Dendreon vs CMS: Why the Provenge Coverage Controversy Is Bigger Than Just One Product

Ramsey Baghdadi

It appeared that the controversy surrounding the pros­tate cancer immunotherapy Provenge ended with FDA approval in April. But now Medicare is questioning whether the government should pay for the new therapy. The CMS decision is just as important to the biopharmaceutical indus­try as it is to Dendreon.

Is $93,000 beyond the upper limit of what a drug company can charge for a non-curative cancer therapy when the government is the primary payer? That may be one interpretation of a recent action by the Centers for Medicare & Medicaid Services (CMS) to review its coverage policy for Dendreon’s prostate cancer cell-based immunotherapy Provenge.

Although the looming fight between Dendreon and CMS appears to be specific to the product in question, there is a larger lesson for other biopharmaceutical companies, particularly those operating in cancer drug development: as the government becomes an increasingly large payer, it is paying closer attention to what officials may see as exorbitant pricing practices.

And CMS has the tools at its disposal to force a de facto price negotiation-or go down fighting.

At the very least, the case of Provenge serves as another reminder that there are two regulators in Washington-not one-that are critical in determining a product’s commercial success. Approval by the Food & Drug Administration (FDA) remains, of course, a defining milestone for biotech companies and their investors, but satisfying CMS can be just as critical, especially in the field of oncology where Medicare is the dominant payer.

CMS may end up covering Provenge without limitation, or it may end up putting restrictions on coverage that have no real impact on a product that is going to be in relatively tight supply for the near future. But simply by initiating the review, the agency is encouraging public conversation about the value of the therapy.

That certainly has the attention of investors-and may be a sign of things to come for the biopharma sector overall.

Provenge Clears One Regulatory Hurdle, Faces Another

It’s almost never a good thing when your drug is the topic of daily conversations at CMS. That’s exactly the situation Dendreon found itself in with Provenge.

Investors cheered when Provenge was approved by FDA on April 29. The stock price rose as the days grew closer to Dendreon’s user fee date for Provenge as investors correctly anticipated that the product would complete its turnaround from a devastating “complete response” letter sent 3 years earlier. Even after the run-up, the stock increased by almost 35% the day the approval letter was disclosed, bringing its year-to-date increase to 100%. All that on top of a 10-fold price increase in 2009.

It looked to be the successful end of a long, up-and-down journey for the biotech company. During a same-day conference call announcing the Provenge approval, CEO Mitchell Gold declared that Dendreon had found the “Holy Grail of oncology” and that the company would begin a rollout of Provenge the following week.

The price? $93,000 for a three-course cycle; or $31,000 per infusion…

Even though breakthrough oncology therapies typically can garner an attractive premium compared with drugs in other therapeutic areas, the high price surprised even the most bullish Provenge watchers who had been following the progress of the cell-based immunotherapy.

Would reimbursement be a problem at that price, especially considering approximately 75% of patients who will use Provenge are Medicare beneficiaries?

Dendreon anticipated that Medicare and private payors would cover the costs of Provenge, Gold said, and a company official noted that the prostate cancer therapy Taxotere cost roughly $60,000 for a full treatment, making it “very close” to Provenge. The company also highlighted the cost advantage of Provenge as a defined, three-course regimen rather than a more typical open-ended course of therapy.

In the end, the price, Dendreon said, represented and “advantageous cost/value structure.”

Moreover, Dendreon planned to rollout Provenge to only 2,000 patients in the first 12 months, translating to a $110 million cost-not typically a sum that grabs a lot of attention when it comes to the large Medicare program.

CMS Opens a National Coverage Analysis

However, CMS was paying attention.

In a shocking move, CMS announced on June 30th that it had opened a national coverage analysis (NCA) for Provenge to determine whether the therapy is “reasonable and necessary.”

The Medicare agency said specifically: “CMS opens this NCA for autologous cellular immunotherapy treatment of prostate cancer. CMS is requesting public comments on the evidence regarding the effects of this treatment on health outcomes in patients with prostate cancer…CMS considers all public comments, and is particularly interested in clinical studies and other scientific information relevant to the subject under review. CMS is commissioning a technology assessment from an external entity and plans to convene a meeting of the Medicare Evidence Development and Coverage Advisory Committee (MEDCAC) in 2010.” The National Coverage Decision is expected in March 2011.

How big an impact did CMS’ announcement have? For Wall Street, it is simple: CMS’ decision to review coverage of the therapy erased all the gains from the approval of the product; with the stock dropping all the way back to the levels it had in January.

Put another way, investors seem to feel that the uncertainty surrounding the coverage policy means as much to the value of the company as did the uncertainty around FDA’s regulatory decision.

