Why Sales Estimates for Dendreon's Provenge Are Too Low 8 comments by: Dan Rosenblum May 18, 2009 | about stocks: DNDN Dan Rosenblum Follow12
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About this author: Profile & More Articles Visit author's site Become a Contributor Submit an Article Font Size: PrintEmail TweetThis After the initial excitement caused by the Phase 3 IMPACT study of Dendreon's (DNDN) Provenge for the treatment of metastatic prostate cancer has begun to fade (along with the stock price), it is time to consider just how big a drug Provenge can become.
Provenge is still around a year away from getting FDA approval, so I am sure many investors feel there is no rush to get involved in the stock at this point. The company's manufacturing facility will also go through a rigorous once over from the agency, and the data from the trials will be scrutinized with a fine tooth comb but make no mistake, Provenge will be approved and will become a blockbuster drug.
Most of the analyst reports I have seen assume peak sales in the U.S. somewhere between one and two billion dollars. These estimates are based on the assumption that the cost for Provenge will be somewhere between $30,000 - $50,000 and a penetration rate of around 10-20% of the total prostate cancer population of which there are around 230,000 annual new cases each year in the U.S., according to the National Cancer Society.
I am of the opinion that these peak sales estimates are way too low for three basic reasons. The first is that the pricing of Provenge will most likely be higher than the $30-50,000 per patient estimates. Many of the newer cancer therapies such as Erbitux cost as much as $10,000 per month, which could lead to a price of up to one hundred thousand dollars or more for patients who survive on treatment for more than a year. I would be shocked if the price for Provenge per patient is under $50,000 and I would not call it out of the question that the cost for the drug might run as high as $75,000 per patient. We might know more about the cost part of the equation sometime next month when Dendreon will brief the analyst community on their internal plans for Provenge's launch.
As far as the percentage of the total prostate cancer population who will take Provenge, that is too low for two reasons. The first reason is Provenge's ease of use and side effect profile, which makes the drug an easy choice for most prostate cancer patients. Provenge is a simple infusion taken twice over three weeks. The drug causes no side effects other than slight flu like symptoms. Finally, we know that the survival advantage over Taxotere, the current standard for metastatic prostate cancer, is a quite robust six weeks. Not only that, but Taxotere causes severe side effects that go along with chemotherapy PLUS it has to be taken for more than six months. Compare that with two simple infusions over three weeks (and possibly a booster at a later date, although a booster was not used in the trial) with NO serious side effects and Provenge becomes a "no brainer" for advanced cancer patients.
Finally, and this is the most exciting part of the story, I believe that Provenge will be used quite extensively off label by earlier stage prostate cancer patients. To explain this, one has to understand how prostate cancer works.
Unlike most cancers, prostate cancer is usually caught early before it spreads, through a biomarker called the PSA test. If the PSA test and a follow up biopsy determines the patient has prostate cancer, the patient goes through the removal of the cancer cells via either surgery or one of several other leading edge therapies such as cryotherapy or brachytherapy. After the tumor is removed, the patient is put on androgen deprivation therapy. Androgen is a hormone the tumor needs to feed on to grow, so using this therapy quite often slows down the tumor's growth over a period of years. However, in almost all cases, eventually the cancer comes back. The patient and doctor will know this because after a period of time, the patient's PSA levels will start rising once again.
The problem for patients though is that until the tumor actually shows signs of spreading into the bones (prostate cancer metastasizes into the bones not the organs), there is nothing for the doctor to give the patient, although a few will start patients on chemotherapy right away. While there are several drugs in development for this stage of the disease, such as CGRB's CB7630, currently there are no good options.
I feel that, considering the few options available, along with DNDN's ease of administration and stellar side effect profile, many physicians will start their patients at this earlier stage of prostate cancer and open a whole new segment of the prostate cancer population to Provenge. If Provenge gets some of this "mid stage" prostate cancer market, then the one to two billion dollar estimates for the drug will seem absurd and become more like three to four billion .
So how does one get to three billion in sales for Provenge? Well, if Dendreon decided to charge as much as $75,000, or even $60,000 per patient, it is really not that hard. Of the 230,000 new prostate cancer patients per year, roughly 80-85% of them will fail hormone therapy at some point. That leaves the current potential on and off label market for Provenge at roughly 180-190 thousand patients. At this past week's Merrill Lynch Healthcare conference, the CEO stated that the total metastatic hormone failure market is 102,000 patients. All Provenge has to do is capture about 50% of the more advanced stage, or 50,000 patients and 50,000 patients multiplied by the $75,000 price gets you to $3.75 billion. If Dendreon charges "only" $60,000 per patient and it captures the same 50,000 patients, then it will make $3 billion.
But even if Dendreon captures a bit less of the advanced prostate cancer stage, a 10% penetration into this middle stage prostate cancer market would yield the company possibly another 10,000 new patients per year. So if Provenge captures say 40,000 advanced patients and 10,000 mid stage patients or some combination thereof, AND the price is lower than $75,000 per patient, one still gets to three billion dollars in annual sales. For example, if the price charged will be $60,000 and it is taken by 50,000 patients, that also gets the drug to $3 billion in sales.
I know my projections sound bullish, but these kind of projections should lead one to consider what would happen even if Provenge turns out to be a real disappointment. Let's say the company only charges $50,000 per patient, and let's say it only captures a bit less than half of the patients I am projecting, or 24,000 patients. That would get the drug to "only" $1.2 billion in sales, still a blockbuster drug by any measure.
While these projections are exciting, I am NOT including potential international sales. I will wait until the company signs partnerships for the rest of the world before determining just how big the drug can be internationally but suffice it to say that the prostate cancer market in western countries not including the US is roughly DOUBLE the size of the US market
The wait for Provenge to reach its ultimate potential might take a few years, but this kind of exciting new drug in the biotech space doesn't come around often . It should be a fun ride as the drug goes through the final approval process and becomes available to prostate cancer sufferers worldwide.
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