Dendreon CEO John Johnson: ‘This is My Last Stop’
Dendreon was run its entire 20-year history by people trained in science and medicine, and the big achievement was FDA approval of the first treatment to stimulate the immune system to fight cancer cells like a virus. But it stumbled in the early days of marketing its prostate cancer drug, so Dendreon did what many biotech companies do next: It brought in someone with commercial experience to run the show, and shake things up.
John H. Johnson, who took over the Seattle-based company (NASDAQ: DNDN) on Feb. 1, inherits a lot of daunting challenges. The company generated $213 million in sales last year, but missed its annual sales forecast by more than $135 million as doctors fretted about whether they’d get prompt reimbursement for the company’s drug, sipuleucel-T (Provenge), which costs $93,000 a patient. The stock lost more than two-thirds of its value in August, and still hasn’t recovered. The company is burning cash at a rate of about $75 million a quarter, and isn’t offering a timetable for when it will reach cash-flow break-even. The company faces competition from one of Johnson’s former employers, Johnson & Johnson (NYSE: JNJ), and San Francisco-based Medivation (NASDAQ: MDVN) is moving in fast on Dendreon’s turf. And a vocal band of skeptics continues to question the clinical trial data that showed the drug extends patients’ lives.
All of that has been reported here and elsewhere. But Johnson hasn’t made himself available to the media yet as CEO of Dendreon. So I was happy to have a chance to sit down and meet him and his new executive team earlier this month at Dendreon’s R&D center on Seattle’s Eastlake Avenue East. This is the first extensive interview Johnson has done as CEO of Dendreon, and the first tour the company has given of its facility, formerly occupied by ZymoGenetics. Five of the seven members of the company’s new executive committee were there—Johnson; Mark Frohlich, the head of R&D; Joe DePinto, the leader of commercial operations; Robert Poulton, the logistics chief; and Greg Schiffman, the chief financial officer. Christine Mikail, the new head of business development, and Richard Ranieri, the head of human resources, are the other members of the team.
There was a lot of conversation around the room about maximizing the opportunity with Provenge, making sure it gets to the patients in need, and making the Provenge processes more automated and efficient. Johnson has a reputation as a focused, no-nonsense commercial operator, but he was comfortable letting his deputies talk about their areas of expertise, and even showing some of his human side during the hour-long interview. (He was brave enough to admit to this Wisconsin Badger fan that he’s an unapologetic supporter of the archrival Michigan State Spartans, even after my Badgers advanced further in the NCAA tournament.)
What follows is a transcript of the conversation about Johnson’s vision for the company, and the challenges it faces. Warning: Even though I’ve edited this down for length and clarity, as with all Q&As, it’s still long. I left it long because I know Dendreon followers really want to hear about the company’s strategy straight from the horse’s mouth.
Xconomy: What’s it been like for you getting started here?
John Johnson: When I first came in here and met with Mark (Frohlich’s) team, it just confirmed for me that this was a once-in-a-lifetime opportunity. My dad has prostate cancer. The space is important to me. I love being in oncology. When I came to the building here and I saw the automation and the spirit of innovation, I knew I made the right decision. We’re being pioneers. The thing that’s difficult for a lot of people to appreciate is just how much innovation took place here. I know you appreciate it from being close to the story, but there’s been a lot of work. But people like [former chief scientist] Dave Urdal and Mitch [Gold, the former the CEO] really overcame the odds. In my view, it’s the direction cancer care is going. When you’re first, you’re going to experience some bumps. But when you’re first, you have a chance to innovate.
X: I know a bit of your biography from the filings, but can you walk me through how you came to join Dendreon? What drew you here?
JJ: When you’re in the oncology business, you know about Dendreon because they were first in immunotherapy and have a very high profile. I first met Mitch [Gold] more than a decade ago. I had moved up to president of Ortho Biotech, was company group chairman of J&J, was CEO of ImClone after Lilly acquired us, and ran Lilly’s oncology business globally. So I was very familiar with what these guys were doing. When Mitch approached me, and the board approached me to join, I said absolutely. I really felt this was the way cancer care was going. The work that’s been done here, the work Mark’s team is doing now, I just felt like it was a chance to really make a mark and leave a legacy.
