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Gregory Schiffman - Executive Vice President and Chief Financial Officer


Joseph Pantginis - Roth Capital Partners

Dendreon Corporation (DNDN) 25th Annual ROTH Conference March 18, 2013 2:00 PM ET

Joseph Pantginis - Roth Capital Partners

Okay. So, let's move onto our next presentation, and before an introduction, obviously, I'll make a little bit of a caveat to say that when you're a true trailblazer in the space and first-to-market for what was even considered to be still a very novel type of therapy. You also have to go with a lot of the hiccups along the way and also trail blazer for a lot of companies and how to go about getting a cancer vaccine to the market and be successful on a Phase 3 and then market it. And then on top of that, a company that also has to deal with an increasing competitive landscape.

And with that said, I am very excited to introduce Dendreon. Presenting for the company is, Greg Schiffman, the company's very important year for them, not only from the competitive landscape, but they do have the first every cancer vaccine approved as you all know PROVENGE in prostate cancer and the company has been putting a lot important initiatives in place this year to look to have PROVENGE really become a successful product.

So, with that, please join me welcoming Greg.

Gregory Schiffman

Thank you very much, Joe, and we're very pleased to be able to present here. I would like to thank Roth for inviting us to the conference. Looking to move the slides.

Okay. So, I do want to remind you that presentation will include forward-looking statements that are subject to risks and uncertainties. To find out more about Dendreon- specific risks, please reference our SEC filings.

We did our Q4 earnings call a couple weeks ago. And if we look at some of the highlights of Q4 and over last year, Q4 revenue excluding accounting adjustments, and we adjustment which were change in estimates associated with the chargebacks associated with 340B-based institution. We had $81.6 million in revenue, which was up 5% sequentially from Q3. If you include the accounting adjustments, net product revenue was $85.5 million, but I think for comparative purposes you really want to focus on the $81.6 million.

We finished with cash on hand of $430 million and so believe we have the cash that's required to move the business into a cash flow positive state. We delivered strong performance in community accounts and we've always felt that the community accounts, they really do drive long-term potential for the product. Community urology was up sequentially 25%, and community oncology was up 4%, sequentially.

We've continued to see strong physician interest in PROVENGE and we saw 61 new parent accounts treat their first patient in Q4. And finally as part of the restructuring, we instead of closing down our manufacturing facility in Morris Plains, New Jersey, we actually were able to sell the rights to that facility, to Novartis, preserved 100 jobs which PROVENGE that they needed brought in $43 million of cash to the company and so a successful transaction there.

So, we look at the quarterly performance in community accounts, we have seen improvements throughout the year. Community accounts represented 71% of all of our revenues, up from 58% in Q4 of 2011. We've seen a shift away from academic and I think we will see natural shift and that you've seen a large number of clinical trials start in our label last year, so there six either large Phase 2 or large Phase 3 studies that were initiated. And, if we look at Q2, we saw about 40 patients equivalents that went into the clinical studies in the academic centers.

It's natural. It's really where their reward and focus is getting patients into the clinical trials. At some point, we do think that we will see that reverse when these trials enroll, but at this stage it's going to be an ongoing and so we did see some headwinds there as well as competitive dynamics that happened early last year in the oncology is actually there was approved in pre-chemo for compendia listing for pre-chemo to be reimbursed.

These were patients that got handed off from urology in late-stage, and so either PSA is doubling very fast or it's very high and at that stage, there's a fairly long delay from when they would see the patient before could start them on ZYTIGA and there was a concern waiting that long for a product like PROVENGE, which is known to harness that immune system. It's more effective with healthier patient is the belief and it takes a while to take effect, so advanced patients, they had a concern in the delay.

If we looked overall in the community accounts, you can see urology up every quarter, last year going from 5% to 14% then 25% in Q4. We changed the sales process there, started that in Q2. Finished that rollout in Q3, we believe that we saw benefits from that. We did the same in oncology, where we started in Q4, well, late Q3 and rollout in Q4 and we are expecting to see similar benefit this year.

We talked about some of the headwinds early on in oncology. We lost some of those early patients. We lost patients in oncology where they were advanced. You saw that really mediate in Q3 and then oncology was that growing in Q4.

