Medicare to cover Dendreon's prostate drug (Reuters)

WASHINGTON (Reuters) – The Medicare and Medicaid federal health insurance programs will fully cover Provenge, Dendreon Corp's expensive treatment for advanced prostate cancer, U.S. regulators said, sending company shares 3 percent higher.

The U.S. Centers for Medicare and Medicaid (CMS) ruled on Thursday that there is adequate evidence to pay for Provenge, saying it is "reasonable and necessary" for treating men with advanced prostate cancer whose disease has spread.

Medicare coverage of Provenge, a novel cancer vaccine that costs $93,000 for a course of treatment, is of critical importance since the disease strikes mostly older men.

Medicare covers those aged 65 and older along with the disabled, and about 40 percent of its 46 million enrollees are men. Medicaid covers the poor.

"This ought to give physicians more comfort in prescribing the drug," said Cowen and Co analyst Eric Schmidt. "I would expect they can breath a little bit easier and that's going to be a positive for sales in the back half of the year."

The positive CMS decision was expected after a panel recommended the drug for coverage in November. The agency also said in March it would cover the treatment pending Thursday's final ruling.

Analysts have said they expect the Medicare decision to help streamline the reimbursement process for the vaccine, which right now varies region to region.

"We are optimistic that innovative strategies may improve the experience of care for our beneficiaries who have cancer," CMS Administrator Donald Berwick said in a statement.

The agency said there was "insufficient evidence" to cover so-called "off-label" use of the vaccine, but it left the final decision on such coverage to its local Medicare insurance companies. Off-label refers to uses not approved by the Food and Drug Administration.

Provenge, which in clinical trials extended median survival by 4.1 months, is currently being studied in patients with earlier-stage prostate cancer.

Sales of Provenge have been held back by supply constraints . That problem should be alleviated by the FDA approval on Wednesday of a Los Angeles manufacturing plant, which follows an April decision to approve expanded capacity at Dendreon's New Jersey facility.

A third plant in Atlanta is expected to get a regulatory nod later this year. Dendreon has said it expects full year revenue of $350 million to $400 million with about half of that coming in the fourth quarter.

A nationwide payment policy will offer the company and investors some certainty when it comes to reimbursement issues. Medicare coverage also could encourage more private insurers to follow suit.

Aetna Inc, Humana Inc and other health insurers already have agreed to pay for the vaccine, which does not prevent cancer but stimulates a patient's immune system to fight the tumors.

The insurance decision also could eventually help rivals that are developing other therapeutic cancer vaccines.

"There are 40 unique active cancer immunotherapies currently being tested in 60 clinical trials, including nearly a dozen that are in pivotal Phase III development," said Michael Becker, president of MD Becker Partners consulting firm, which hosted a recent event to discuss the emerging technology.

The U.S. Food and Drug Administration last year approved Provenge, also known as sipuleucel-T, for certain men with advanced prostate cancer.

Dendreon has said Provenge's high price tag reflects a unique manufacturing process under which a patient tumor cells have to be extracted and sent to the company to incorporate them into the vaccine.

Provenge could generate more than $2 billion in global sales by 2015, according to analyst forecast data from Thomson Reuters.

Nearly 218,000 U.S. men will be diagnosed with prostate cancer this year, according to the National Cancer Institute, although not all those men will either qualify for Provenge or be eligible for Medicare.

Shares of Dendreon rose to $40.70 in extended trading from a Nasdaq close at $39.44.

(Reporting by Anna Yukhananov; additional reporting by Bill Berkrot in New York; editing by Carol Bishopric, Bernard Orr)