Last night, the latest chapter in the Provenge saga was unexpectedly written - the news that the Centers for Medicare & Medicaid Services was reviewing coverage for the Provenge prostate cancer vaccine sent Dendreon shares plunging as much as 23 percent in after-hours trading. Coupled with manufacturing constraints that are causing rationing, investors were caught off guard.

That’s because a National Coverage Determination usually isn’t issued for cancer treatments. In fact, an NCD is uncommon for new drugs, in general. What likely prompted this move were requests from local Medicare providers, or what RW Baird analyst Chris Raymond calls “local fiscal intermediaries.” Why? Remember that Provenge is unusual in that it works by stimulating a patient’s own immune system to target cancer cells. Right now, coverage is determined by regional Medicare carriers. By conducting a review, CMS can promote uniform coverage.

But how likely is that Medicare will derail Provenge, which is forecast to become a multi-billion-dollar blockbuster? At issue is the extent to which CMS believes coverage is reasonable and necessary. Keep in mind that the National Comprehensive Cancer Network last month endorsed usage and two big private insurers, Aetna and Humira, have already committed to providing coverage. Just the same, the CMS decision will not be announced for a full year and no one likes uncertainty, even a little bit.

Here’s what a few Wall Street wags are saying this morning…

“We believe the worst-case scenario contemplated here - an official CMS ruling not to reimburse for Provenge - is simply not supported by the facts,” writes Raymond. How so? Although Provenge is expensive at $93,000 per patient, he notes that the review cannot take price into account and that CMS cannot second guess FDA approval. He does point out that CMS can restrict usage to only approved labeling. And the label says more than 70 percent of controlled clinical trial patients were older than 65 and, therefore, eligible for Medicare. The overall survival benefit was four months, but in patients 65 and older, that benefit was 6.1 months. “It’s hard to fathom,” he concludes, “how CMS would find this neither reasonable nor necessary.”

In another investor note, Leerink Swann analyst Howard Liang points out that the review could also be sparked by concerns over a potential stroke risk and the novelty of the treatment. Just the same, he believes that “not covering the drug seems highly unlikely to us. (The NCD) may more clearly delineate the patient population although it seems to us that there is no evidence supporting how to further narrow the indication. If CMS intends to restrict iits use, limiting treatment to sites that meet certain requirement would appear to be more feasible than narrowing the FDA-approved indication.”

And Ira Loss of Washington Analysis writes that CMS could require patients to be enrolled in a clinical trial as a tie into the FDA approval requirement that Dendron complete a post-marketing study to evaluate the risk of patients treated with the vaccine. Nonetheless, he doubts CMS will not provide coverage or place “severe” restrictions. Why? He offers four reasons: “the strength of the clinical
evidence supporting approval; data in the Medicare patient population; the endorsement by NCCN, and comments or coverage by other carriers.”