If you look at the market for PROVENGE, it does address a significant unmet need. In metastatic castrate resistant prostate cancer 30,000 to 35,000 new cases diagnosed each year and this is very consistent with actually what you see in terms of the number of patients that passed away associated with the disease.

The second most frequently diagnosed cancer in men, and it does have a higher incident rate in African-American male Caucasian, so you do see a significant unmet medical need for men to develop metastatic castrate resistant disease. And although we're seeing new entrants entering into the pre-chemo space, PROVENGE's mechanism of action is orthogonal to any of the other drugs that are coming to market and potentially complementary and that's why there is a lot of interest. We'll talk about later as we look at one of the drugs coming into the space.

What we are hearing from physicians is an interest in how these drugs should be used together and how do you sequence them, something that they have not had the opportunity before. It's a great time if are victim of this disease or physician treating it. We think from PROVENGE's standpoint, it's a logical frontline therapy. It's a very short duration therapy. It's 30 days and you are done.

The other products that are entering in the space along systemic therapies, so a year and a half. Side effect profile is very favorable and it doesn't preclude moving into any other therapies. We believe that the entire market is benefiting from this increased level of awareness. As you are working with urology, starting to see screening and treatment, more screening and more options, starting to look for the patients earlier and that's important in benefiting us.

So, if we look at the treatment landscape, said this is patient, they've gone through therapy upfront either surgery or radiation therapy. They've followed that with hormonal therapy and this point it become basically hormonal resistant or castrate resistant. We currently have PROVENGE and ZYTIGA approved in this label. You've got chemo and you have products for post-chemo. Sandy at this point does have a compendia listing also in the pre-chemo setting.

PROVENGE is unique. In that it is the only product in that space that's 30 days. You're done, you can move forward and it is a drug that everybody believes the earlier you give it, the better the therapeutic benefit.

This slide shows data that we presented ASCO last year. It took our pivotal study and just broke into four quartiles based upon PSA using that as an indication of tumor burden and helps to refer disease status. You can see that across board, we showed an improvement in survival with 25% of the patients greater than 134 PSA showing a difference of about 2.8 months median survival. If you go down into the patients, less than 22 PSAs, so 25% of the patients there was 13 months of survival. It's a pretty linear progression.

Now, this is a retrospective study, so you have to caution with that, but I think the data is pretty compelling and consistent with what everybody believes. If you can get a patient, early with low tumor burn, you see a greater efficacy. We believe based upon data that we've gathered at least 70% to 75% of all patients with PSA less than 22 are in our label. The goal is we would like to see our urologists scanning early and treating patients early with this therapy.

We had a lot of change over the last year we had a new CEO start just about a year ago I think it was February was when he came on board. If you laid out some sort of three areas of focus for him shortly after he came on board. Certainly the prime one increasing utilization of PROVENGE. Second was reducing the cost, not just the COGS, but the overall cost structure. We've gone through restructuring process there and finally expanding the pipeline of data.

We look at what we are doing to increase the utilization of PROVENGE. We came in and we started to change our sales process last year. The commercial individual came out of Johnson & Johnson for years in the commercial enterprise holding the most all physicians in the field of commercial structure. People on the board new team, and so we hired a new Head of Commercial, a new Head of Sales, a new Head of Marketing and actually we have three new regional managers in the field organization.

We changed how we sell. Sales reps used for both, service accounts in terms of helping them with back office scheduling, logistics some of the unique aspects of the product as well as the normal role of physician education and selling process. We brought on board key account managers, put them in urology space. Their focus is serving the needs of the customer, everything from the [switch] to the back office. We wanted the sales reps doing one thing and that was selling broadly in the accounts, so change in strategy. Initially, we've gone in and the idea was that if you had a large account 25-30 physicians, you talk to one or two of them, get a real good base and those coupled with spread and to fuse it through the organization. I think he had a strong view when he came on board.

The role of your sales team is to sell broadly to all the physicians. You went through accounts and you found accounts where the physician that we were working with was clearly putting all of those patients on, but he wasn't selling within the account. You weren’t seeing the other patients being forded from others. We started that process and I think we've seen good growth in urology and we've seen same account sales in the large there which has always been a key metric people and looked at.

