Dendreon Restructuring Call
DNDN

September 8, 2011

Mitchell H. Gold, MD, Dendreon's CEO, led a analyst conference call to discuss restructuring plans. This follows the month-earlier announcement that Provenge sales were ramping slower than expected.

About 500 employees are being laid off, out of about 2000. Restructuring costs are estimated at $21 million, including $5 million in non-cash stock-based compensation.. Savings from restructuring are estimated at $120 million per year. Most of these employees were in training to be ready to meet the (previously expected) demand ramp. Presumably if demand accelerated again they would have to be rehired, and the savings would not accrue.

For most mid to long term investors the key question is long term demand. Revenues for August were reported at $22 million, up 16% from July, which would put July around $19 million. Given a similar $3 million ramp in September, Q3 income would be $66 million, but management stood by its refusal to guide on revenue other than to say that it expects it to ramp slowly quarter by quarter in the immediate future. $66 million is up 32% sequentially from $50 million in Q2, which would be tremendous had expectations not been raised so high earlier in the year.

Approval of Provenge in Europe was painted as a 2013 event, so no revenue help there is likely until 2014.

Analysts' questions went every which way at management's statement that $500 million in annual revenues, or $125 million per quarter, would get Dendreon to cash-flow break even (but not to GAAP profits). They also believe they have enough cash to reach that point. They had $674 million in cash at the end of next quarter, and $600 million on August 31. Cash use should decline now that the 3 Provenge facilities have been certified by the FDA.

Aside from restructuring, the major effort is in sales. The good news is that the reported time for reimbursement for Provenge has dropped to around 30 days, from prior reports of 60 days or more. That means medical organizations with cash flow issues could treat twice as many patients with the same amount of capital. Also, a concerted effort to make sure prescribers understand the Provenge label and reimbursement availability has been made and is ongoing. We will see if this all has an affect if management keeps reporting revenues on a monthly basis.

Management still believes that the $90,000 per patient price is not an obstacle, and that other prostate cancer drugs will not prevent Provenge from being prescribed within its label, since it is very safe, with almost no side effects, and the course of therapy is much quicker than for most cancer drugs.

There seems to be little fodder for short term momentum plays up or down right now. A lot of risk has been incorporated into the current stock price. A slow revenue ramp with flattening in 2012 would probably keep the price in a range. A faster ramp and better evidence that end demand really can ramp well above $500 million per year would justify a higher stock price, maybe substantially higher, but that could take several quarters to see.

Disclaimer: I have been long Dendreon since 2005, but buy and sell according to my analysis of prospects versus the market capitalization. I added Dendreon shares in August 2011 and last sold shares in April of 2010. I have no plans to buy or sell Dendreon in the near term.

Dendreon Restructuring Call DNDN

Dendreon Restructuring Call
DNDN