Using an alternative metric, based on Dendreon’s market cap of approximately $7.3 billion the day following FDA approval, Dendreon would have to give Provenge to more than 78,000 men with prostate cancer to meet the cap number. Following the CMS announcement, the number of prostate cancer patients dropped to just over 41,000 needed to meet the $3.9 billion market cap in early July.

And investors wondered: If CMS is taking on Provenge, will it take on other cancer therapies, like Roche AG’s Avastin, Herceptin and Rituxan?

The answer to that question is: it just might.

All indications are that the decision to review Provenge was triggered by specific circumstances surrounding what is, after all, a completely new type of therapy: a cell-based cancer “vaccine.” In that sense, it is probably an over-reaction to read into CMS’ decision a blanket review of coverage of all high-priced cancer therapies currently in use and in the pipeline.

But, having opened up the conversation in this specific context, there is nothing to stop CMS from expanding its reach and looking more broadly at what everyone in the healthcare policy world agrees is a key issue for the future: the exploding cost of cancer treatment in the US.

The Wrong Approach

It appears to have been a confluence of four factors that led to the NCA for Provenge: the price, Dendreon’s lack of communication with CMS, noise from private payers, and an agreement between FDA and CMS to facilitate the exchange of information.

First off, there are indications that CMS was unhappy that Dendreon did not talk with agency officials much earlier in the development and review process, given the certainty that Medicare would be the primary payer for the new therapy. During the April 29 conference call, Dendreon essentially admitted it was not focused on CMS early on, saying it planned to meet with agency officials the week of May 3 to discuss reimbursement issues.

The lack of communication is one thing; the pricing decision is another. After hearing the price set by Dendreon for Provenge, some CMS officials became concerned about the high cost. At that point, the immunotherapy began being discussed regularly at the agency.

At the same time, CMS was hearing concerns from medical directors at private insurers who were complaining about the sticker-shock price.

Almost serendipitously from CMS’ point of view, a memorandum of understanding (MoU) was signed between the Medicare agency and FDA “to promote collaboration and enhance knowledge and efficiency by providing for the sharing of information and expertise between the federal partners.”

The MoU provides a framework for CMS medical experts and coverage analysis group to get full access to Dendreon’s study data of Provenge.

CMS’ decision to initiate an NCA may be nothing more than a back-door price negotiation.

It wouldn’t be the first time. Biogen Idec expected to get a payment code soon after launching its diagnostic/radiotherapeutic agent ibritumomab (Zevalin). The code was delayed for several months and then was set at 78% of Average Wholesale Price (AWP) as opposed to the much better rate of AWP-5%. Subsequently, Zevalin took another hit when CMS reclassified it as a procedure rather than a drug, giving it an even lower reimbursement rate.

What happened? CMS leadership became aware that Biogen had set Zevalin’s AWP at about $30,000 and communicated to the company that either there needed to be a price cut or Biogen could keep waiting for a coverage code. Eventually, the agency and Biogen were able to reach a compromise but Zevalin never reached the commercial success that Biogen had hoped for.

CMS’ Options: Many or Few?

The Zevalin issue, however, took place outside of the “official” coverage process; with Provenge, CMS is going by the books, and that means there really isn’t much room for Dendreon to make an accommodation on price.

Here is how CMS officials see the options for a potential national coverage decision:

(1) Coverage

(2) Coverage with evidence development

(3) Coverage for on-label use only and blanket non-coverage for off-label use

(4) More restrictive coverage affecting even on-label use

(5) Blanket non-coverage

However, under the applicable Medicare statute, it appears as though CMS is relatively boxed in, and will have to cover, at the very least, the labeled uses of the therapy.

Sec. 1861(t)(2)(A) of the Medicare statute defines “drugs” to include “any drugs or biologicals used in an anticancer chemotherapeutic regimen for a medically accepted indication.”

The description under the law of a medically accepted indication: “includes any use which has been approved by the Food and Drug Administration for the drug and such use is supported by one or more citations which are included (or approved for inclusion) in one or more of the following compendia: the American Hospital Formulary Service-Drug Information, the American Medical Association Drug Evaluations, the United States Pharmacopoeia-Drug Information, and other authoritative compendia as identified by the Secretary, unless the Secretary has determined that the use is not medically appropriate or the use is identified as not indicated in one or more such compendia, or the carrier involved determines, based upon guidance provided by the Secretary to carriers for determining accepted uses of drugs, that such use is medically accepted based on supportive clinical evidence in peer reviewed medical literature appearing in publications which have been identified for purposes of this sub-clause by the Secretary.”

Still, there is ambiguity about whether CMS could in fact deem an FDA-approved drug to be not “reasonable or necessary” despite the definition, and some officials within CMS believe the therapy should not be covered, citing skepticism over the study data used to support FDA approval.

If CMS were to attempt to move away from routine coverage of cancer drugs, it would indeed have dramatic implications for the biopharma sector and the scientific inquiry and development of novel cancer therapeutics.