As Huge Bills Loom, Immunotherapy Pioneer Dendreon Enters Bankruptcy

Xconomy Seattle — 

After 22 years, one groundbreaking cancer treatment, and even more ups and downs than the volatile biotech industry would consider normal, Seattle-based Dendreon (NASDAQ: DNDN) has filed for bankruptcy.

The company and its prostate-cancer treatment sipuleucel-T (Provenge) could be sold, or it could emerge from bankruptcy court with completely new ownership. From a reading of court documents, creditors would prefer a quick sale by early February. But either way, the firm’s current shareholders will likely be wiped out, and there will likely be more turmoil for the remaining 700 employees, many of whom are in Seattle.

The move is not a surprise. The firm’s massive debt load and lack of revenues have been a red flag for some time. The debt holders, with $620 million coming due in 2016, will be first in line to get paid out, but the big fight—as with all bankruptcies—will be among those lenders to see who gets paid first, and how much.

They want at least $275 million for the company, according to bankruptcy filings released today. Deerfield Management is Dendreon’s largest lender. It holds 36 percent of the notes coming due in 2016.
Provenge received FDA approval in April 2010, and people both in the financial world and the medical world—not to mention patients with hard-to-treat prostate cancer—were eager to see how the new drug would work. It was the first personalized cancer immunotherapy to get the nod from regulators. The process required extracting a patient’s own immune cells, boosting them with extra cancer-fighting powers, and re-infusing them back into the patient.

Under CEO Mitchell Gold, the firm borrowed a massive amount of cash to make the U.S. launch work. (Gold also sold shares worth nearly $27 million in the two days following sipuleucel-T’s approval.)

But it quickly became clear that the potential clamor for Provenge was not materializing, and the problems piled up. The company priced Provenge too high; doctors were confused about reimbursement; key management roles were left vacant.

Meanwhile, Big Pharma competitors with deeper pockets and, arguably, savvier leadership, brought new prostate cancer treatments to market: abiraterone (Zytiga), from Johnson & Johnson (NYSE: JNJ), and enzalutamide (Xtandi) from the partners Astellas Pharma and Medivation (NASDAQ: MDVN).

Cancer immunotherapy has taken big steps since Dendreon’s pioneering approval. Other autologous treatments, which like Provenge use a patient’s own cells, have shown remarkable results against blood-borne cancers in experimental settings. And ipilumumab (Yervoy), an “off the shelf” treatment that doesn’t use a patient’s own cells, was approved for melanoma in 2011.

Once touted as a multibillion-dollar-a-year blockbuster, Provenge netted $284 million in 2013 revenues, with $224 million more in the first nine months of 2014. Dendreon won European Union approval for the treatment in 2013, but the product has not yet launched there.

A series of adjustments ensued—layoffs, facilities shut down, and in 2013, an attempt to find a buyer. None were forthcoming, according to today’s filings. Then there were more layoffs, more strategic consultants and bankers, and ultimately, after much negotiation with Deerfield and other debt holders, the move into Chapter 11, which is the arm of the bankruptcy code that gives companies breathing room to come up with a plan to pay creditors—either by restructuring, or selling assets—while keeping business going. (In Chapter 7, by comparison, a company is liquidated in piecemeal fashion.)

The plan for Dendreon is two-fold. The company will seek a buyer at auction, with the minimum bid set at $275 million. Dendreon has until December 29 to find a “stalking horse” bidder—bankruptcy-speak for a lead bidder to start the process and set a floor for bidding to discourage low-ball bids.

Other bids must be in by January 27, 2015. An auction is slated for February 3 at the latest, according to the court filings. If no buyer steps up, a recapitalization will take place, with debt holders owning 100 percent of the company, and stockholders most likely wiped out.

Gold was replaced as CEO in 2012 and later surrendered his board seat. He now runs a hedge fund with an analyst who once covered Dendreon.

Dendreon now has 700 employees, according to filings. It’s unclear how many of them are in the Seattle area, where Dendreon is headquartered, but the firm has 200,000 square feet of office and laboratory space in the city. The city’s biotech community has already suffered big losses this year with Amgen’s decision to pull up stakes and take 660 jobs with it.

Obligations to those employees, including bonuses, benefits, and other payments, are up in the air in a bankruptcy reorganization, so workers will be watching the proceedings closely. In the court filings, Dendreon general counsel Robert Crotty wrote that “disruption from employee resignations or lack of morale could have devastating effects on [Dendreon’s] restructuring efforts.” He urged that the company be allowed to honor its obligations to employees.

The firm said today it would continue operating during the restructuring.