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Greg Schiffman - Chief Financial Officer

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Dendreon Corp. (DNDN) Cowen and Company Healthcare Conference Transcript March 5, 2013 10:40 AM ET

Unidentified Analyst

… room which is just right down the corridor. So without further ado, Greg.

Greg Schiffman

Thanks. Thank you very much. We are pleased to be able to present here today and we’d like to thank the team at Cowen for inviting us to the conference. Do want to remind you that this presentation will include forward-looking statements that are subject to risks and uncertainties, and to find out more about Dendreon specific risks and uncertainties, please reference our SEC filings.

So if we look at Q4, we did our Q4 quarterly last week and if we look at some of the highlights, excluding accounting adjustments our pro forma net revenue was $81.6 million.

We had some accounting adjustments, these were a change in estimate associated with accruals we make for chargebacks from 340B institutions and if you look at the revenue we reported, it would have been $85.5 million, but as we think about pro forma or sequential growth 816 is really apples-to-apples to look to when we were out 5% sequentially.

Our cash on hand at the end of last year was $430 million. We believe that that’s sufficient cash to get us to a cash flow break-even position. We delivered strong performance in community account, continue to trend that we started seeing in Q3, community urology grew by 25% sequentially and community oncology was up 4% sequentially.

We continue to see physician interest with new accounts treating their first patient in Q4 being 61 new accounts and our total number of accounts now at 802, so we have very good coverage across the U.S. in terms of accounts treating patient with PROVENGE.

And finally as part of the restructuring, we did not close down Morris Plains, New Jersey facility, but actually we’re able to sell our interest in the facility, we received $43 million in cash and we’re able to preserve 100 jobs.

If we look at our quarterly performance in the community accounts, so we indicated we’ve seen improvements there over the last two quarters. This is really where we’ve always felt where long-term potential for PROVENGE would lie and we’ve continue to see improvements in that market segment. Community accounts represent 71% of our total sales now. It's up from 58% in Q4 and -- of 2011.

And last year we saw several large Phase 3 or Phase 2 studies initiate in our label. There are six of them in place today. Given the number of studies that are underway we saw natural shift away from the academic, where the focus if at all possible to get patients enrolled in those clinical study and so we did see a 9% sequential decline in the academic.

So as we look at sort of percentage of growth over those last few quarters, urology was up sequentially Q2 over Q1 by 5%, Q3 over Q2 14% then Q4 over Q3 25%. In oncology, we had seen competitive dynamics then we’ve talked quite a while about patients where oncologists get them form urologists and the patients are fairly far advanced, the PSA is doubling very fast at a very high level.

PROVENGE is a treatment that takes a while to activate the immune system, given Zytiga is co-administered with prednisone. They are waiting two months after they complete the therapy of PROVENGE before they put them on it, from that standpoint it’s at least the four-month delay.

They were uncomfortable waiting that long with patients that were very far advanced and given such, we did see some competitive dynamics, oncology was down in Q1, Q2 over Q1, we saw essentially level out Q3 to Q2 and we saw it grow almost in line with company Q4 over Q3.

In terms of Q1 outlook, on our last -- Q4 call last week we did note that Q1 sales were facing potential headwinds and we expect they would be below Q4 pro forma sale of $81.6 million.

We did highlight a variety of factors, including enrollments, yield schedule changes, competition, seasonality, sales vacancy in certain territories, which could vary dramatically and substantially impact the range of decline for this quarter.

There has been customer confusion around what impact sequestration will have on the Medicare billing, some believing the impact was immediate, we have a team that’s closely involve tracking implementation within CMS and we’ll certainly let people know any potential impact sequestration may pose when this implemented in April.

After our calls we look at the updated analyst consensus for Q1, it’s approximately $80.6 million or about $1 million down from our Q4 pro forma revenue. To be premature as we indicated in the call for us give any specific estimate of Q1 revenue at this point in time, so we indicated on our call, there are variety of factors, which could dramatically impact the range of decline.

However, I would note that $1 million reduction from Q4 is within range of error that’s outside of our forecast accuracy, would represent an error rate that would not have caused us to announce reduced expectations for Q1.

We think that sales maybe meaningfully below Q4. However as we indicate on the call, there is a lot of causes that are temporary and other causes that are being counteracted by positive trends.

So we indicated on the call in February, we see the enrollment pick back up and we continue to see that favorable trend in the enrollment through today. We are maintaining our guidance to expect growth year-over-year, but we do expect to see sequentially down in Q1.

So if we look at the market for PROVENGE, it does address the significant unmet need in a large and growing U.S. market, 30,000 to 35,000 new cases of mCRCP -- mCRPC diagnosed each year.

