Dendreon Watchers: Buckle Up for Action in First Quarterly Report With Actual Sales

8/3/10Follow @xconomy

Dendreon followers, it’s time to get ready for another spin on the great NASDAQ merry-go-round later today.

The Seattle-based biotech firm (NASDAQ: DNDN), a poster child for wild and sometimes irrational stock market swings, is preparing to release its first quarterly report this afternoon as a company with actual sales from a product. Whatever Dendreon says, regardless of how much it matters to its future as a business, could send the market into a temporary tizzy. The company was left for dead 18 months ago at little more than $2 a share, skyrocketed to more than $57 just three months ago, and closed yesterday at $33.84.

The roller coaster ride has a long history at Dendreon, but it got really interesting when the company shocked the cancer research world in April 2009 when it showed that its drug, sipuleucel-T (Provenge), could prolong the lives of men with prostate cancer by a median time of about four months, with minimal side effects, in a study of 512 patients. Dendreon continued on its historic course four months ago when it won FDA approval for this drug, the first of its kind that actively stimulates a patient’s immune system to fight cancer cells like a virus.

It’s been a fascinating story of a scientific and medical quest over the past 15 years, but now Dendreon is entering a phase where the story is more about the unglamorous realities of business. Dendreon set the price at $93,000 per patient for this potentially life-saving therapy, an eye-opening sum to many on Wall Street, who were expecting something closer to $62,000. The Centers for Medicare and Medicaid Services sent shivers through the market at the end of June when it said it was going to open up a process to study whether it should pay for the drug or not.

Now that Dendreon has two months of sales under its belt, investors will get to see just how many people it has been able to treat with this new mode of therapy.

Expectations with Dendreon spun way out of control earlier year, as analysts talked up Provenge’s billion-dollar potential. Less attention was paid to the complex logistics that Dendreon needed to iron out before it could fully exploit the potential of the drug, which could help the 30,000 or so patients who die of prostate cancer in the U.S. each year. The company has limited manufacturing capacity at its New Jersey factory, and has told investors that it only expects to be able to supply about 2,000 patients in its first year on the market.

“Expectations were out of whack,” says David Miller, president of Biotech Stock Research, an independent analysis firm in Seattle that follows Dendreon.

Miller forecasts $3.1 million in sales for the drug in its first two months on the market. That’s a bit lower than the average Wall Street analyst estimate of $4.4 million, cited by Robert W. Baird analyst Christopher Raymond in a report to clients yesterday. Even those puny sales expectations have been cut in half over the past couple months, as Dendreon tried to assure investors that it would take time to get all the necessary players at each medical facility—patients, doctors, insurers—operating in synch.

Dendreon’s process, by its nature, takes a while to get up and running. It’s not a matter of popping a pill from a bottle—the Dendreon regimen requires blood get withdrawn, filtered, sent to a factory to be “taught” to recognize cancer cells, and then have the blood re-infused. The patient gets three infusions over a month’s time. Doctors often want to see proof that insurers will reimburse on time before they ramp up their prescribing practice with multiple patients, Miller says.

“The launch is going how Dendreon expected,” Miller says. “They expected it to be slow.”

Based on Miller’s model, Dendreon should generate $3.1 million in sales in the quarter ended June 30, and then ramp up to $20 million in the following quarter, and $31 million in the final quarter of this year. That means Dendreon should generate a total of about $54 million in 2010, Miller says.

The sales numbers are supposed to get a whole lot bigger in 2011 and 2012. Dendreon is only operating at about one-fourth of its manufacturing capacity at a plant in New Jersey, and it is working fast to set up more capacity in Georgia and southern California. This is a very expensive push—the company has said it plans to spend $460 million of its cash this year, much of it to maximize the marketing and manufacturing push for Provenge. JP Morgan analyst Cory Kasimov has forecasted $1.5 billion in sales in 2014 for the Dendreon product.

I’ll be listening in later today on the conference call, and providing a quick report on how much of the drug Dendreon is selling, how it is managing its expenses, the latest on Medicare reimbursement on the regional and national level, and any updates on the state of Dendreon’s manufacturing capabilities. If you have any specific questions you’d like me to ask, leave a comment at the bottom of this story, and I’ll see if I can get you an answer.

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  • http://na bass

    Luke, as always, thanx for your enlightening articles on my favorite biotech. I’m very interested in today’s Q2 report.

    If possible, would you find out if they are tracking a waiting list tally from the 50 centers? In other words, do they have a firm number of patients on a demand list wanting Provenge? Phrase the question as you will, but I’m hoping they share a specific number.

    thank you,

    bass

  • Michael Lea

    Luke,

    Can you find out the status of EU?

    Can you get a update on when the CA and GA plants will come online?

    When will the remaining 75% of NJ come online?

    See if Gold will give projection on future revenue.

    What is DNDN doing for a Asia launch? Will DNDN partner?

    When will trials start for new drugs?

  • Paladin

    Luke;

    I wonder how impressed Dendreon managment are on CMS’ comment page and if they think it will cause a withdrawal of the review.

    Additionally, I wonder if FDA has had anything to say about CMS attempting to usurp their athority; for that matter has Dendreon contacted FDA with regard to this matter, to ask for their help?

  • Douglas

    Luke,
    Allen Lichter’s public comment regarding the NCA best states the information I am looking for from Dendreon management and CMS. The public doesn’t know what exactly is under review: on-label use, off-label use, both? Although the company is likely to be tight-lipped, it could be very helpful to get their take on the purpose of the NCA. Also, the company should be urged to request of CMS the same clarification that Dr. Lichter has requested.

    From his published comment:
    “…the information provided by CMS regarding this NCA lacks sufficient clarity regarding the purposes underlying this action.”
    “Under any scenario, we urge CMS to provide clear public statements regarding Medicare’s current policies governing the coverage of this therapy…In practice, ambiguity and uncertainty regarding coverage policies can act as an unacceptable barrier to medically necessary care.”

    http://www.cms.gov/mcd/publiccomment_popup.asp?comment_id=21615

  • 1966

    Luke,
    Great info through all the years. Can management share the maximum allowable capacity per workstation per day. Thanks in advance.

  • John

    Luke,

    Thanks for offering to ask – please make sure someone inquires how far they can stretch existing cash on hand. Do they foresee having to raise more money before sales are fully ramped up?

  • Shan

    Why did Dr. Gold sell a lot of his shares the day after the approval?

  • http://www.xconomy.com/author/ltimmerman/ Luke Timmerman

    Thanks for all the really good questions. I’ll see what I can find out on today’s conference call, and directly from management.

  • http://na bass

    Luke,

    It was a great cc and if you asked David Miller to ask about my “waiting list question” THANKYOU!

    Dr. Gold clearly made the distinction between the 550 scrips & thee WAITING LIST!

    Continued success to you & Xconomy!
    bass