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Shares of Dendreon (NASDAQ:DNDN) spiked today on news that sales of Provenge, its so-called vaccine against prostate cancer, rose sharply last quarter. Just don't expect that good news to last. Fact is, Provenge isn't a vaccine, in the way that, say, Merck's Gardasil is a vaccine.

  • Gardasil is taken by people who are free of the underlying disease, and works best for patients who have not engaged in something that can lead to the disease process, namely sex.
  • Provenge, the trade name for Sipuleucel-T, is therapeutic. That is, it's given to people who are already sick. In this case, gravely sick. It must be created separately for each patient, from their own white blood cells. While it has survived Phase III trials, fact is it's only shown to extend life by about four months - and it costs $93,000.

This is the kind of risk-reward scenario that no common fund can abide. If it was a cure at $93,000 that would be different. But this drug costs $23,250 for each month of life extension.

There may be some confusion going on here. The FDA did cast aspersions on a "competing" drug from Amgen, called Xgeva, but the rejection of one drug doesn't mean another will be accepted in the payment system. And Provenge is Dendreon's only money-maker right now.

Last week Dendreon hired Savient (SVNT) CEO John Johnson as its new head (he was previously a director). Savient has two drugs approved - a weight-loss drug called Oxandrin and a gout drug called Krystexxa. Johnson has promised to lower production costs on Provenge, and improve marketing. But his record at Savient was less than stellar.

There are Dendreon bulls here at Seeking Alpha, like Theodore Cohen and Smith on Stocks, who think Provenge may be better than many think. Does that mean it extends life by six months, eight months, a year? There are no studies showing it cures.

I covered health IT at ZDNet for several years, during the transition between the Bush and Obama administrations, and this I know: The issue of reimbursement for drugs that don't cure is undergoing a fundamental shift. No system, public or private, can afford an unlimited draw from a limited pool of funds, which drugs like Provenge encourage by charging $23,250 for each claimed month of extended life.

Policy on this question is going to shift, and Dendreon must become more than a one-trick pony to survive that shift. Unless Johnson can put something else in the pipeline, use this late move as an opportunity to get out.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Dendreon Gains Will Be Short-Lived