Dendreon Corp. (DNDN) has cleared a significant hurdle in bringing its controversial prostate cancer treatment Provenge to market, but obstacles remain before the drug gets launched.

Provenge could be a blockbuster drug, with the potential to revolutionize cancer treatment by harnessing the immune system to fight the disease, but the Seattle drug developer still must pass a cautious Food and Drug Administration, including the resolution of manufacturing questions.

Dendreon also could face resistance over the drug's price at a time when the government is looking to reduce healthcare costs. Though they will likely cover the drug, insurers may make noise about paying high sums for a treatment that may only add a few months to a patient's life.

These issues, along with a likely healthy short interest position, could lead to continued volatility for the excitable stock.

Today, though, the emphasis is on the positive as Dendreon shares recently more than doubled to $24.12 in heavy trading, likely wiping out some short positions. Earlier, the stock hit an all-time high of $27.40. Part of Dendreon's new valuation may reflect the company's potential to secure a lucrative partnership or outright acquisition.

On Tuesday, data showed that Provenge prolonged the lives of advanced prostate-cancer patients by 4.1 months, likely meeting targets set under a special agreement with the FDA in 2007, when the agency said it wanted to see the results before deciding whether to approve Provenge.

"This is an execution story now," said analyst Joe Pantginis with Merriman Curhan Ford.

Following the Provenge data, many analysts now have price targets of more than $30 for the stock based on future annual sales rising up to $2 billion. But analyst models don't include the possibility of off-label sales, which could be significant as physicians may use the drug in earlier-stage patients because of its mild side effects in comparison to toxic chemotherapy regimens.

The next step for Dendreon will be to file its amendment to a previously rejected marketing application for Provenge in the fourth quarter. Opinions remain split on whether the Food and Drug Administration will want to hold an advisory panel to review the new data.

Some believe that Dendreon's conversations with regulators made it clear that its latest trial will be enough for approval, but others maintain that the FDA will seek maximum input in approving a new class of drugs.

The FDA also must approve Dendreon's New Jersey manufacturing facility, which prompted agency questions in its previous marketing application. Dendreon has said it "substantially responded" to those issues, but the final word will come from the agency.

Unlike making a pill, Provenge's production involves taking a patient's cells, shipping them to the company for processing, then returning them to a physician to be delivered via intravenous infusion. This entire process must be performed three times over four weeks.

The FDA may proceed with caution in overseeing this new type of production, but many note that Provenge's production for clinical trials has allowed Dendreon to work out any major issues.

The company expects Provenge to be priced similarly to other biologic medicines that have complicated manufacturing processes. Those drugs, like Roche Holding AG's (RHHBY) Avastin, can sell for more than $50,000 a year.

The acceptance of high-priced biologic drugs by insurers has observers confident that Provenge should have no problem getting the support of those that pay for patient treatment.

Dendreon will clearly face costs in launching Provenge, but many expect that its cash position of $105 million in cash and short-term investment at Dec. 31 to be sufficient. No longer having to pay for the expensive late-stage clinic trial should significantly cut expenses.

Dendreon expects to sell the drug in the U.S. but find a partner for overseas marketing. Having a strong cash position, in the currently difficult funding environment, will likely allow Dendreon to negotiate better partnership terms because it doesn't need a cash injection.

Pantginis believes that Takeda Pharmaceuticals Co. (4502.TO), GlaxoSmithKline Plc (GSK) and Sanofi-Aventis (SNY) are the most likely partners because of their interest in cancer immunotherapy.

Furthermore, it is possible that partnership talks could develop into an outright acquisition of Dendreon.

The prospect of an unpartnered cancer drug with strong data from a company with a platform that could produce future pipeline candidates may be too good for suitors to pass up - especially as Dendreon still only has a market value of $2.3 billion.

Last year, Eli Lilly & Co (LLY) paid $6.5 billion for ImClone Systems, citing its attractive pipeline of biologic cancer therapies, even though ImClone's only product, cancer drug Erbitux, was already partnered with Bristol-Myers Squibb Co. (BMY).

-Thomas Gryta; Dow Jones Newswires; 201-938-2053; thomas.gryta@dowjones.com