Real World Costs Impacting Dendreon's Provenge Sales

| About: Dendreon Corporation (DNDN)

As both a stockholder and a prescriber of Dendreon's (NASDAQ:DNDN) lead product, Provenge, I would like to submit the following real world cost analysis that relates to a major factor in the "acceptance" of the Provenge treatment. Acceptance, of course, means sales.

Sales means a rising or falling stock price, and if any barriers exist to sales that have not yet been covered in Seeking Alpha, I wish to add to this body of knowledge. This will help a US investor decide on whether shares are purchased at this time. Recently, the stock has taken a huge nosedive, around 70% off its prior value due to missed sales forecasts. Investor doubt has been fueled by mere speculations as to why the sales or "acceptance" of this new technology is slow.

Information on the inner workings of the "acceptability" of Provenge comes from the front line. This is where I work. I have seen very little of such actionable investment analysis thus far.

I also propose at the end of this article, suggestions for change; if they come to be realized by DNDN's front office, it could enhance the usage of Provenge on the front lines. More and more articles are being published about the importance of getting the community urologists on board, as there is resistance in the academic oncology and chemotherapy realms. DNDN representatives concur their future focus will be on the urologists in all settings.

Aside from the fundamentals analyzes that were previously proposed by contributors, I see a major flaw - no real analysis of the real world costs incurred in prescribing the treatments. As these dwindle to actual net reimbursement, the financial desire of practices (especially small community urologists, in my case) is being overestimated.

As a community urology Physician Assistant, I have seen that our practice will begin prescribing Provenge very soon. I am not directly reimbursed for any of the $5,000 to be grossed on the three infusions, but I have some important observations to make about the potential actual net gain to be made by a practice.

I do not intend to place blame on insurances or patients who do not pay their bill, yet can afford to go to Cancun. This system is busted. I cannot drive my car out of the mechanic's shop without paying him. His charges are not regulated, and are market driven. His charges over material costs approach 500% at times. I'm in the wrong business for money making.

To review, National Coverage Determination has been established, a Q-code is available, and a J-code is pending. That is all good news, and the physicians and billing departments can take that as a positive. This is not what I'm writing about.

Due to major inefficiencies in the Dendreon organization involving the paperwork used to get a patient on board with Provenge, our practice has decided to treat one patient and wait to see if we are reimbursed, but more importantly to step back and "take a pulse". Based on the inefficiencies I will mention below, we are attempting to identify shortfalls and inaccuracies that would threaten our ability to continue prescribing this treatment. Essentially, we have to develop our own in-office system for the paperwork flow, and assign roles of each certain employee in the paperwork process.

The several meetings with Provenge have gone well. Cost to our practice has been mitigated by making these "lunch meetings." Let me describe the man hours involved with this treatment. An office visit to initially discuss the treatment option. Bill Medicare for an almost 1 hour office visit, get paid about $75 out of the $180 billed out, on the best day. Perhaps, we get paid within 90 days. Total time spent, 1 hour in visit.

Additional 1 hour in cumulative labs review, ordering a bone scan, labs, coordinating scheduling of scan and labs with the patient, about 1 hour. So far I have spent 3 hours on the patient, and turn it over to my nurses.

I am paid just under $50 per hour by my practice before their payroll taxes. I've been paid $150, they've gotten paid $75. The practice is down $75 dollars.

The nurses get paid about $25 to $35 per hour if well paid, they've spent typically 10-15 hours on the paperwork - asking families to submit financial forms, submitting that information to co-pay assistance firms, and filling out forms for travel assistance.

That's putting the practice down about $250-525 more. Now we're down $600.

Can paperwork be that complicated? Yes! The paperwork is totally uncoordinated. Our rep was initially unsure of which for was for travel assistance, which was for co-pay assistance. We had to figure that one out. Our rep told us she was not able to use the patient's full name when talking to the co-pay assistance firm, as it would be a HIPPA violation. This is absurd.

We had two patients with paperwork submitted. The representative errantly told us that the patient's co-payment would be around $300, which is what we told his family. Days later, we found out she had transposed patient #1 and patient #2, blaming her inability to use full names. I gave her some constructive criticism on that. The actual cost to patient #1 would be closer to $6,000 as he had a Medicare supplemental plan, not Medicare alone, and he has a co-insurance.

Of course, the patient's family demanded an explanation for this error, so we had to schedule an office visit just for this. Now we're down $525, and risked losing $5,000 if the family walked out unconvinced.

There are faxes going in and out, no central hub. No internet based coordination, just a complete gray area between the sales representative, the practice, the Dendreon "On-Call" support center, and the Red Cross/Dendreon apheresis center.

I got a call this morning asking me to fax an order and the latest labs to the apheresis center- as my patient was en route to the apheresis center. My practice was not informed of the need for labs that are within 30 days. My labs were drawn at the first office visit when I deemed the patient a candidate! That was over a month ago.

This is the lack of practical education about Provenge that will impact the amount of prescriptions that a small practice will be able to make. It has less to do with billing than you expected? Right?

Get this. Now we have to dedicate 3 hours for each infusion, attended to by the Physician Assistant or nurse, totaling 9 hours for each patient. Let's average out the salaries at a conservative $40 per hour. That's another $360 minimum per patient. We're now down around $900.

So in those 3 hours, I am able to see 3 less patients per hour, for a 3 hour period. Let's say I make an average of $200 per patient, due to my usual ability to do sonograms and procedures, diagnostic studies, etc. That's a loss of $1800 for the 3 hour period. Now we're down around $2700.

We'll have to bill in the full $5,000 to offset his practical cost of $2,700 to the office. Our net estimate is $2,300.

We'll have to do 40 treatments to mitigate the $93,000 risk. If we lose out on reimbursement for one treatment, it would put the entire project at a loss. At the current rate, we would be able to do about 2 or 3 patients per month, but quickly exhaust our list of currently eligible patients, which is about 15 strong.

Before you listen to Dendreon's estimate that 30,000 to 36,000 patients per year could qualify for this treatment, please remember that would be around 100% market penetration, as only about 29,000 to 36,000 die from metastatic prostate cancer each year.

More practically, please remember my conservative estimates; this is not some attractive money-making scheme for urologists.

One bail-out for this, is for Dendreon to put all files, in .pdf format, in a clickable protocol, in stepwise fashion. The forms need to be completed online and stored online with the proper patient identifiers protected by secure user logins assigned to doctors' offices, Dendreon "On-Call" and Dendreon Representatives alike. No faxing. All documents get stored online and are accessible to whomever may need them, including travel assistance organizations and co-pay assistance organizations. Lab results and scan results could be uploaded, and clinical information uploaded to fortify the case.

A Dendreon medical directive staff should be made to review the cases, weighing their acceptability in terms of all current (and changing) Medicare and private payor requirements for Provenge approval. Interactive assistance. Let them earn some other part of their $93,000 and instill confidence in prescribers that the case will not be rejected.

I'm long on DNDN strictly because I'm stoked on the fact that I bought it at $2.70 to $4 after the City of Hope Urologic Oncology convention in San Diego and presentations about cancer immunotherapy. DNDN has a powerful pipeline and own an amazing technology, and the insane drop in price has allowed me to buy a small amount more. I am not joining the baseless class action suits.

Disclosure: I am long DNDN.

Additional disclosure: I am employed by a private surgical group that will be infusing Dendreon's product, Provenge, but as a salaried employee, I am not directly compensated for infusions.