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Dendreon Misses Estimates, Cuts Jobs

Zacks Equity Research

Dendreon Corporation (DNDN) reported second-quarter 2012 loss (including stock-based compensation expense but excluding other special items) of 63 cents per share, wider than the Zacks Consensus Estimate of a loss of 59 cents but narrower than the year-ago loss of 79 cents per share.

Total revenue in the reported quarter climbed 66.1% to $80 million in the comparable quarter of 2011. Revenues in the reported quarter were driven by a rise in Provenge sales. Revenues, however, were below the Zacks Consensus Estimate of $86 million.

Quarter in Details

Dendreon’s sole marketed product is Provenge (sipuleucel-T), a therapeutic vaccine for treating advanced prostate cancer, which was launched in the US in May 2010.

Dendreon reported net product revenue of $80.0 million, up 66.1% from the comparable quarter of 2011. Revenues were down 2.4% sequentially. The company has identified three factors - high vacancy rate in the sales force, high rate of infusion cancellations in late June and greater focus on urology accounts than oncology and academic accounts – for the disappointing performance of Provenge. The company is trying to resolve these issues and expects to see an improvement from the first quarter of 2013.

Research & development (R&D) expenses were $19.7 million, reflecting a year-over-year increase of 6.1%. The company expects R&D expenses to remain flat sequentially at $20 million in the next two quarters. Selling, general & administrative (SG&A) expenses for the second quarter decreased 23.7% to $80.2 million. The second quarter 2011 SG&A included manufacturing start-up costs of approximately $34 million.

Provenge Update

According to management, the reimbursement environment is stable. The physicians are comfortable prescribing Provenge as the average time to payment for physicians is less than 30 days.

Dendreon reported that the number of centers where patients can be treated with Provenge increased from 723 at the end of the first quarter of 2012 to 874 centers at the end of the second quarter of 2012.

Based on Provenge’s disappointing track record, we do not see significant sales growth in the near future. Currently approved prostate cancer treatments include Johnson & Johnson’s (JNJ) Zytiga, which has been putting up an impressive performance. Moreover, the prostate cancer market could see new entrants in the form of Medivation’s (MDVN) enzalutamide, which is currently under regulatory review (response expected in November 2012) and Bavarian Nordic’s Prostvac (phase III).

Restructuring Initiative

Along with the second quarter earnings, Dendreon announced a restructuring plan for the next 12 months. The company plans to close down the Morris Plains, New Jersey unit by the fourth quarter of 2012. The company plans to operate through its Union City, GA and Seal Beach, CA facilities. The two facilities together have a manufacturing capacity of approximately $1 billion of Provenge, which can be doubled with the implementation of automation.

The company plans to reduce the number of employees by 600 (both full-time and contractual) in the next 12 months. Apart from this, Dendreon also plans to reorganize the manufacturing network and cut costs across the company.

The restructuring initiatives are expected to yield savings of approximately $150 million per year. On implementation of the plan, the cost of goods sold (:COGS) is also expected to decline to 50% of net product revenue as compared to 77% in the second quarter of 2012. The company expects to see the results of these initiatives from the first half of 2013.


The company now expects to achieve cash breakeven at $100 million net revenue each quarter or annual net revenue to be $400 million. (previous guidance: $125 million per quarter)

Our Recommendation                                            

We currently have a Neutral recommendation on Dendreon. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

The successful commercialization of Provenge is crucial for the financial performance of Dendreon as it can drive the company to profitability. We prefer to remain on the sidelines until we see meaningful improvement in Provenge sales.

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