Like so many people in this business, it’s personal. I’ve been to every visit with my Dad. I’ve watched two of my grandparents go through chemo. It leaves an impression on you. When you see a loved one go through chemo, what it says to you is, wouldn’t it be great to have a product that enables your own body to fight the cancer, not a toxic product. I’m not taking anything away from chemo, because it has made a huge difference for so many people, it’s wonderful, but as a developer of medicines, when you can come up with a low-toxicity therapy that shortens the duration of therapy, and extends survival, that’s the direction you want to go.
There’s a pretty high likelihood this is my last stop. This is the legacy I’d like to leave, working with these guys, and leaving a mark on how patients are treated around the world, not just here in the States.
X: Last stop? How old are you?
JJ: I’m (pause) 54. This will be my last one. I see this as a chance to take this product around the world. We have a great platform. I can make my contributions and sit back and let others take the reins.
X: Since you came in on the first of February, it’s been just a little over two months, you’ve probably been through a series of meetings to understand the business and get a sense of what’s under the hood. What impressions have you had so far that may have surprised you coming from the 30,000-foot view you get from the board?
JJ: A couple things. First, it’s not just been about being in meetings. From Day 0.5, I went to ASCO-GU and met with customers for four days. I’ve been to each of the [manufacturing] plants. I’ve been spending time here, in Seattle.
No. 1, I think we’ve accomplished a lot. When you’re on the board, it’s one thing. To actually see people in action, and look at what they’ve done, and talk to customers, you get a different story. For me, I looked at it, and said “Wow, I don’t think people realize how complicated this business is, our business with Provenge.”
X: When you say “people,” who do you mean?
JJ: The broader industry. What Bob [Poulton] and Heidi [Hagen] and their teams deserve a lot of credit for is, people kind of view it like another drug. As if it’s just another drug. It’s not. There’s a detailed process that has to happen both logistically and otherwise. I remember being in other companies and thinking, “How the heck are they going to manage this?” I think there were a lot of doubts in the marketplace about how Dendreon would do that. But what’s funny is that I’ve been in a couple dozen investor meetings, and I haven’t had a single question about logistics. People take it for granted now. That’s the biggest testament there is for Bob [Poulton] and his crew.
So one impression is that these guys really do a great job of making a complex process look easy. The second impression is that while I knew we were focusing on cost of goods, I knew Greg [Schiffman] had been working on it, but when I came here and saw what you’ll see today, and I went out into the plants, the positive surprise for me was that I got more confidence we could hit those cost-of-goods targets.
I met with the people at each of the plants, and was really impressed with the passion of the people there. Everbody, even at the plants, is all about the patient. In the oncology business, I think there’s much more passion than most businesses, but I’ll tell you walking in the door at Dendreon, the passion about the patients is more palpable than any place I’ve been. At the plant level, that really struck me. I did town halls in each of them, and as I took questions, I heard a lot of stories from people. They all wanted to show me what they do and how they are innovating. There’s a pride there about their ability to do something good for patients. Part of that is because you’re bringing part of that patient in. People take it really seriously.
When I went to ASCO-GU, I was very pleasantly surprised with the way the thought leaders are thinking about the space with the new competition coming in. It was not surprising, but they are viewing prostate cancer much like other cancers where they look at different therapies and try to use them sequentially. Our job is to make sure Provenge is the foundation of care, and put on board first. What was clear to me was that really there’s not an either/or question, with [J&J's] Zytiga or Provenge, or Zytiga or Provenge and then Medivation’s compound. They really view these all as arrows in their quiver. They will sequence them. We didn’t talk to any analysts there, but the analysts who were there took their first-quarter sales estimates up, because they were there and heard the same thing.
X: Those are good things that you saw, but what do you think needed to change? You brought in your own team, you’ve reorganized the reporting structure a bit, and other things.