We enhanced the messaging and the sales tools there and have been working on patient identification tools. We began applying that strategy in the oncology business in Q3. Completed it in Q4 and are looking to see benefits in the oncology business in terms of growing those accounts this year.

Reimbursement really was a key item or a challenge for the company. If you go back, that is behind us. Reimbursement coverage on average payment is happening in less than 30 days and then the private pay, we've seen continued expansion of reimbursement coverage where many of them have started off with a label or they what they would pay that that was not consistent with the label and we’ve seen them expanding and then they're ready and we're coverage enhancements if we looked to Q4 expanding the coverage to be consistent with our label.

We believe at this point you've got the vast majority of all private pay and certainly Medicare reimbursing the product. The focus is penetrating the large existing accounts, so broadening the base within the oncology and urology and that's where we have changed that sales strategy and addition, really increasing the patient and caregiver awareness.

What we have heard from a lot of the practices is that they felt that it would be very valuable when they are working with the patients to have DirecTV campaigns, getting it front of the patients, actually we don’t get a lot of the patients coming in specifically asking about the product they used to. So, I am getting it back into front of mind and so we started a DirecTV campaign, kicked off about two weeks ago. If anybody is interested, you can go to our website and added on there, so you can see it. It's a national campaign. We believe we have a good breadth of physicians, so that it's going to be very effective that way and it's been followed up with media both, in terms of print ads as well as web-based and phone support, and so it's one that we on the rules of somewhere about six months after you launch is when you start measuring the effectiveness and so we'll look to see that late Q3, Q4.

We talked through some of the direct consumer opportunity here. Really the focus is patient education and awareness. We did do a large amount of market research here. The feedback and what we saw is, when a patient has not heard of the drug and it's recommended by the physician, you will see some of the patients hesitating, because they don’t understand how it works. It's a very different type product. It doesn’t affect PSA, which has been the prime biomarker, where they've been focused for the past several years. And when a well-educated consumer asks his doctor for PROVENGE and he is appropriate patient, we're seeing extremely high connect rate.

All the feedback we've had as we've looked at this in terms of marketing stats, it rated extremely high, well above the industry averages, in terms of feedback from the response groups for both, positive feedback and orientation towards the drug as well as a called action that they would definitely call it access through website or a call the phone number.

It is nation-wide, but we are taking a very efficient media buy opportunity, where you are buying sort of available ad, so you'll have everything prime time. It will run the gamut. They are targeted in terms of what we are going after, but we are taking sort of last minute space, and so it lets you do a very efficient $5 million per quarter gets you very broad based coverage. And, all the feedback of the ads have gone out has been extremely positive in terms of the community practices, and so we are excited about the potential that this will bring later this year.

Europe is a market that we’ve been working on. We filed their very end of 2009, and we go to 2010. We expect to get a regulatory decision in the middle of this year. We're active through the process. We've been going to normal responses and communication; we have a open label study there, so that you are getting key thought leaders actually exposed to the drug. We are in the process of evaluating and making final decisions on contract manufacturing. Strategy, we will be working with third-parties for manufacturing there. There is no need to build our own facilities and we are primarily looking to partner in Europe and so we are having discussions with potential partners there.

As we look beyond Europe, automation is an important component of us expanding. Automation enables us to eliminate the lead for a clean room, which lets you really think about very small footprint instructions, where you could engage this in just the teaching hospital. So, as we look expansion beyond Europe, automation where we are looking and see that move forward in 2014, would be important.

So, we look at reducing COGS and cost structure, we did go to the restructuring. We structured our technical operations, we've reconfigured manufacturing, and sold our interest in Morris Plains facility as we said preserved a 100 jobs. And following the restructuring coming Q3, we would expect to see our cost of sales below 50%. That's going down from 66% last quarter. We restructured the administrator, so your general and admin functions from the middle of next year restructure will be complete. We're reducing administrative costs by more than 35%.

On the commercial side, I think we refocused investment and how we are supporting. We did not make cutbacks there. We brought in a new leadership team, we changed the service models, we've gone DirecTV advertising, and we believe that all three of these, you are reducing the cost structure today and the commercial operation is focused on growing revenue to accelerate the path to profitability.

