Dendreon’s Big Question: How Much Will People Pay for Provenge?
How much will people in the U.S. pay for a new prostate cancer drug that helps dying men live a few months longer? This is one of the tricky questions Seattle-based Dendreon (NASDAQ: DNDN) is wrestling with these days. The decision will have a significant impact on how successful Dendreon is for years to come.
The issue is all about how much to charge for an immune-boosting treatment for elderly men with terminal prostate cancer, called sipuleucel-T (Provenge). Dendreon showed last year in a clinical trial of 512 men that this drug helped men live a median time of four months longer than those on a placebo, with minimal side effects. Dendreon is seeking clearance from the FDA to start selling the treatment, and the agency’s deadline to complete its review is May 1. If approved in the U.S., the Dendreon drug would be the first in a new class of therapies that actively stimulate the immune system to fight tumors.
Most of Wall Street projects this drug will emerge as a billion-dollar blockbuster in a few years. JP Morgan analyst Cory Kasimov, for one, forecasts $1.49 billion in U.S. sales in 2014. But his model, and all the rest, are based on a lot of unknown factors at this time, like how much the drug will cost, and how many men will get prescriptions. Dendreon hasn’t said anything specific about its pricing plan, other than an often-repeated line about how the product will be priced similarly to “other novel biologic drugs that extend lifespan“—which is sort of a coded way of saying, “This drug will save your life, and it will be expensive like all the rest.” A spokeswoman for the company declined to comment for this article.
Analysts have reported on a wide variety of estimates on what Provenge will cost, between $40,000 and $100,000. While different analysts use different models, I found that the expected price is about $61,714, according to the average estimate of seven analysts surveyed by Xconomy. But this is truly a guessing game at the moment. While Kasimov uses $65,000 as his estimated price per patient, he says it could run as high as $75,000 to $100,000. You can see the estimates listed from all seven analysts in the chart below.
|Analyst||Affiliation||Est. Provenge Price
|Ren Benjamin||Rodman & Renshaw||$40,000||November 12 note to clients|
|Cory Kasimov||JP Morgan||$65,000||February 22 note to clients|
|Howard Liang||Leerink Swann||$60,000||April 13 e-mail|
|David Miller||Biotech Stock Research||$72,000||February 27 note to clients|
|Mark Monane||Needham & Co.||$50,000||April 13 e-mail|
|Christopher Raymond||Robert W. Baird & Co.||$70,000||March 12 note to clients|
|Eric Schmidt||Cowen & Company||$75,000||February 1 note to clients|
There are a lot of factors to consider as Dendreon makes the decision on the actual price of what would be its first marketable product. Set the price too low, and it would fail to recoup enough of the $783 million deficit the company has racked up since its founding in 1992. The company’s stock (NASDAQ: DNDN) would probably tumble. Dendreon also would probably struggle to keep up with demand from patients, leaving many of them frustrated at their inability to get a potential life-saving drug.
But setting the price too high is obviously a perilous thing to do as well. Insurers would probably set up all kinds of red tape to ensure the drug is being prescribed in precise accordance with the FDA-approved label, creating hassles for doctors that they might prefer to avoid. Competitors who come along in the future could have room to undercut Dendreon on price. Perhaps most importantly, Dendreon could spark a backlash among prostate cancer patients. The company now is seen by many as a white hat that’s persevered in a quest to save their lives. But that could turn into a black hat if it were accused of being a greedy price-gouging pharma company like many others are perceived.
The trick is to find the balance between generating just the right amount of cash flow to make the shareholders wealthy, without becoming the greedy bad guy that’s raiding grandpa’s life savings.
“Pricing in the pharmaceutical industry is really more of an art than a science,” says Mark Monane, an analyst with Needham & Company, whose firm has done investment banking for Dendreon.
There’s no spot-on benchmark drug on the market for Dendreon to use for comparison, because its product is the first of its kind. But when it talks about other “novel biologics that extend lifespan,” then it wouldn’t be a stretch to say that Dendreon is probably using Roche’s bevacizumab (Avastin) or Eli Lilly’s cetuximab (Erbitux) to gauge exactly how much the marketplace is willing to pay for proven antibody drugs. Roche’s drug for lung cancer costs $8,900 a month, which can add up to $100,000 or more, while the Lilly product costs about $80,000 per patient.
One big difference is that many cancer drugs are taken on a recurring basis, with the patient returning regularly to the doctor’s office for an infusion. Dendreon’s drug is different in that it is given in three infusions over one month, and then the patient is done with his course of therapy.
Most of the patients with prostate cancer are over the age of 65, so they are eligible for Medicare benefits. The U.S. health insurance program for the elderly generally covers 80 percent of the cost of a cancer drug. If the Dendreon treatment is priced at $60,000, that means about $12,000 will be left uncovered by Medicare. Most patients have supplemental health insurance to cover much of the remaining expense. The remainder will be paid out of their own pockets.
Dendreon, like other makers of expensive cancer drugs, is expected to have a program in which it will donate the drug to people who need it and can’t afford it. This is called a patient assistance program. There could also be rebates that cut into Dendreon’s pricing structure, Monane says. That’s why Monane expects Dendreon to price the drug at a level higher than $50,000, but ultimately to be able to record about $50,000 per patient in revenue from the product. He doesn’t expect a lot of “pushback” from insurers about the price. Essentially, the drug offers minimal side effects, a high quality of life, and favorable odds that it will help patients live longer.
David Miller, the president of Biotech Stock Research in Seattle and a longtime bull on Dendreon, has forecasted the company will set the price at $72,000. How much “pushback” Dendreon faces from insurers will depend largely on what the drug’s FDA-approved prescribing information looks like, he says.
If the prescribing label for Provenge says that it is cleared for all patients whose prostate cancer has spread after they stopped responding to hormone deprivation therapy, then Dendreon likely won’t face much resistance from insurers, Miller says. Things get more complicated if the FDA-approved label contains fine print that says the drug approval is limited to patients within that group who are considered “asymptomatic,” meaning they haven’t started to feel the pain that sets in when the cancer migrates into their bones. If that more restrictive language is in the prescribing label, then insurers might hassle with doctors to demonstrate that the drug is in fact always being prescribed for exactly the patients covered by the FDA label—no more.
“That’s where the insurers could be aggressive,” Miller says.
For men with prostate cancer who have heard about the Dendreon drug, and for one reason or another don’t meet the criteria in the prescribing label and therefore won’t have full insurance coverage, the price will be daunting. For everyone else, it’s the sort of thing we all absorb in our health insurance premiums, and don’t really see in tangible way.
“It’s an expensive drug. It will be expensive for CMS [the Center for Medicare and Medicaid Services], the VA [Veterans Administration], and for large insurers,” Miller says. “But it’s not going to be unusually expensive for a cancer drug.”
One cancer physician I talked with, Peter Eisenberg of California Cancer Care in Marin County, CA, a former board member of the American Society of Clinical Oncology and a critic of high drug prices, told me he’s not that familiar with the recent clinical trial data Dendreon has generated or how that might justify the price. But he sounded like he would need a lot of convincing before he would start writing prescriptions.
“Most of the folks we see in Marin County have insurance, so their out of pocket cost is zero. So sure, those folks will go for it,” Eisenberg says. “But I’m not sure I’d spend that much money for an average of four extra months of life. I’d rather give the money to my family.”