JJ: You have to look at the crossroads we’re at. We’re at a crossroads that only successful biotechs get to. That comes when you get your first product over the finish line, launch it in your own country, and then you get to a crossroad where you ask yourself, “How do we grow this business?” It’s not just that first product, but it’s all the other products Mark [Frohlich] talked about. The question is, how do you prepare the organization to do that? We’ve had turnover on the commercial side, and we’ve had a U.S.-centric view. What I wanted to do was bring stability, and bring a mindset that’s global and that was also focused on the R&D side as well. What Joe [DePinto] has done through his career is not only manage the U.S. piece, but he also managed J&J’s international business. He’s a leader who knows the R&D process, and has worked in international markets. I felt like we needed that skill set.
We’re now saying to ourselves, what are we going to do globally? How are we going to do this? Christine [Mikail], part of her role in past couple companies, has been to help them begin to plan out their global strategies. At ImClone, she worked for me there. She set up the office in Germany. She started a base of operations in Europe. She knows the different pieces we need. We have said publicly we’ll strike a contract manufacturing agreement in Europe. And Christine is a very accomplished dealmaker. I think she’ll add a lot in how we build this product out. We’re going to do contract manufacturing, but are we going to go it alone in Europe or not? Asia is an area with terrific potential. Japan is a culture that focuses on lower side-effect compounds, and that bodes well for Provenge. China is an interesting market. I want someone on the team who has looked at that kind of thing, and planned strategy.
I also wanted to flatten the organization a bit. Joe [DePinto] reports direct to me, Bob reports direct to me. We don’t have a COO anymore, that position was eliminated. I want this group of people sitting around the table discussing issues, and saying “What should we do, and how can we be all connected?”
X: Have you moved out here to Seattle?
JJ: No. I have a daughter in high school in New Jersey. Part of the discussion at the board, before I was a candidate, was that we need to open an East Coast office. When we discussed me coming into the role, I was very clear that I have a daughter in high school, and would need to split time between the coasts. So because [Dendreon] was already looking into the idea of an East Coast office, and because of the international expansion piece, it worked out for me. So we’ll open an office on the East Coast.
X: New York or New Jersey?
JJ: Probably New Jersey.
X: And this will not be at the same site as your New Jersey manufacturing operation?
JJ: No, it will be a business office.
X: So is that where you are going to work?
JJ: Yes. But when I say “be there,” I want to be clear that in the month of April, I’m in New Jersey for three days, counting weekends. So “being there” is a relative term, because most of the time, we’re on the road. I’d expect my office time to be split between Seattle and New Jersey.
X: You’ve got so much to talk about here, I haven’t even brought up reimbursement. Is that still a major issue you need to wrestle to the ground, or how is that being taken care of?
Joe DePinto: We had an excellent NCD [National Coverage Determination from the Centers for Medicare and Medicaid Services] which was issued last year. The benefit of that is over time, reimbursement confidence continues to grow in the clinics, both in the oncology and urology side. They are becoming more confident. There’s a Q code now [a reimbursement classification used by Medicare]. They can do electronic billing. The time to payment is getting better, it’s 30 days or less, which is excellent. It’s really unprecedented for NCDs. Mitch and the team put a lot of effort into making sure that would allow patients to have access to Provenge. Reimbursement confidence continues to build across our market segments. Having that coverage, the Q code, the ability to file electronically, is big.
X: And how many patients does it take for them to gain confidence they’ll get reimbursed in a timely manner?
JD: It’s highly variable, depending on the account. But what typically happens is you get that one claim through, you get more confidence as another claim goes through. It’s like anything where people decide to develop a process to make sure they’re not missing anything, and they handle [Provenge billing] effectively. I see it becoming more of an SOP [standard operating procedure] within oncology practices, as they determine processes for “this is how it works for billing with Provenge,” just like you have to have a process for billing with any other therapeutic given in those practices.
