained).

Well, the company is back in the news, and not in a good way. It has been selling Provenge for a while now, but has experienced all kinds of manufacturing woes (as you might expect from something as complex as personalized immunology). But they company has apparently been working through all that, so investors were very much anticipating the company's earnings report yesterday. Unfortunately, they got one.

The company missed all the earnings forecast by an ugly margin, which has really caught everyone by surprise. Even worse is that the reason for the miss is reimbursement. Health insurance companies, in other words, are balking at paying Dendreon's price. And you know, they have a right to. The tug-of-war between drug companies and insurance is the closest thing we have to a free market in the whole drug business, and we might as well get whatever benefits from it we can.

You can fill in the arguing points: "I'm a prostate cancer patient, and I want to be treated with Provenge" "Fine, but as your insurance carrier, I'm telling you that it's too expensive for what it does. We're not paying for it - if you want it, buy some yourself." "But I can't - you know that - and should my own health be held hostage to how much I can afford to pay?" "Should we be held hostage to how much you want us to spend on you?" "Fine, let's get the government involved - don't I have a right to health care?" "Not seeing that in so many words in the Constitution - but even so, would it give you the right to the most expensive health care there is? Who pays for that? If you want to get the government involved, make them whack the company until they lower their price." And so on.

No, this is what bending the infamous cost curve really looks like. If a company finally prices its products over what the market will bear (and remember, the market in this case is made up of insurance providers), its sales will fall, and it'll either have to persuade its customers that the price is worth it, or it'll have to find a way to offer its product more cheaply (most likely by accepting lower profits). No one wants to give in, no one's particularly happy. But it's probably the only way to arrive at something approaching a right answer.

Update: There's also a theory on Wall Street that the real problem is that demand for Provenge isn't strong enough, and that the company is spinning this as a reimbursement problem. Here's Adam Feuerstein with that take - it'll be interesting to see if that's right. Has the price point at which insurance will balk still not been hit?

Disclosure: No positions

Source: Dendreon: Bending the Infamous Cost Curve