One year ago shares of Dendreon Corp. (NASDAQ: DNDN) were trading at a 52-week high of 37.19 and the darling of the biotechnology industry with a prostate cancer drug on the market that was almost certainly going to bring in untold riches. Somewhere along the path to untold riches things went unbelievably wrong for DNDN and on Tuesday the company hit a new low, falling 23% to a 52-week low of 4.70 following a disappointing earnings report from the second quarter 2012.
Interestingly, during DNDN’s second quarter the company actually reported that net product revenue from Provenge, their therapeutic vaccine for treating advanced prostate cancer and their only product on the market, actually jumped to $80.0 million, up 66.1% from the same period in 2011. Unfortunately for DNDN the focus isn’t on the revenue jump from a year ago but rather the 2.4% slide in revenues sequentially.
Obviously with Provenge being their only product on the market many investors now consider DNDN dead in the water, owners of a cancer drug that has lost its momentum and fallen from favor with doctors, patients and shareholders. DNDN’s reaction to their own earnings report hasn’t exactly been a textbook approach on how to restore confidence among shareholders.
DNDN has pointed the finger of blame for their declining revenues from quarter one to quarter two, a slip from $81.9 million down to $80.0 million, at some odd subjects namely a high vacancy rate in the sales force, high rate of infusion cancellations among patients in late June (twice the level normally seen) and greater focus on urology accounts than oncology and academic accounts. While these may have some bearing on the results investors are so sure.
If these are the real issues then it could be a quick fix and DNDN could be back on their way to favored status among investors. On the other hand if it is what many investors believe, the advent of new competition and disinterest among doctors, then the fall of DNDN is only starting.
To their credit, whether investors want to give it to them or not, DNDN is aggressively trying to stop the bleeding. While it’s not pretty DNDN restructuring plans include slashing 40% of their workforce, that’s 600 jobs, and closing its manufacturing facilities in New Jersey, leaving them a facility in Georgia and California. The two facilities together have a manufacturing capacity of approximately $1 billion of Provenge, which can be doubled with the implementation of automation.
With this move DNDN believes they can save about $150 million per year and through this restructuring they can improve their cost of goods sold (COGS) from an absurdly high 77% during the second quarter 2012 to 50%. By cutting $150 million DNDN also reduces the amount of revenue needed to get cash flow positive. DNDN will need to get to $400 million in annual revenues to become cash flow positive, a figure that dropped from $500 million prior to the announced restructuring. Given the fact that for the first six months of 2012 DNDN generated revenues of $161.9 it is evident that they are still in need of a boost in sales.
The question is can DNDN get that boost? It is disheartening to see the quarter-over-quarter revenue dip for Provenge, an indicator that it is already on the outs and could suffer greater dips in the coming months. DNDN is up against some heavyweights in Johnson & Johnson as well as Sanofi, makers of Zytiga and Jevtana respectively, both prostate cancer drugs currently on the market. Provenge will likely have to deal with a third competitor in the near future given the favorable results shown from Medivation’s MDV3100.
With all that said DNDN really doesn’t need to break the bank in product sales to be cash flow positive but even with their restructuring plans announced they may not be able to overcome the sheer volume of competitors. It would be nice if this could be a quick fix, giving investors an opportunity to pick up some shares at a low price during this sell frenzy, but DNDN’s reality looks much darker.