By Michael Fitzhugh
Shares of Seattle’s Dendreon (NASDAQ:DNDN) plunged more than 66 percent August 4 after the company reported that doctors’ uncertainty about receiving reimbursement for its prostate cancer drug, Provenge, has slowed its adoption and curtailed forecasted sales.
Management reported it is cutting expenses and staff following a disappointing second quarter in which “increased sensitivity to the impact of cost density on doctors’ practice economics,” difficulty in identifying suitable patients, and supply chain issues hampered sales of the drug. But with Provenge sales falling 14 percent short of consensus estimate for the quarter, analysts have taken to significantly re-evaluating the company’s prospects, and trading volumes have ballooned.
The U.S. Food and Drug Administration approved Provenge in April 2010. But, Dendreon, which sells a regular course of the medicine for $93,000, has found that like many other companies that have recently brought new drugs to market securing regulatory approval is just the first hurdle to success.
Still, the drug’s lackluster performance has drawn fire from analysts, such as Cowen and Company ‘s Eric Schmidt, who downgraded Dendreon shares to a “neutral” rating on the news.
“By now investors are familiar with a host of reasons to explain a disappointing drug launch. While it could be that Dendreon's explanations ultimately prove true, and that Provenge's ramp is simply delayed, we are tired of making excuses for what has been a disappointing commercial trajectory since day one of launch,” Schmidt wrote in a note to investors. “In our view, the simplest explanation for the drug's poor commercial performance is that demand is lower than we had predicted.”
With that, Schmidt lowered Cowen’s worldwide Provenge sales estimate from roughly $3 billion to $1.6 billion.
The company has lowered its estimates too. It withdrew its previous guidance of $350 million to $400 million in 2011 revenue and now expects “modest quarter over quarter revenue growth,” it said in its second quarter earnings statement.
Dendreon says that reimbursement issues will begin to clear as more doctors become aware of Medicare’s decision to reimburse them for the vaccine and other administrative barriers to timely reimbursement alleviate concern over the long time it can take to obtain reimbursement under the current way in which reimbursement claims are handled.
“However, we believe this will take time,” said Mitchell Gold, Dendreon’s president and CEO during a conference call with investors, “and for the remainder of 2011, the launch trajectory will reflect a more gradual adoption of Provenge as physicians gain confidence in this positive reimbursement landscape.”