[Updated 3:45 pm PT] Dendreon’s new management team is making some drastic cuts in a bid to keep its cancer immunotherapy business going, after the company stumbled in its early marketing days and now faces an increasingly serious competitive onslaught.
The Seattle-based biotech company (NASDAQ: DNDN) said today it is cutting 600 jobs full-time and contractor jobs over the next 12 months, and closing its original Morris Plains, NJ, factory, in a bid to save about $150 million a year in costs. By making those cuts, Dendreon said it should achieve positive cash-flows once it reaches $100 million per quarter in sales of sipuleucel-T (Provenge). The company didn’t say when it expects to become profitable.
The cutbacks were timed to coincide with Dendreon’s second quarter financial report, which fell short of Wall Street expectations. The company generated $80 million in net product sales during the quarter, which is less than the $82 million in net sales it reported in the first quarter. Dendreon had been projecting moderate single-digit percentage growth in sales, and Wall Street had been expecting about a 4 percent increase in sales, according to analyst Mark Schoenebaum. Shares of the company fell 17 percent to $5.15 in after-hours trading, following the news and Dendreon’s explanations in a conference call with analysts.
As of February 23, Dendreon had about 1,475 employees, according to its annual report with the Securities and Exchange Commission. Although Dendreon didn’t say in today’s statement how many employees it has now, its headcount will be down about 40 percent from that level. This latest round of layoffs comes after the company got rid of 500 people last September, when it publicly acknowledged it would fall far short of its 2011 sales goal for the immune-boosting prostate cancer drug.
Dendreon isn’t saying how many of the job cuts are occurring in Seattle, but the majority of the cuts being announced today will happen in New Jersey, said company spokeswoman April Falcone in an email. The company is also making cuts in areas that should have the least impact on customers. “By and large, our commercial and physician facing resources will remain constant,” Falcone said.
The company made history when it won FDA approval in April 2010 for Provenge, the first treatment of its kind designed to actively stimulate the immune system to fight cancer. The drug has shown an ability to extend lives of patients, but it has stirred controversy with a high price of $93,000 per patient, and it has been logistically tricky for physicians to get comfortable with because of some early confusion about whether it would be adequately reimbursed by insurers. Johnson & Johnson and Medivation have also made strides in clinical trials with pills for prostate cancer patients that have also shown an ability to extend lives.
Dendreon’s chief financial officer, Greg Schiffman, said on today’s conference call that the company believes it can make about $1 billion a year worth of Provenge at its Atlanta area and Seal Beach, CA facilities alone, and that it should be able to double that production once it implements more automated manufacturing processes over the next couple years.
The company said it had $510 million in cash and investments left in the bank at the end of June, down from $618 million at the beginning of the year.
On today’s conference call with analysts, Dendreon offered a number of explanations for the sales shortfall. There was turnover among sales reps in some key regions dating back to the fourth quarter of 2011, said Joe DePinto, Dendreon’s head of commercial operations. Dendreon also saw a surge in the number of cancellations among patients who went through the usual steps to order the drug, but then bowed out and never got an infusion, DePinto said. The company also saw dips in demand from oncologists and academic centers, which wasn’t completely offset by its other important market segment among urologists.
CEO John Johnson said he’s gained confidence in some things Dendreon does over the past few months, but that costs had to be brought down. He also said that Dendreon has been able to upgrade its overall sales talent as it has replaced some of the people who have left. DePinto, the commercial head, said he expects the sales force to start showing improvement by the first part of 2013.
“I am not satisified with the commercial performance of Provenge, and believe more men with advanced prostate cancer could be getting the product,” Johnson said. “We have to build our commercial organization to be world class. We are not backing down from our commitment to Provenge.”
DePinto added that he doesn’t consider Provenge to be locked in a head-to-head “either/or” competition with Johnson & Johnson’s abiraterone (Zytiga), but that the products are complementary. He and Johnson insisted that there is support among thought-leading physicians for Provenge as the “foundation of care” which is given first, and which still allows doctors the flexibility to prescribe Zytiga later. But, DePinto said, there is still a lot of work to do in marketing to physicians, especially those new to the product. Many still need to be persuaded about the merits of the clinical trial data that underpins Provenge, many need to be made comfortable with a truly one-of-a-kind prescribing and logistics process, and many more need to be confident they will get effectively reimbursed.