Tuesday, February 15, 2011

Dendreon Corp. (NASDAQ: DNDN): Q4 Earnings Preview 2010

Dendreon Corp. (NASDAQ: DNDN) is scheduled to release its fourth-quarter financial results after the closing bell on Tuesday, March 1, 2011. Analysts, on average, expect the company to post a loss of 49 cents per share on revenue of $24.78 million. In the year ago quarter, the company posted a loss of 28 cents per share on revenue of $21,000.

Dendreon Corporation is a biotechnology company focused on the discovery, development and commercialization of therapeutics that may improve cancer treatment options for patients. The Company’s product portfolio includes active cellular immunotherapy and small molecule product candidates to treat a range of cancers. Dendreon's first product, sipuleucel-T (marketed in the U.S. as PROVENGE(R)), was approved by the U.S. Food and Drug Administration (FDA) in April 2010 and was subsequently launched by the company on May 3, 2010.

Provenge is the first product in the new therapeutic class known as active cellular immunotherapies. It is the first medicine that trains the body’s immune system to attack cancer cells as it would a virus. Provenge sales in 2010 totaled $48 million. Analysts predict that the product will reach blockbuster sales status - over $1 billion - by 2016. Prostate cancer is the second most common type of cancer among men in the U.S., after skin cancer. About 200,000 men are diagnosed with prostate cancer in the United States every year. The drug is also being tested for treatment of other types of cancer including bladder, colon, colorectal, and breast.

Provenge is currently manufactured for U.S. patients at a company-owned facility in New Jersey expected to reach full capacity later this quarter, pending FDA approval. Two additional U.S. Provenge plants are under construction, expected to be completed and operational in the middle of the year.

In the preceding third-quarter, the Seattle, Washinton-based company's net loss was $79.30 million or $0.56 per share compared with a loss of $45.55 million or $0.40 per share last year. Net loss for the quarter included a $0.09 charge for the litigation settlement, while the prior year quarter included a non-cash charge associated with the revaluation of warrants of $19.4 million or $0.17 per share. Revenue for the quarter increased to $20.22 million from $0.02 million last year. Analysts, on average, expected the company to report to report a loss of $0.44 per share on revenue of $23.83 million.

In November, announced that its prostate cancer vaccine Provenge has been endorsed by a Medicare advisory panel. The Medicare advisory panel meeting was a part of the National Coverage Analysis, or NCA, that was initiated on June 30 by the CMS (Centers for Medicare and Medicaid Services). The CMS is evaluating whether covering the costs of Provenge is "reasonable and necessary." The NCA is expected to be completed by June 30, 2011. The NCAs do not impact existing coverage decisions, nor do they restrict local Medicare contractors from covering Provenge. Therefore, Medicare beneficiaries are still able to access Provenge and private payers can also still cover Provenge.

Dendreon has guided for $350 million to $400 million in sales for 2011. Half of these sales are expected in the fourth quarter of 2011. By the last quarter of this calendar year, Dendreon will be producing product from all three of its US manufacturing sites. Cost of goods will come down and Dendreon will start being able to meet the significant demand for this product. Dendreon expects to spend $125m, split evenly between capital expenditure and operating expenses, to bolster capabilities in 2011. One-off start-up costs from US production facilities will continue throughout the first three quarters and total $90m in 2011. By then Dendreon expects to have increased US production capacity 10-fold by making sites in New Jersey, Atlanta and Los Angeles fully operational. This will eliminate the capacity constraints Dendreon faced in 2010.

Dendreon is also building a Provenge production facility in Germany, due to be operational in 2013, and in the meantime is to outsource to a CMO. Construction of the Germany plant is due to begin in 2011 with the aim of gaining regulatory approval in 2013. Dendreon expects to receive a European decision on the Provenge marketing authorisation application (MAA) around the same time as the Germany plant gains approval. To accelerate the timeline for approval in the European Union (EU) Dendreon is to outsource to a contract manufacturing organisation (CMO). Qualifying a CMO can be done faster than plant construction and Dendreon expects to save 12 to 18 months by outsourcing to support filing. The Germany plant will support the first phase of the European expansion, with other sites possibly being constructed in the future. Output from the Germany plant is expected to be similar to Dendreon’s 160,000 sq ft site in Atlanta and 184,000 sq ft premises in Los Angeles. As demand in Europe increases Dendreon may add more facilities to support operations in Germany. Dendreon will make decisions on the capacity and location of facilities when reimbursement negotiations have progressed. It is believed that Europe has the largest number of metastatic castrate-resistant prostate cancer patients in the world, about 1.5 to 2 times the size of the US patient population. There is also a significant unmet clinical need for these patients.

Few skeptics however point out that the $93,000 price for the three-treatment regimen is a big hurdle despite the company’s argument that when overall costs of care are accounted for, Provenge’s price is comparable to that of other available treatment options.

Among other developments, Dendreon recently announced plans to start phase II studies of Neuvenge (DN24-02), the company’s second active cellular immunotherapy (ACI) that targets Her2+, in invasive bladder cancer soon. The company filed an Investigational New Drug Application (IND) in December 2010.

Full Disclosure: None.
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