John Johnson: The challenge in the beginning was if you put five patients on Provenge, and you’re not getting paid for six months, that’s a lot of Provenge on your practice. The good news is that the time piece of the equation has really gone away. We still have to make sure we go through a process with payers up front to get pre-approval.
I was in a big practice last week where they’ve developed a [Provenge billing] system. They have steps where they verify original coverage, then do co-pay verification. They have a spreadsheet with columns across the top for every patient. Once they did that, once they saw the payment coming in, they had all the patients being treated by a specific nurse, and all the payments being handled by a specific billing manager. They were rolling. And the reason they were is that they’ve seen it happen five to six times—I think this practice was on its 13th patient, and they hadn’t seen any problems at all. But what they had to do was have a process, and have it centralized. It’s working great for them, but not everybody is there yet.
X: And now you’re looking to pick up more community oncologists, as well as urologists who can prescribe Provenge. Or is it urologists and then oncologists, in that order?
JD: It’s interesting, because we have bifurcated our marketing effort into the urology and oncology side. Oncology is still a large part of our business, but urology, we see as a big part of the future, and we really want to grow that part of the business. We have separate messages for them, because the messages are slightly different. We have different types of value propositions for different specialties. The urologists tend to see those patients a little earlier. We’re talking to them about intervention a little earlier, at a lower PSA [prostate-specific antigen] level. We’re talking to them about what percentage of patients with a lower PSA are metastatic [meaning their disease has spread]. Oncologists tend to see patients a little bit later. But all along that continuum there’s consistency to the story. Mark [Frohlich] talked about wanting Provenge to be the foundation of care, and that’s exactly where we want it to be. We have a urology marketing team, and an oncology marketing team, and a field sales force that calls on both.
X: You must be very curious about the data coming out at ASCO in June from your competitor, J&J’s Zytiga, which showed in the pre-chemo setting that it was offering a benefit. How might this change the landscape for you?
JJ: It wasn’t a surprise to us. We all expected it in this time frame, and for it to be positive.
JD: Our experience says that competition grows a market. Having another voice in that market will help grow the market, and get awareness up. We really believe Provenge will be the foundation of care first. If you look at all the therapeutics coming out in the space, there’s significant progress in the space, progress we haven’t seen in the past. This will help us from a standpoint of buzz, and increased word on the street.
JJ: I don’t think it really changes. It’s not like if they show five months [median survival time benefit] versus four months, it makes a bit of difference to us. The point is, there’s an important role for immunotherapy, and there will be a role for the new agents.
X: So even though they are moving into the same pre-chemo population, and let’s say they show four months survival benefit, that would be very comparable to Provenge—with all the usual caveats about how it’s hard to compare different clinical trials. Are you still saying that doctors will choose Provenge as the foundation of care, meaning they opt for Provenge first and then go to Zytiga, or is that just the goal?
Mark Frohlich: I think that’s the goal. But when we speak to physicians, it’s a message that resonates very well with them. Conceptually it makes sense that with Provenge, an immune therapy, earlier use is better. If you look at our New England Journal paper and look at prognostic factors, overall there was a trend when people had lower disease burden and lower PSAs, there tends to be a bigger benefit for Provenge. We’re digging into that some more.
X: Just to talk big-picture for a minute, what kind of company do you see this becoming over the long-term? Five to 10 years from now?
JJ: A fully integrated company. By that I mean this will be a company that has operations around the world, and has manufacturing, and has research and commercializes its own products. In some markets, it will take a partner, probably, but a model I like is Celgene. There’s a company that started much like we did, and now they have operations in Europe, Japan. They really built the company out, and Sol Barer and Bob Hugin really deserve credit. It’s a great model for us.
X: So this will not be a quick flip?
JJ: That’s not the plan. We have a great platform here, and a great product—which, by the way, is really early in its life cycle. We’ve had an NCD [National Coverage Determination] from Medicare for, what, eight months? So it’s early, it’s in a growth phase, and my plan is to build it out. That’s why I was brought in. I am a guy who likes to build companies.