[Updated: 12:55 pm Pacific] Dendreon’s groundbreaking new immune-booster for prostate cancer helps men live longer, and it will not be cheap. The Seattle-based biotech company (NASDAQ: DNDN) said it is planning to charge $93,000 per patient for the new drug.

The product, sipuleucel-T (Provenge) will cost $31,000 per infusion, and patients will get three infusions over a one-month period, chief operating officer Hans Bishop said today on a conference call with analysts. That price is far higher than the $62,000 average estimate that Wall Street analysts had been expecting. Dendreon stock surged more than 25 percent to over $50 after the company disclosed the price today. [Updated with stock price.]

The company made history early today when the FDA cleared sipuleucel-T (Provenge) for men with prostate cancer that has spread through the body and no longer responds to standard hormone-deprivation treatment. The drug showed in a pivotal clinical trial that patients lived a median time of 25.8 months on Provenge, compared with 21.7 months if they got a placebo. Dendreon’s pricing equation assumes that people are willing to pay about $23,000 per extra month of life, which is comparable to other cancer drugs for terminal groups of patients, Bishop said today.

Dendreon also is benchmarking its overall cost of treatment not just against competitors’ prices, but how much supportive care and hospital expenses other treatments require because they force patients to endure more side effects, Bishop said. Sanofi-Aventis’s docetaxel (Taxotere), for example, costs about $60,000 per patient when you factor in the cost of extra supportive care, and Dendreon’s drug has been shown to help people live longer.

“Our price compares favorably to other cancer drugs,” Bishop said.

Pricing is obviously a touchy issue. Set the price too low, and Dendreon might not recoup enough of the $1 billion that has been invested in the company over the past 15 years, and it could create major shortages over the next year. Set the price too high, and it runs the risk of upsetting insurers and alienating its allies in the patient advocacy community.

Dendreon isn’t equipped yet to meet all the demand it anticipates for the drug. Only about 2,000 patients will be able to get Provenge in the first 12 months that it is available, while the company relies on a single factory in New Jersey that’s operating at one-fourth of full capacity. By the middle of 2011, Dendreon hopes to have two more factories in southern California and Georgia, as well as the New Jersey plant, operating at full tilt. That should enable the company to sell about $1.2 to $2.5 billion worth of Provenge per year, CEO Mitchell Gold said.

Dealing with scarcity has been a big issue for Dendreon. It consulted doctors, patients, and medical societies for advice on what to do. In the early days, it will only allow 50 medical centers in the U.S. to fill orders for Provenge, and they are all places that have experience with the product in clinical trials. The company isn’t going to establish a waiting list—it will allow doctors to decide which patients should get the drug first. Dendreon is going to donate some undisclosed amounts of money to a nonprofit foundation which will help patients make their co-payments if they can’t afford the drug, the company said.

It will be interesting to see if insurers balk at the price, or create lots of red tape to make it hard on doctors who prescribe it. Dendreon has had some preliminary conversations with private insurers, and plans to meet with officials at the Centers for Medicare and Medicaid Services next week, Bishop said. Since prostate cancer generally afflicts older men, about three-fourths of the patients are expected to be eligible for Medicare, Bishop said.

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