Prostate cancer is the second most frequently diagnosed cancer in men with a higher incidence rate in African-American male. Large unmet need for men in this disease state and our new entrants enter the pre-chemo space.

The feedback we've been getting from physicians and this has been echoed strongly at the ASCO-GU Conference, where we showed the sequencing -- preliminary sequencing data with Zytiga, so they do see this is one, they are looking to make use of all the therapies.

They are very interested in understanding exactly how to sequence these therapies, what’s going to give the greatest benefit to patients. We think the entire market including Dendreon is benefiting from increased awareness, screening and treatment options.

So if we look at the treatment landscape as it involve, we see PROVENGE is a logical front line therapy. Right now, Zytiga is approved in the label with PROVENGE. The two drugs can be sequenced and that's what we have been seeing when patients are identified early. So we seem in the urology practice or when urologist hand and lots of the oncologist just in an early state.

As we indicated patients that are handed off late, due to the delay that they are including, the two-month delay after they treat the patients with PROVENGE, we seen that we were losing some of those patients.

We showed data looking at sequencing at ASCO-GU. The question was is the use of prednisone, which is known to downregulate the immune system going to cause an impact, or could you actually start patients much quicker

The data we showed there and study was two arms. One arm, you started them on Zytiga, immediately following their first apheresis, so while they were getting treatment with PROVENGE they were on Zytiga.

The other cohort was 10 weeks after. We didn't see differences between the arms and the manufacturing specs so in such as CD54 up regulation, a number of total nucleated cells which are both methods that have correlated very closely to survival.

We’ll show additional data the second half of this year that looks at response in the peripheral blood but thus far we conclude the manufacture the product and the data seems to show comparability between the arms whether you treated them at the time of PROVENGE or treated them after.

We showed data at ASCO last year and I think this data is probably been some of the strongest data that we’ve had looking it is a retrospective study, but both done the pivotal trial into quartiles of PSA using PSA to reflect patient health or diseased tumor burden.

We showed efficiency across all subgroups. But for patients with PSA, the 25% with PSA greater than 134, we showed 2.8 months median survival that improved to 13 months with the 25% with PSA less than 22.

Data that we’ve looked at indicates that probably 75% of men with PSA less than 20 are metastatic and on our label. Getting PROVENGE early makes a lot of sense. It’s been positioned as frontline therapy. It’s 30 days. It isn’t a long-term, ongoing course of therapy. It doesn't preclude moving to any other therapy after. And the survival benefit based upon this retrospective study, which can have biases to it does demonstrate which is consistent with what everybody has always believe a healthier patient, healthier immune system, greater benefits.

So as we look at the three areas of focus, and I think we talked about these last year. We talk about the progress and where we’re continuing. We’re going to drive shareholder value, certainly foremost is increasing utilization of PROVENGE. Second, looking at our cost structure and finally expanding the pipeline of data.

So as we look at utilization of PROVENGE, we had efforts targeted to grow community urology. And if we looked at Q3 and Q4, we certainly saw accelerations in the growth of the urology business. We implemented key account managers that are focused on those, the needs of the large urology accounts.

Sales reps were looking to increase penetration. We initially started with the concept where you really went in and you talk one or two physicians. You got them comfortable with the therapy. And you would see them -- the idea was you would see them ramp it up throughout the entire practice.

We saw a lot of the practices where that was not the case. That physician or one or two physicians were actively treating a lot of patients. But you didn’t see other physicians in the practice.

We’ve had the sales reps engaged in talking to all the physicians within the practice. We’ve seen greater penetration and we have seen growth in the large account as we’ve been doing that. I think we discussed account on our last call. One of our top accounts were for the last six months, we’d seen them on average treating 10 patients a month.

We enhanced the message and sales tools specific to urology and have been working on patient identification tools. This strategy was applied to oncology, started in Q3, really rolled out in Q4 of last year.

We’re looking to see benefits from that in the first half of this year. We continue to see reimbursement coverage going very smooth for the company. We saw improvements in both Aetna and Meridian and coverage enhancements to make them consistent with our label. From the Medicare's standpoint, on average reimbursement is happening in less than 30 days.

Our focus is penetrating the large existing accounts. We did continue to sign on new physician base but the focus is, we’ve got a large number of accounts within the base that are not operating at the potential and really is increasing utilization in those accounts.

We’ll also focus on increasing the patient and caregiver awareness. We’ve got PROPEL, which is a patient education series that we started last year, where physicians are getting in front of local patient advocacy groups, talking about PROVENGE as a course of therapy. We’ve seen it very well received.

We’re initiating our first direct-to-consumer advertising. As we look at that, we think right now is probably an optimal time. We have an expansive footprint that accounts for DTC.

