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More Biotechs Belly-Up These Days but Dendreon Still “One of a Kind”

Xconomy National — 

Biotech companies rarely go bankrupt. Sitting where I sit, that bit of conventional wisdom comes around every so often, although it doesn’t generate quite the same buzz as Halley’s Comet or a wardrobe malfunction. Bankruptcy just doesn’t get America jawing over the water cooler on Monday morning. (I can’t imagine why.)

If your cooler is filled with Pacific Northwest spring water, however, you might have Dendreon’s recent bankruptcy announcement on your mind.

After all, the Seattle biotech with its pioneering prostate cancer treatment sipuleucel-T (Provenge) once seemed to be the next homegrown cornerstone of that city’s life sciences community.

Key bankruptcy meetings between the various parties are scheduled next week, and by early February, Dendreon as we know it could be gone, even as the company continues to produce and supply Provenge. Its creditors are pressing for a quick auction after the New Year.

There are precedents for bankrupt biotechs recouping at least something for their stakeholders, as we’ll see a bit later. But whatever Dendreon’s fate—sold for a fraction of what it was once worth, reorganized under new ownership, or wound down altogether—the company will always get kudos for bringing the first cancer immunotherapy to market and making the complicated logistics of it actually work.

It just didn’t work well enough for patients. “It was difficult to see a clear and compelling efficacy signal,” says Rob Johnson, an immunotherapy specialist with biopharma consultancy Alacrita in Cambridge, MA.

As Dendreon fitfully moved Provenge through late-stage clinical trials, the prostate cancer field shifted beneath it, and rivals caught up to it. By the time the FDA approved Provenge in 2010, patients and doctors expected more dramatic results for the $93,000 price, says Johnson: “The headache is only worth it if you’re delivering real clinical benefit to patients.”

A lot of what Dendreon did turned out to be bad business: misjudging the market, miscommunicating with doctors, and leaving key management positions unfilled. It also had an extremely complicated technological system that, in part, extracted and fused a patient’s own immune cells to an engineered antigen—a protein from a tumor cell that is key in triggering disease—outside the patient’s body.

“If you had to pick the hardest way to do cell therapy, that’s Dendreon,” says Bob Nelsen of ARCH Venture Partners, who has invested in the field for years (but not in Dendreon). “Almost every other thing in cell therapy is easier, but that doesn’t mean it’s easy. Dendreon proved you could do it even with the hardest [method],” says Nelsen, citing the company’s reliability rate of “making the product they wanted out of the cells.”

That’s a big reason why Seattle-based Juno Therapeutics, with Nelsen and ARCH as the lead investor, chose Dendreon’s former head of operations Hans Bishop as CEO. So when you hear news of Juno, Novartis (NYSE: NVS), Kite Pharma (NASDAQ: KITE), bluebird bio (NASDAQ: BLUE), and others doing cell-based immunotherapy—perhaps even at the upcoming American Society of Hematology conference in San Francisco—remember that Dendreon was the pioneer.

And pioneers often are the ones with arrows in their backs. The signs of a possible Dendreon bankruptcy have been piling up for a year or two: Massive debt—$620 million—coming due in 2016. Disappointing sales for Provenge, and getting worse at a time when early drug launch wrinkles often get smoothed out. No takers for the company during an earlier attempt to find them.

Dendreon’s move into Chapter 11 was perhaps inevitable, and definitely rare—but not quite as rare as conventional wisdom would let on. It’s a pre-recession notion: From 2000 to 2008, the year the world plunged into financial crisis, there was roughly one bankruptcy per year among public life science companies.

In the seven years since, however, there have been 46. In other words, 82 percent of all the biotech bankruptcies since 2000 have been filed after 2007. Well, sure: recession hits, capital dries up, and it stands to reason a bunch of companies are left grasping for a life line.

But here’s an odd thing: Most industries showed the opposite effect. I examined a bankruptcy database that listed 1,929 companies across 28 industry sectors, and only 39 percent of the bankruptcies were filed after 2007. The 82 percent in the life sciences after 2007 were by far the highest proportion of any sector. Only five others (mining, oil and gas, paper and packaging, publishing, and real estate) were above 50 percent.

(A note about sourcing: I’ve used a database from New Generation Research that compiles all U.S. public bankruptcies, but not private companies. The database also uses the broad Healthcare/Medical category, which means I had to comb through and use my best judgment to identify the biopharma, device, and diagnostics companies.)

Biotech, proportionally speaking, was hit much harder by bankruptcy after the recession than every other industrial sector, and I’m not sure why. There was no consensus among the bankruptcy lawyers and bankers I spoke with, but my conversations brought up several potential factors.

There was a lot of fundraising during the genomics bubble of 1999-2000, and it might have taken several years for those companies to get public and fizzle out. If true, that shakeout has taken years. There was a big spike in 2008-2010, but then eight more bankruptcies in 2012 and six more in 2013. This year, Dendreon is only the second biotech bankruptcy, so perhaps the unprecedented public-market access of the past couple years is having a positive effect.

I wondered if the large wave of bankruptcies was in part fueled by … Next Page »

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  • John

    Great article Alex – Would you be able to tell me where I can find the list of bankrupt biotech companies?

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  • Bill

    Dendreon took on massive debt to buy and build out massive facilities that it owned in an expensive, unproven, difficult market space for their products. Few in biotech understood why they took on debt. Even fewer understood why they decided to own their facilities. Most in biotech choose to start by having their manufacturing done by contract manufacturers, who benefit from scale, experience and both physical and regulatory/GMP infrastructure. It is often a little more expensive per unit to use contract manufacturers but it avoids the massive capital outlays that ultimately sunk Dendreon.

    Mitch Gold made a bunch of big bets that were really bad decisions. And happened to sell his stock at just the right time on multiple occasions right before the stock tanked. Biotech investing is all about high risk, high reward. Dendreon took massive risks and failed completely at every risk it took.

  • JimInAuburn

    Dendreon’s competitors in that market space pretty much cost just as much, just spread over time instead of all in one month. Their competitors usually have more side effects and require other treatments to minimize the side effects. Their competitors also require you to take a pill every day for years, whereas Dendreon’s treatment takes one month to complete. Their competitors have pretty much the same life expectancy extension.