We will be reducing the cost by approximately $150 million on an annual basis. The benefits of this will start to be seen in Q1. Through Q4, you were dealing with the transition and the closing down of the facility. Overall headcount impact is little over 600 if we look at full-time headcount contracted physicians, so indicated COGS would be less than 50% of product revenue in Q3 of this year, down from 77% Q2.

We do expect that we will be able to continue to reduce COGS in a meaningful fashion both, through just normal ongoing operational efficiencies, but also automation efforts we have in place which we expect to see some quality areas automated this year. Certainly important manufacturing automation, which we are looking for next year and there's volume-based improvements that we expect to see flowing through in terms of price breaks associated with things like Apheresis, some of our key commodity products and areas that we are focused on reducing the antigen, which once you sort of separate out Apheresis and labors and it's most labor and its most expensive raw material and it's quite meaningful to us.

Administrative expenses we think are in line with comparable companies, and as I said, we expect to benefit starting to show through this month or in Q1, so starting in December and starting this quarter, and full benefits realized come Q3 of this year.

In terms of the pipeline of data, we present data at ASCO-GU, providing insights into PROVENGE, and the prime one there I think that there is interest within the sequencing data. So ZYTIGA, one of the questions that exist with that drug was how soon after treating the patient progress with PROVENGE can you give ZYTIGA.

ZYTIGA uses prednisone, and prednisone down-regulates the immune system. We make use of the immune response. Hypothesis on our side is benefit of low-dose of prednisone it would not have an impact, but there has not been any data to substantiate that. Current practice has probably run two months. If people wait after they treat them with PROVENGE before they put them on ZYTIGA. We showed preliminary data at ASCO, and so this was all of the manufacturing specs which have correlate with survival and so CD54 up regulation throughout the number of total nucleated cells.

When we look between the two arms, patients that took ZYTIGA while they were getting PROVENGE, versus patients that took it ten weeks later you didn’t see any differences. We will continue to monitor immune response marker data in peripheral blood and be showing information in the second half of this year based upon those markers.

We've also completed enrolling a study in PROVENGE sequencing with androgen deprivation therapy, and so much earlier it's a small study there. We talked about the ZYTIGA, and for this year we are very focused on looking at one with enzalutamide or XTANDI, and there is a lot of excitement in the academic community, because many of them believe that anecdotally they are seeing benefits of these two drugs being used in combination. There's certainly a handful of case studies in the public domain one that we've been made aware of, where a patient could become refractory to XTANDI on the study. They continue the therapy there, but put them on PROVENGE, you saw a complete PSA responses and that's has been durable now for over a year and it's continuing last.

Last, identifying the patients is really important. It's changing practice behavior. Historically, there has not been the sense of urgency with prostate cancer as a slow progressing disease and chemotherapy was the only alternative and you wouldn't put a patient on chemo until he was advanced either on symptomology, high PSA or wrapped in doubling time.

We're putting in a early scanning detection registry. This will be working with urology staff and the intent is the patients if they believe in nonmetastatic if you scan the patients. We look at data that we saw in the zibotentan study. 30% of the patients in the academic centers itself were, the that had no med actually had metastatic disease, and so you'll see how many upfront if they don't believe where metastatic may be in that that camp, but for patients that aren't every six months, you'll be rescanning the patients. The correlating this to a lot of the biomarkers to see if there is correlation in getting a much better understanding of when you start seeing patients fall into the label and what are some of the factors seem to correlate with metastatic disease. And, so that's the registry we'll start this year and we are excited again about the potential this has to get insight and hopefully change practice behavior start looking for these patients earlier.

So as we look back over 2012. This was clearly a year of transformation for the company. The management team from the CEO, essentially down, we're pioneering immunotherapy. As Joe indicated that when you're going through that, we've had some ups and downs, so we certainly learned a lot, but we are continuing to evolve the commercial organization. We think we saw good successes starting to move through last year.

