Dendreon has made a lot of news over the last few years with its Provenge prostate cancer therapy. This is the immunological "cancer vaccine" treatment that had such a wild ride through the FDA (and gave DNDR and its investors such a wild ride in the stock market, including some weirdness that I'm not sure ever was explained).
Well, the company is back in the news, and not in a good way. They've been selling Provenge for a while now, but have had all kinds of manufacturing woes (as you might expect from something as complex as personalized immunology). But they've apparently been working through all that, so investors were very much anticipating the company's earnings report yesterday. Unfortunately, they got one.
The company missed all the earnings forecast by an ugly margin, which has really caught everyone by surprise. Worse for them, the reason for the miss is reimbursement. Health insurance companies, in other words, are balking at paying Dendreon's price. And you know, they have a right to. The tug-of-war between drug companies and insurance is the closest thing we have to a free market in the whole drug business, and we might as well get what benefits from it we can.
You can fill in the arguing points: "I'm a prostate cancer patient, and I want to be treated with Provenge" "Fine, but as your insurance carrier, I'm telling you that it's too expensive for what it does. We're not paying for it - if you want it, buy some yourself." "But I can't - you know that - and should my own health be held hostage to how much I can afford to pay?" "Should we be held hostage to how much you want us to spend on you?" "Fine, let's get the government involved - don't I have a right to health care?" "Not seeing that in so many words in the Constitution - but even so, would it give you the right to the most expensive health care there is? Who pays for that? If you want to get the government involved, make them whack the company until they lower their price." And so on.
No, this is what bending the infamous cost curve really looks like. If a company finally prices its products over what the market will bear (and remember, the market in this case is made up of insurance providers), its sales will fall, and it'll either have to persuade its customers that the price is worth it, or it'll have to find a way to offer its good more cheaply (most likely by accepting lower profits). No one wants to give in, no one's particularly happy. But it's probably the only way to arrive at something approaching a right answer.
Update: There's also a theory on Wall Street that the real problem is that demand for Provenge isn't strong enough, and that the company is spinning this as a reimbursement problem. Here's Adam Feuerstein with that take - it'll be interesting to see if that's right. Has the price point at which insurance will balk still not been hit?
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1. Observer on August 4, 2011 9:00 AM writes...
As I understand it, the company is not saying there is a reimbursment issue. Rather, community doctors are unwilling to foot the entire $90K+ cost up front when reimbursment may be months in coming through. Other expensive cancer drugs have costs spread over time, while Provenge is an up front cost to the doctor's practice that some are not willing or able to bear. Timing of reimbursment is the issue.
There may be underlying issues as well, as you point out.
Permalink to Comment2. InfMP on August 4, 2011 10:25 AM writes...
Nice dialog there, Derek.
Permalink to Comment3. lalaland on August 4, 2011 10:33 AM writes...
DNDN is stupid enough to go alone without experience in marketing & sells.
The reimbursement, the pricing, the demand, communication with doctors... they all linked to one point - marketing strategy sucks.
Permalink to Comment4. Anonymous on August 4, 2011 11:19 AM writes...
"Provenge" sounds like what you do to get back at someone before they do it.
Permalink to Comment5. BiotechTranslated on August 4, 2011 11:28 AM writes...
It's only a matter of time before the pricing issue comes to a head and somebody (either the gov't, the payors or the drug companies themselves) steps in and changes the status quo.
What makes me laugh, is that the whole orphan drug strategy or "let's target a small population and make up the difference with a high price", is the strategy of the day right now. It worked for Genzyme, so why can't it work for every company, right?
Since drug prices are such a hot button issue right now, I would strongly suggest the drug companies come up with a solution before the gov't does, because I can guarantee the government's fix will be draconian.
Mike
Permalink to Comment6. ex-Pfizerite on August 4, 2011 1:19 PM writes...
This simply shows poor thought on the part of Dendreon management. When Dendreon first started getting pushback from community based oncologists they should have come up with a financing plan that would shift the risk and timing issues back to Dendreon so that Dendreon would bill the physician but then give the doc an interest free loan until after the doc is reimbursed by Medicare, which has said that it would reimburse for Provenge.
Permalink to Comment7. Anonymous on August 4, 2011 2:14 PM writes...
It's not just the price of the drug but the co-insurance the physician has to collect from the patient. That's typically over $18,000 at the full price.
Permalink to Comment8. Rick on August 4, 2011 3:16 PM writes...
Matt Herper had a post on this as well in his blog over at Forbes. Bottom line there: bad market strategy brought on by lack of expertise (as lalaland already mentions) and they're being taken to task by analysts for not having any marketing types on their board. Having said that, it still begs the question of whether drug prices are set in an appropriately humanitarian way, i.e. are consumer needs balanced appropriate against sharehold profit demands. In my opinion, the way prices are set in the drug market is way out of whack in this sense.
Permalink to Comment9. MLB Pitcher and Medicinal Chemist on August 4, 2011 3:42 PM writes...
What about the potential impact of the new drugs on androgen insensitive prostate cancer? How would that affect potential sales for provenge?
Permalink to Comment10. wei on August 4, 2011 4:19 PM writes...
stock price dropped 67% today
Permalink to Comment11. Anonymous on August 4, 2011 10:19 PM writes...
Provenge the Stonehenge!!!!
Permalink to Comment12. seywat on August 4, 2011 10:19 PM writes...
I don't think people understand that it's not a drug, it's a treatment. It doesn't scale, you can't warehouse it, it will never go generic.
Permalink to Comment13. Avalok Ishwar on August 5, 2011 1:46 PM writes...
First of all, I rode the stock roller-coaster myself when I bought at 6 and sold at 21 before the FDA disapproved it the first time around. I saw the results reported to the Advisory Panel and could not justify any agency approving a drug/device with such a poor p-Value for the data.
Secondly, this non-reimbursement poses a very important issue that today's 'cut-cap-and-whatever' Congress is not realizing. Medicare and Medicaid are two of the biggest customers for medical care in this country. If these two big players are slowly edged out or limited, the Pharma and Device companies should begin to be seriously worried about their bottom line something Washington (in its zeal to cut Govt) does not quite appreciate. This story should prove a good example for that.
I check this blog to keep updated on pharma industry, nice job, Cheers..
Permalink to Comment14. Fred on August 6, 2011 6:08 PM writes...
I think if I needed a drug or treatment to save MY life and my carrier balked because it was too expensive, I'd be pretty pissed off. We really can't start putting price tags on people's lives.
Permalink to Comment15. Inicell on August 6, 2011 9:57 PM writes...
Guys --
It's not saving anyone's life. 4.1 months. $22,683 per month.
Permalink to Comment16. Better than Fred on August 8, 2011 8:15 PM writes...
@Fred, if there is only enough $ in the pool for one of us, I vote for saving (or adding 4 months) to my life instead of yours. It is pretty clear that mine is worth more than yours.
Let's scale that a little, if we want to cut cap and balance something's gotta give. If you don't, no one will be able to pay for your life or mine.
Now, should it be bombs and guns, seniors or the poor. Which will make America safer, or richer, 'happier'.
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