Dendreon To Spend $460M on Provenge Push This Year, Looks for Payoff in 2011
Dendreon raised $630 million from investors last year to gear up for the commercial push of its new drug for prostate cancer, and the Seattle-based company plans to spend a lot of it this year.
The company (NASDAQ: DNDN) plans to use about $460 million of its cash in 2010—about triple what it burned through last year—as it builds up three factories across the country to make sipuleucel-T (Provenge). About $200 million of that will be one-time capital expenses on facilities in New Jersey, Georgia, and Southern California. Another $30 million will go toward building up inventories, while the rest will go toward salaries, benefits, consulting, and marketing activities, according to Greg Schiffman, Dendreon’s chief financial officer. Then in 2011, Dendreon expects to generate positive cash flow. Schiffman made the remarks this afternoon on the company’s quarterly conference call with analysts.
Dendreon is spending all that cash as it enters the home stretch for what analysts expect is an almost certain green light from the FDA to start selling the prostate cancer drug in the U.S. The product, Dendreon’s first as a company, is also seeking to be the first in a new class of therapies that actively stimulate the patient’s immune system to fight cancer cells. It passed a pivotal clinical trial last year of 512 men with terminal prostate cancer, showing it could help them live a median of four months longer than a placebo, with minimal side effects.
The FDA’s deadline to complete its review of the drug application is May 1. There’s about a 90 percent chance the FDA will approve this drug on time, according to JP Morgan analyst Cory Kasimov, and if so, the sales will easily exceed the spending rate by Dendreon, he says. About 80,000 men in the U.S. might be candidates for this drug, at a cost of $65,000 per patient, which means the drug could generate at least $1.5 billion in U.S. sales in 2014, Kasimov said in a note to clients today. Even though Dendreon stock touched a 52-week high of more than $33 today, Kasimov predicts it will go even higher to $46 by the end of the year.
“Dendreon’s prostate cancer vaccine Provenge has encountered more bumps than a mogul run on Cypress Mountain, but now we believe the regulatory process that’s going on four years finally appears poised to reward the perseverance,” Kasimov wrote in the note to clients today.
The big bump he’s referring to was the euphoria in March 2007, when an FDA advisory panel voted 13-4 in favor of approving the Dendreon drug, followed by the crash of May 2007, when the FDA delayed the application. That’s all in the past now that Dendreon has marshaled more evidence for its drug from the study of 512 men, Kasimov says.
Rather than handicapping the odds of FDA approval, most of today’s conference call focused on Dendreon’s commercial game plan, and a lot of it wasn’t really new. But for those getting up to speed on this big story, it’s worth a reminder.
Dendreon’s financial report was pretty basic at its core. The company entered 2010 with about $606 million in cash and investments on the books, Schiffman says. Dendreon isn’t providing a specific sales forecast for this year, although its New Jersey plant will be ready to operate at one-fourth of its total capacity if the drug is cleared for sale on May 1, the company said. If the plant operates at full tilt, with three shifts a day, it will be able to produce $60 million to $120 million of the drug this year. Hans Bishop, the new chief operating officer, noted that Dendreon will be ready to start commercializing the product the day after it is approved by the FDA.
One of the big variables in that equation is pricing. Dendreon is still performing internal analyses on what it should charge for the drug, CEO Mitchell Gold said. Kasimov, in his analysis today, based his $1.5 billion sales forecast on a survey of 53 oncologists and urologists, who predict broad usage of the product once it is available for sale. Kasimov assumes the product will cost $65,000 per patient, although he noted the price could actually be $75,000 to $100,000 per patient.
While Dendreon isn’t providing any firm sales forecast yet, it’s getting ready for a steep ramp-up. The remaining capacity of its New Jersey factory should be ready to go in the first half of 2011, and the two other facilities in Georgia and Orange County, CA should be ready by mid-2011, giving the company enough capacity to make between $1.25 billion and $2.25 billion worth of Provenge about one year after the product reaches the U.S. market, if it wins FDA approval, Gold said.
A few analysts tried to get Gold to talk about how the talks are going with the FDA, and he basically brushed them off, saying he wouldn’t go into detail about the ongoing dialogue. Gold did swat down one rumor, which said the FDA might want to convene another advisory panel to discuss the risk and benefit of the product, he said, “We have gotten no indication from them that we should prepare for a panel.”
So what keeps Dendreon executives up at night these days? asked analyst David Miller of Biotech Stock Research. The big thing is managing all this hiring and growth, Gold said. The company now has 500 employees, up from about 200 a year ago. It has 131 more openings on its website as of today, and Gold didn’t say how big Dendreon expects to become. Gold said he’s been “thrilled” the company has been able to attract some top biotech industry talent, but getting all those people on board, and properly trained, sounds like a daunting task.
“It’s a time of incredible transition for the organization,” Gold says, from an R&D operation, to a more integrated biotech company with commercial operations. David Urdal, the company’s longtime chief scientific officer, offered up some insight on how that’s essentially a good worry to have. “It’s hard to go to sleep at night when you have the opportunity to bring something this novel forward into the marketplace,” Urdal said.