Friday, August 17, 2012

Dendreon Provenge Sales Wobbling

Reporting on Q2, Dendreon managed to pull a skunk out of a hat. I said in my last Dendreon column, Dendreon's Boring Q1 Results, that "Failure to gain approval in Europe, or continue to ramp sales up past the $125 million per quarter level, would tank this stock further."

Q2 revenues from Provenge for metastatic non-symptomatic prostate cancer were $80.0 million, down 2% sequentially from $82.0 million, but up 66% from $48.2 million in the year-earlier quarter.

Investors were not appeased by management's plan to close down it New Jersey manufacturing facility and other cost cutting measures.

Shorts and backers of rival prostate cancer therapies have been trashing Provenge for close to a decade now. But from its introduction until Q1, 2012 revenues grew each quarter sequentially. Note that even the poor Q2 results were up 66% from the year-earlier period. Dendreon supporters (including me) understood that since Provenge is complicated to administer, and expensive, it was not likely to ramp as quickly as an oral or even an IV administered therapy.

$80.0 million, at about $0.1 million a pop, means about 800 patients in the quarter. Management offered the theory that sales were poor because individuals in their sales force had been lured away by rivals (not necessarily prostate cancer therapy rivals). They claimed a correlation between areas where there were holes in the sales force and areas where new patients failed to materialize. While that may be true, it also says something about Provenge not yet being a preferred option for many oncologists, urologists, and patients.

On the positive side, more data analysis of Provenge's effectiveness were released during the quarter. It is possible that, as the word gets out that it extend's the average patient's life more than a few weeks, it will become more attractive. Doctors and patients will be more likely to try it during the "window" that the label allows for (you can't prescribe on-label if the cancer is not metastatic and hormone-castration resistant, but once it progresses to being symptomatic, in this case meaning painful, the patient has again also gone off-label).

It is easy to verify that Provenge is now widely available as a therapy. As a test I was easily able to find several qualified providers within a 100 mile radius of my home [try: Provenge provider locator]. There may still be holes in the geographic coverage, but they are not very extensive. Anecdotal evidence that there are men who have lived much longer than expected following Provenge therapy is also easy to find, at least on the Internet. While Provenge is complex to administer, its side-effects are minimal for a cancer therapy.

How much hope is there for a Dendreon stock price recovery at this point? Today Dendreon closed at $$4.94, corresponding to a market capitalization of $761 million. The recent low, following the release of Q2 results, was $4.17, while the 52 week high was $17.04. In the euphoria after FDA approval the stock hit $54.06 in April, 2010.

When the New Jersey facility is closed and the deadweight in Seattle is ushered out, current management expects a break-even run rate of $100 million per quarter, or $400 million per year.

It is anyone's guess whether Dendreon can make it to break even and beyond. Break even means over 1000 patients per quarter, or up over 200 from Q2, or a 25% increase. You would think that would be doable, but if were doable it should have been done in Q2.

What we have, apparently, is an army of rival sales people in the field not only pushing their therapy, but in the process trying to push patients out of the Provenge therapeutic window. The Provenge data looks compelling to me, but apparently it is not so compelling to at least a portion of the oncologists and urologists out there. It may be too bad we have medical decisions effectively made by profit-driven sales pitches, but that is not going to change anytime soon.

On the upside is the possibility of European approval some time in 2013. Given the expense of Provenge therapy, and the state of European economics, even if approved there might be some negotiation over price and another slow ramp. Still, Europe is a big market, and then there is the rest of the globe.

If Q2 turns out to be an anomaly, if Q3 revenues are north of $85 million, then those who dumped Dendreon in the $4 range will look like fools. I like Dendreon at this price, but not enough to actually buy any more until I see a significant uptrend in revenue.

Manage your risk, keep diversified!

Disclaimer: I am long Dendreon. I won't trade DNDN for 1 week following the publication of this article.

See also my Dendreon Q2 2012 analyst call summary

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