Dendreon plunges as Provenge prospects wither

NEW YORK Thu Aug 4, 2011 1:34pm EDT

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NEW YORK (Reuters) - Dendreon Corp (DNDN.O) lost two thirds of its market value on Thursday after abandoning its forecast for its debut drug, prostate cancer vaccine Provenge, and shocking its biggest backers on Wall Street.

Dendreon said late on Wednesday it could not deliver on promised sales of the high-priced drug because doctors weren't confident enough about getting reimbursed.

Analysts, caught off guard by a retreat of the company from a 2011 forecast steadfastly maintained since November, were left questioning management credibility.

"I took my Dendreon model to the woodshed by cutting my peak Provenge sales estimates by more than 50 percent," ISI Group analyst Mark Schoenebaum said in a research note.

In addition to pulling its forecast, Dendreon reported disappointing second-quarter sales, and said it would trim expenses and jobs. By Thursday morning, it was the subject of a wave of brokerage downgrades on the stock.

"Admittedly, we were taken aback by this explanation as our own checks, recent milestones and management's tone just a few weeks ago have all been positive," said Baird Equity Research analyst Christopher Raymond.

"Following last night's call, we now have more questions than answers around Provenge launch dynamics," he said. Raymond cut his rating on the stock to "neutral" from "outperform," and slashed his price target to $20 from $56.

By midday on Thursday, Dendreon shares had fallen nearly 66 percent to $12.35.

Since the approval of Provenge a year ago, Dendreon management has blamed limited manufacturing capacity for the slow sales ramp. With far more production stations approved and on line, the company had said 2011 sales would reach $350 million to $400 million, including a blowout fourth quarter that would account for half of that total.

That forecast is now gone, along with some $3 billion of the biotechnology company's market value, and the company is pointing to reimbursement problems.

QUALMS

Dendreon said only about 25 percent of potential Provenge prescribers were aware of a June 30 decision by Medicare to cover the drug's cost of $93,000 for a course of three infusions. Doctors can now use a so-called Q code on the drug that can help speed up reimbursement.

Dendreon said educating doctors on Provenge reimbursement will be a priority for the sales force.

"The fact that the company has elected to cut heads seems to be a decision inconsistent with a management team that truly believed they could clear reimbursement hurdles next year and begin to ramp sales substantially," Schoenebaum said.

The sell-off of Dendreon shares dragged down other biotech stocks, analysts said, with the NYSARC Biotech index .BTK off 9 percent. Shares of Human Genome Sciences IncHGSI.O, another small biotech with one relatively new product, were down 10 percent.

"Biotech risk takers burned on this one might be less risk tolerant going forward. The biotech group does work like that, especially for product failures," Credit Agricole Securities analyst David Maris said in a research note.

Provenge is a new type of cancer drug, tailored to each person, that works by stimulating a patient's immune system to fight the disease.

It had initial success with large academic medical centers that are less concerned about the timeliness of reimbursement payments. The company said adoption among small community practices of urologists and oncologists has been much slower because they want to be assured that they will get paid before ordering Provenge.

"Management has not been able to convince us that reimbursement concerns in the community setting can be effectively addressed in a timely fashion," Gleacher & Co analyst Ying Huang said.

Dendreon also indicated a problem for some doctors in identifying the right patients for the drug and understanding its delivery. This was particularly the case among urologists who are less familiar with infused drugs than oncologists.

Dendreon also faces competition from new advanced prostate cancer drug Zytiga backed by Johnson & Johnson's (JNJ.N) marketing muscle, as well as other drugs.

"With such lackluster performance, we do not see how Provenge is going to fare any better with the looming competition from other agents soon," said Brean Murray Carret & Co analyst Jonathan Aschoff, who downgraded his rating on Dendreon stock to "sell" from "buy."

Dendreon's woes have made some investors happy and wealthier. About 11 percent of the company's outstanding shares were shorted by those betting against Provenge, according to Starmine data.

(Additional reporting by Vidya L Nathan and Kavyanjali Kaushik in Bangalore. Editing by Michele Gershberg and Robert MacMillan)

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