The last year commercial overhaul, if you'd look at the strategy structure and people, we've taken significant steps to improve our COGS and our cost position and it is an experienced commercial biotech executive team that's in place today, so if we look ahead, we have indicated we expect Q1 to be a down quarter, but we are still expecting to grow year-over-year. There are a couple of factors affecting Q1 that we talked to our call. One of these associated with co-pay foundation reimbursement, a little bit of associated with Sandy storm and January is enormous month, but also a little bit competitive dynamics and post-chemo and not the ideal candidates for PROVENGE, but areas where we have had revenue that I think as we've seen ZYTIGA be approved has impacted that space slightly.

Cost of goods sold and the restructuring complete, we're expecting less than 50% cash flow. We believe we can run the U.S. operations cash flow positive $100 million investing in commercial as we are today. We clearly could run at a lower level than that if you are in a sustaining mode.

From a consumer standpoint all the research is indicating a strong need to educate the consumer and we've got the DTC television advertising that actually have kicked in today. We are focused on the global expansion and are expecting first regulatory decision outside the U.S. in the middle of this year associated with Europe. From an R&D, we certainly have plans to commence the XTANDI sequencing trials onto the early scanning registry.

With that, we can open it up for questions or two.

Question-and-Answer Session

Joseph Pantginis - Roth Capital Partners

Maybe I'll start with one. Feedback you've been getting, which has been an open question since you've been approved is the doctors don't know necessarily when to use PROVENGE. I know a lot of progress has been made there and you've been generating data with sequencing et cetera, but how what kind of progress have you made with doctors being able to identify patients at the right time?

Gregory Schiffman

In terms of the sequencing I think a lot has taken place, and I think if we looked at it, we're seeing good progress there both, from oncology where as long as they get the patients early. We're definitely seeing oncologists sequencing the patient and some of the largest accounts we have are oncology accounts and they're clearly still indicating that they are growing. They are not done.

In terms of the early identification, I think that's been one of the challenges. We've had and actually I think you've heard some of the products entering the space mentioning the same. This one there is not ICD-9 or an ICD-10 code that you can go into your electronically medical record records and just patients. The manual chart with you to the extent that they are making effective use of their electronic medical record system, we've been able to assist that some of the queries that help identify highly likely candidates that they could bring in and run scans on.

I think that has been a challenging process as you are changing practice dynamics and behavior. I think we've seen a few of them change. The majority of patients are being found sort of when they come in for their semiannual checkups looking at PSA and the PSA is rising, but we have had some accounts that have been doing the scans, have gone through basically using medical records systems and pulling them up and I think this is where that scanning detection registry is so important, because it starts getting that change day in the marketplace, so these patients that we didn't think were metastatic, they are. They are on the label and boy if we get it earlier it's more effective and so, it's a large focus we've got. We'd say that it hasn't changed heavily, but we were seeing to seem trends and this is one we think that everybody benefits the more than what you get drugs here that's getting a mindset this has we want to be looking for these patients quickly.

Unidentified Analyst


Gregory Schiffman

Yes. So, the question was we are expanding in Europe. Are we also looking at Asia? And, we are from a regulatory, but one in Asia that we've probably had the discussions has been Japan. It's an area that probably as we think beyond Europe one of the primary of focus just the nature of the drug aligns very well if you think about treatment paradigms in Japan. There's a lot of therapies that don't get used there, because toxicity is such concern culturally PROVENGE with the side effect profile it's been well known in Japan even without the drug heading been there.

It is one I think that as you look having automation to actually rollout is important because at that point you need a very small footprint. You can be very effective. Europe, you can have a single plan for services all the countries and given the size and geography it's very easy to meet the need. Japan is one that you want to see that additional capability before you'd be going forward.

Unidentified Analyst


Gregory Schiffman

Yes, so automation itself if we look to automating, at this point everything is on track. Now, that being said, where we're at, we have identified the vendors, we've gotten prototype machines. We're in the process of generating for consistency. The important piece for that and when we'll know we are absolutely on track is we start getting that data and going to the FDA. It's clearly the most critical component of this. It's been able to show comparability of the data, because our process and our products are so closely aligned, but everything is thus far on track as we are moving along. That's going to be the critical window of time.

Gregory Schiffman

Thank you.

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