Will Cost Cutting Offset Competitive Pressures For This Biotech In 2013?

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) is recovering from lackluster sales of its sole drug on the market, Provenge. The prostate cancer treatment has been hit hard by reimbursement concerns that have led the company to make some big cuts, including the closing of a production plant and layoffs, to make up for lost sales. Have these changes been enough? With a number of other prostate cancer drugs on the market, it is tough to see how these cuts will be enough to stop the bleeding. 

What Has Been Happening?

Provenge is Dendreon’s only drug on the market at this time. A vaccine used to fight late-stage prostate cancer, Provenge is made with samples of the patient’s immune system. Three days before the vaccine is delivered, the patient’s immune are trained to combat prostate cancer cells and its sent back to be administered. The drug had the makings of a blockbuster medication when it was introduced nearly three years ago but sales of Provenge have not hit the mark. For instance, in the second quarter of 2012 Provenge sales dropped two percent to $80 million. That number jumped fell further to $77.9 million in the third quarter, but that figure happened to be an increase of 27 percent over the same period last year. The company is expected to hit the $400 million mark in sales this year. However, the company was expecting to hit this mark in 2011 and because it didn’t many investors ran for the doors.

Reimbursements have been a nagging concern for Dendreon. It had been unclear if the government would cover the cost of the $93,000 treatment. Because of this, doctors were hesitant to order Provenge leading to the scale-back of sales expectations. However, the company said payments are coming in after Medicare, which covers 80 percent of the prostate cancer patient population, approved covering the treatment. However, this doesn’t mean they will pay for the treatment indefinitely. Other prostate cancer drugs on the market could mean Meidcare could start rationing its funds.

Dendreon has undergone other cost-savings measures, which appear to be helping. This includes shuttering a manufacturing facility in New Jersey and cutting about 600 employees. The move is expected to save the company about $150 million in operating costs and has been eyed as instrumental allowing Dendreon to break even for the year. The company will retain its two other manufacturing facilities in California and Georgia. Dendreon is also moving ahead with direct-to-consumer advertising to help bring the message of their therapy directly to patients. Also, the company is undergoing six clinical trials that include Phase II and Phase III statuses. These include trials to include Provenge in prostate cancer patients that have not received chemotherapy as well as research into a new drug, Neuvenge. This drug targets HER2-neu cancer cells which can be found in cancers of the bladder, ovary, prostate and breast.

The Competition

This could be necessary as competition is bearing down on sales. Johnson & Johnson (NYSE: JNJ) has its prostate cancer drug called Zytiga. It comes in the form of a pill and can be used before or after chemotherapy for patients with late-stage prostate cancer.

According to studies of the drug, it can extend the life expectancy of a prostate cancer sufferer by nine months, five months longer than Provenge. In addition it is cheaper, costing about $5,000 a month. The extent to which Zytiga will eat away Provenge sales is uncertain because often time the two drugs are used in succession can extend a patient’s life by up to two years. Dendreon CEO John H. Johnson told analysts that the two drugs are “complementary” and that doctor reimbursements have been more of an obstacle to profits. Sales of Zytiga, which was introduced in 2011, reached $432 million in the first six months of 2012. Recent good news out of Europe should also boost sales of Zytiga. The European Medicines Agency approved the drug for pre-chemotherapy use, an approval many drug makers  see as a lucrative and sought-after accomplishment.

Another company with a late-stage prostate cancer drug is Medivation (NASDAQ: MDVN). The small San Francisco company received Federal Drug Administration approval in late September 2012 for its drug Xtandi. Studies show the drug, which had been called MDV3100, can extend the life of a patient by up to five months. Xrandi costs nearly $7,500 a month and is seen as a direct competitor Zytiga. Medivation reported $7.1 million in sales in the third quarter of 2012 and which has been hailed as a good beginning though is far below operating costs, which is expected to be between $205 million and $215 million.

Lupron, developed by Abbott Laboratories spinoff AbbVie (NYSE: ABBV) has been the drug of choice for years. It suppresses the production of testosterone, which is instrumental in the growth of the tumor. AbbVie banks on its blockbuster drug Humira but is expected to rely more on its pipeline starting in 2015, a year before when the patent expires. AbbVie is planning to introduce new drugs to treat multiple sclerosis, endometriosis, hepatitis C, and Parkinson’s. Sanofi (SNY) introduced Jevtana, its latest prostate cancer drug, back in 2011. Sales in Europe have dropped to $50 million in the first quarter of 2012 while its rival, Zytiga, saw sales of $200 million in the same time period.

Conclusion

Even with all the negatives stacked against Dendreon, an investment in the company may be a good choice. The stock price is rising off its low of about $5 and should good news hit, the price could climb significantly. Because the price of the treatment is so high, an expanded use of Provenge could be mean a sizable increase in the number of patients that could take the drug and as a result a large payoff. The question is, are you ready to bank on that possibility? If you’ve got a few dollars to place on a risky stock, Dendreon may be for you.


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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