Dendreon First Provenge Revenue
DNDN

August 7, 2010

On August 3rd Dendreon had its first analyst conference call where revenues for Provenge were reported. I bought the stock back in 2005; Dendreon had been public well before that, and also had a venture capital phase. This shows what time frames can be like in the development of drugs and other therapies.

Revenues for Provenge for prostate cancer commenced in May, but the bulk of Q2 revenues came in June, bringing the total to $2.8 million. The good news is that in July revenue was $5.2 million. No specific guidance was provided, but I would expect Q3 revenue above $20 million. Meanwhile the first Provenge facility (New Jersey) is having its capacity quadrupled, with full capacity expected to be available in early 2011. Run rate is expected near $1 billion per year, or $250 million per quarter. Two additional production facilities will be built, but that will take into 2012. Note that Provenge is not a drug. The facilities boost the immune response of patients' blood.

For my detailed notes from the conference see Dendreon Q2 2010 Analyst Conference Call.

A concern of investors was that, given that the Provenge treatments cost $93,000 (3 blood treatments of $31,000 each) and, like most cancer therapies, do not help everyone, it might be difficult to obtain private or Medicare reimbursement for the treatments. In particular the decision by Medicare to do a national review has led to uncertainty. Management named specific private health insurers that have approved Provenge and said all but one local Medicare regions that have considered the issue have given the go ahead for reimbursement. When Medicare makes a national ruling it will apply to all regions. So there is a small upside and a major downside to the actual ruling. I think Medicare will approve Provenge because of its benefits and safety, but no one can guarantee that right now.

That said, Dendreon is lucky to have a large cash reserve put together when investors were excited by the FDA approval of Provenge. They are burning rapidly through the reserve, but the money is mostly going into build out of the facilities.

My overall take is that there is a fair degree of risk in Dendreon right now, but the upside potential to the stock in the 2011 to 2012 time frame is high. Beyond that we can only speculate whether the success with prostate cancer will be repeated with other types of cancer.

You can also learn a lot about investing in biotechnology from studying Dendreon's history. See my Dendreon page for what this situation looked like in the past.

William P. Meyers

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