We have found that patient education awareness is very important. When a patient goes into a physician, he is aware of the drug and asks about PROVENGE. We’ve seen an incredibly high connect with that patient, assuming he is an appropriate patient getting the therapy.

We have seen sometimes when physicians are recommending it to patients, sometimes hesitancy because it's not a traditional therapy. It doesn’t affect PSA. They are little bit confused how it works. We believe that directly consumer is going to help to improve that situation where you’ve had hesitant patients. It also will help to have the patients identifying themselves and going into the physicians.

It’s been a continuing challenge in terms of patient identification because this isn't something where there is an electronic code. The physicians can go in and quickly isolate all the potential patients in their accounts.

We’ve got a national campaign that’s targeted to key markets. We will be working on efficient media buys and we are looking to spend about $5 million per quarter. We’re putting an entire round of complementary relationship marketing in place to facilitate the patient engagement with the physician and feedbacks which we’ve announced this with the community-based accounts, it’s been very strong and favorable.

So we look at the feedback in terms of the ads in the work that we did working with third-party marketing agency. We’ve seen the feedback score substantially above average in terms of call to action as one will certainly be monitoring. We expect to see the ad campaign kickoff latest next quarter or this month.

We’re advancing the market opportunity in Europe. We filed the MAA about a year ago just over. We expect the decision in the middle of this year. We have completed treatment of patients in the European open label study.

We will be signing up a contract manufacturing partner in Europe. So we will not be utilizing the company's cash. We have a couple of companies that have expressed a lot of interest and we’re moving forward there.

Automation is an important component expanding outside of Europe because it brings us a lot of flexibility and potentially eliminates the lead for the clean-room environment. So as we look expansions beyond Europe, we would look for automation and we’re expecting to see automation in the U.S. in the 2014 timeframe.

From a cost of goods sold and cost structure standpoint, we did go through a substantial restructuring. We reconfigured our manufacturing network to operate at significantly lower cost.

We’ve been able to meet the demand. We have the ability be able to manufacture well in excess of, I think, any estimates out there to be able to billion dollars from Union City and Seal Beach facilities without automation and automation probably increases that by at least a factor of two.

We effectively sold our interest in Morris Plains in New Jersey facility as we indicated to run in $43 million and preserved a 100 jobs. We have lined our administrative support cost with the biotech industry norm and expect to reduce administrative costs by more than 35%.

We will start seeing that in this quarter. Again, cost of goods sold will see the improvements starting in this quarter Q4 when we close down or sold our rights in the facility.

From a commercial operation, we refocused a lot of the investments that’s brought the sales growth, have brought in completely new leadership team and have been adopting some unique customer service models with key account managers focusing in, from the things we’ve done to back office operations to make this very smooth in large practices.

Status under restructuring, we’re expecting to reduce our cost by $150 million annually from circle run rate to more than 600 full-time and contractor positions that have been eliminated. We expect COGS to be below 50% in the third quarter, down from 77% in Q2. And we would expect to continue to see cost of goods sold improving through our ongoing operational efficiencies, the automation system improvements and leveraging through increasing sales.

Administrative expenses should be in line with comparable companies. And we will start to see those benefits flowing through this quarter with all the benefits realized by Q3.

In terms of our pipeline of data, we showed data at ASCO-GU as we discussed looking at sequencing Zytiga with PROVENGE. We’ll show additional data on that study second half of this year looking at immune response in the peripheral blood.

We’ve got a Phase 2 study of sequencing PROVENGE with androgen deprivation therapy that’s been fully enrolled. We’ve got a Phase 2 study sequencing of PROVENGE with enzalutamide that’s being planned and should start enrollment this year.

It’s probably one of the most -- and more anticipated studies as we’ve been receiving feedback from a lot of the thought leaders and individuals that had been, both principal or top investigators on the Xtandi study, believing that there could be a synergy of benefits between the two drugs or anecdotal, but are looking for studies to support it.

It has always been hypothesized that there could be synergies between the drugs, as anti-androgen therapies do enhance a patient's immune system, the affect the thymus gland and one of the impact is actually a release a lot of T cells and we use the T cell based immune response.

Finally, we are initiating a early scanning, detection registry for men with metastatic castrate-resistant prostate cancer without known metastasis. Couple of goals with this, one of them is to get data into the public domain to better understand other predictive or markers that physician should be looking at that give them an indication that is beyond just PSA that the patient has metastasized.

Today, we have indicated that probably 75% of men with PSA less than 20 are metastasized. If you look at the zibotentan study, I think 30% of the patients that enrolled the study failed enrollment. There were believed to be nonmetastatic and at that point of one-time actually had metastatic disease state.

