Is the Optimism Surrounding Provenge Reason to Buy?

Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Dendreon (NASDAQ: DNDN) recently sold its immunotherapy manufacturing facility based in Morris Plains, New Jersey to Novartis (NYSE: NVS) for $43 million in cash.

The manufacturing facility has the capability to manufacture Provenge, the first cellular immunotherapy approved in the U.S. for the treatment of asymptomatic or minimally symptomatic metastatic castrate resistant prostate cancer. The sale is part of a 12 month restructuring plan in which the company decided to close down its Morris Plains unit and operate from its Union City, Georgia and Seal Beach, California facilities, which have a manufacturing capacity to produce approximately $1 billion of Provenge. This capacity can be doubled with the implementation of additional automation.

As part of the restructuring plan, Dendreon intends to reduce the number of employees by 600 (both full-time and contractual) and these restructuring initiatives are expected to produce cost savings of approximately $150 million per year. The full benefit of these savings will materialize in the third quarter of 2013.

Past Problems With Provenge

Dendreon has been working for several years to develop novel treatments against different types of cancer. With its flagship product, Provenge, a specially developed protein, fused with the patient's own blood cells, it was able to reduce the incidence of prostate cancer. The survival rate of patients went up by an average of four months.

Provenge was approved by the FDA in 2010. In 2011, Dendreon said it could not deliver on promised sales of the drug because doctors weren't confident about getting reimbursed. Analysts and investors were taken aback by the retreat from a forecast of $350 million to $400 million in sales for 2011.  They were left with doubts about the company's business model and felt that the news could put off potential acquirers and discourage potential marketing partners. The concerns of the doctors were valid as one round of therapy cost $93,000, which made it an extremely expensive treatment.

One of the major reasons Provenge failed on the sales front is because Dendreon did not find a partner to provide credibility to customers and investors alike. The price of Dendreon stock fell by 67 percent, which is a drop in the market capitalization amounting to around $3 billion, and investors lost money. One of the major reasons Provenge failed on the sales front is because Dendreon did not find a partner to provide credibility to customers and investors alike.

How Provenge Works 

Cell therapy represents a completely different platform for treatment from current pharmaceutical or biologic treatments. The process involves introducing healthy cells into a diseased patient to regenerate the tissue something like a bone-marrow transplant. Before use, the cells are first manipulated to make them healthier or more disease-resistant or just to grow them rapidly. Standard drugs may help to halt degeneration, but stem cell therapy has the potential to regenerate the affected tissue.

Provenge uses what is called autologous cell therapy. Cells are extracted from the cancer patient and subjected to a process that stimulates their immune response, and then introduced back into the same patient. Treatment with your own cells has advantages, such as the lack of terrible side effects that come with chemotherapy drugs.

Status of European Regulatory Approval

Dendreon has commenced  patient enrollment and initiation of treatment for the Provenge European Union (EU) open-label study, which is being conducted in European men with metastatic castrate-resistant prostate cancer (mCRPC) to describe product release parameters and report on safety in a European population. The study may enroll up to 45 patients in four sites across the EU. Dendreon has submitted a marketing authorization application (MAA) for Provenge, which is currently under review by the European Medicines Agency (EMA). The decision is expected in mid-2013 and should be favorable because of the proven success of the treatment. The approval should be a major price catalyst and provide the company with a stronger bargaining position with potential partners.

Competitors

Teva Pharmaceuticals (NYSE: TEVA) is demonstrating its belief in the new therapy by going ahead with a large, late-stage trial of Revascor, an experimental cell therapy for congestive heart failure despite the fact that the drug is owned by its partner.

The most formidable competition comes from Johnson & Johnson (NYSE: JNJ) and its new product called Zytiga, which has shown extremely positive data so far. Zytiga has demonstrated that men lived twice as long before their cancer worsened. Zytiga is expected to cost around $65,000 a year, compared with Provenge at $93,000 per year. The expected approval date for Zytiga is April 15th, 2013.

There is also competition from Medivation (NASDAQ: MDVN) and its competing product Xtandi. So far this drug only has second line approval, but the company is trying to make it a first line product.

Conclusion

I would not recommend an investment yet as the commercial potential of Provenge still has to be established.


jordobivona has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Dendreon and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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