We will start to get the study. We will bring patients in that are known to be M0. It will scan them. It will verify if they are nonmetastatic or if they metastatic at that point in time. If you don't find metastases, every six months the patients will be rescanned.

This is what we recommend physicians do in an ongoing practice behavior, so start getting it in some of the practices. We will start getting data and hopefully, over time you will be able to see practice behavior change so that men do get isolated earlier and get on to the therapy. We believe that they will see a much greater benefits, so it’s in everybody's interest, the patient, the physician and ours.

2012 has been a year of transformation for the company. We continued to evolve our commercial organization. John Johnson came on board January last year as our new CEO, strong commercial background coming out of Johnson & Johnson for many years and headed up ImClone and Savient immediately, then before coming to Dendreon.

We brought onboard a new Head of Commercial, Joe DePinto. Joe came over from ImClone was heading up their oncology business, who actually brought over new heads of both sales and marketing and our regional management in the field sales force. We believe we’ve got a very strong and the strongest commercial team in place that we’ve had. We have been executing a lot of changes in our commercial strategy and we were seeing good successes as we look through Q3 and Q4 last year, both in terms of urology for absolute growth and oncology and turning trends.

We really -- if you look at the commercial overhaul effective strategy of structure and people. We took significant steps to improve our COGS and cost position. We think we’ve got an experienced biotech team in place. So as we look ahead, as we indicated we do expect to see Q1 as a down quarter, we expect to see growth year-over-year.

I think that a lot of the data we've been hearing probably echoes a survey that Eric Schmidt had published, I think about a week ago, two weeks ago from Cowen where he talked to 32 community-based urologists. The feedback, he got was they were expecting to see about 40% growth year-over-year in the utilization of PROVENGE.

We do see a lot of positive trends taking place right now but with a slow start. Cost of goods sold, the new structure is complete. Believe to be at less than 50%, beginning in Q3 given our current forecast. The cash flow, we believe we can run U.S. operations from PROVENGE or cash flow positive in net sales of $100 million dollars approximately per quarter.

From the consumer standpoint, all the research we've done over the last year indicates that there is significant need to educate the consumer. And we are doing that with the targeted DCT, television advertisement at a modest level. We showed the ad I think on our earnings call and as I indicated, we do expect to see that go out latest next month, potentially this month.

Focus on the global expansion with a regulatory decision middle of this year for Europe, and are beginning to develop plans for other markets, focusing with automation as a key driver, enabling us to have a much smaller footprint from a manufacturing standpoint. In R&D, we have plans both to commence the Xtandi sequencing trial as well as an early scanning registry. And that would end the formal remarks. I think we have a couple of minutes, we could take a question or two and then we’ve got a breakout session. Yeah.

Question-and-Answer Session

Unidentified Analyst

If you were to gain approval in Europe with mid year, how long would it take you to get traction in the product line?

Greg Schiffman

Sure. So the question was with a mid-year approval in Europe, when would be able to start manufacturing. And actually, we are manufacturing product in Europe today. It is with the firm that we’ve would use to begin commercializing and so we had to establish that capabilities in Europe to apply for approval. We cannot supply Europe from the U.S. given the 18-hour time constraint we have in delivering product.

So you actually could immediately start shipping product in low volumes. The biggest piece with follow the Europe approval, though as approval gets you approval but it doesn't get you reimbursement and you are going to country-by-country from a reimbursement standpoint. So as we look at that, we would be capable of shipping product right away, we would expect to see very nominal volumes this year as we are working with reimbursement.

Probably, the company is looking to partner Europe. If we sign-in a partner at that point we would be dealing with sort of both the reimbursement and the commercial. If we start to launch by ourselves, it will be a very targeted launch, really looking at Germany and then France, minimizing any kinds of the cash burn and really funding this out of cash flow from the company. And so you would launch in at a very limited fashion, focusing on European reimbursement in those two countries.

Unidentified Analyst

Yeah. (Inaudible)

Greg Schiffman

So, I don’t think right now we are able to give an exact number for Europe. It’s one that actually we are finalizing in the plans at this point and so going through that internally. The cash flow break-even at $100 million does not assume increased levels of spending Europe and so we currently are spending associated with the manufacturing.

And so you wouldn’t see immediate any kinds of growth there in terms of cost of goods sold, because today you are running a clinical trial, at that point those trial expenses will go to COGS. You would have some level of increase associated with MS 1000 sales reps in two targeted countries. And we will -- at future point, as we get closer that’s the direction that we're going to provide additional insight there.

Unidentified Analyst

Got it.

Greg Schiffman

Maybe it’s good time to break and we go to the breakout. Thank you.

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