Dendreon's CEO Discusses Q2 2013 Results - Earnings Call Transcript

Aug. 8.13 | About: Dendreon Corporation (DNDN)

Dendreon Corp. (NASDAQ:DNDN)

Q2 2013 Results Earnings Call

August 8, 2013 4:30 PM ET

Executives

John Johnson - Chairman, President and CEO

Joe DePinto - Executive Vice President, Global Commercial Operations

Greg Schiffman - Executive Vice President and CFO

Mark Frohlich - EVP, Research and Development and CMO

Analysts

Robyn Karnauskas - Deutsche Bank

Charmaine Chan - RBC Capital Markets

Laura Chico - Robert W. Baird & Co.

Wes Nurss - ISI Group

Tanya Joseph - Bank of America Merrill Lynch

Kumar Praveen - Citi

Mara Goldstein - Cantor Fitzgerald

Chad Messer - Needham

David Miller - Biotech Stock Research

Operator

Good afternoon ladies and gentlemen. And welcome to the Second Quarter 2013 Dendreon Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will have a question-and-answer session and instructions on how to participate will be given at that time. (Operator Instructions)

As a reminder, today's conference call is being recorded. Now, I would like to turn the conference over to your host, Nicole Soley. Please begin.

Nicole Soley

Thank you, and good afternoon everyone. We are pleased that you could join us today for Dendreon's second quarter 2013 conference call. With me are John Johnson, Chairman and Chief Executive Officer, Greg Schiffman, Greg Cox, Joe DePinto, and Mark Frohlich.

Before we begin, I would like to remind you that during this call we will be making forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ from the results discussed in the forward-looking statements. Reference to these risks and uncertainties is made in today's press release and they are disclosed in detail in our periodic and current event filings with the U.S. Securities and Exchange Commission.

In addition, this presentation includes non-GAAP financial measures. This conference call is not intended to be a substitute for our financial results presented in conformity with Generally Accepted Accounting Principles and the U.S. Investors and potential investors are encouraged to review the reconciliation of the pro forma financial measures included in our earnings release. The most directly comparable GAAP information and a reconciliation between the non-GAAP and GAAP figures are included in our Q2 2013 earnings release which has been furnished on Form 8-K.

Now, with that, I will turn the call over to John.

John Johnson

Thank you, Nicole, and thank you for joining us today. Before I review our second quarter results, I want to take a moment to discuss the announcement that we made today that Greg Cox, our Vice President of Finance has been named Interim Chief Executive Officer beginning tomorrow.

This follows Greg Schiffman decision to leave the company. We are pleased that he will remain with the company through the end of the year in order to help ensure a smooth transition. On behalf of the Board and my colleagues at Dendreon, I want to thank Greg Schiffman for his many contributions over the past six years with the company.

We are also pleased to have an Executive of Greg Cox’s calibre to serve as CFO on an interim basis as we connect -- conduct the search for permanent CFO with the assistance of an outside search firm. Greg Cox broad-based finance and accounting experience will continue to help us focus on our goals of driving sustainable and achieving profitability. Greg Cox has joined us on the earnings today to review the financial results and both Greg Cox and Greg Schiffman will be available during the Q&A portion of the call.

Now turning to our financial results for the second quarter of 2013. This was an important quarter for Dendreon on many levels, as we have continued to navigate a number of challenges including and evolving competitive environment.

To briefly review, topline net product revenue for the quarter was $73.3 million, compared to net product revenue of $67.6 million for the first quarter of 2013, up approximately 8% over Q1. This meets the low end of our guidance as provided last quarter.

Let me turn to sales trends, urology sales have grown their highest level since launch and sales trends in large accounts have rebounded nicely since Q1. Importantly, the number of large accounts, which we define, is having an annual run rate of more than $1 million in sales has grown their highest level post the competitive entries. This is a key area of focus for us going forward.

However, based upon the normal trends, we are currently seeing in July and early August, we do not believe that we will see enough of a sales lift in the second half of the year to overcome the sales results of the first half and therefore, we’ll not be able to meet our goal of growing PROVENGE year-over-year.

While we are not providing further sales guidance at this time, we will provide colored insight into our current business. Our plan is highlighted by three strategic imperatives we intent to focus on which we call the three Ps. The first is PROVENGE and maximizing the opportunity of this unique immunotherapy treatment. The second P is profitability and the third P is pipeline.

Let us start with maximizing the PROVENGE opportunity. We continue to receive positive feedback from physicians and patients who liked about PROVENGE as demonstrated by the 42 new accounts we brought on this quarter.

Physicians continue to tell us that PROVENGE is the only agent for metastatic castrate-resistant prostate cancer with an immunologic mechanism of action that it provides a sustained immune response and a statistically significant overall survival benefit.

We had a significant presence at the annual AUA meeting along with strong support from the KOL community there. Immunotherapy was center-staged at ASCO this year, which provides further validation for the approach pioneered by Dendreon.

We are seeing oncologist beginning to better understand the benefits of the immunotherapy and how PROVENGE may work in combination with other therapies. We believe that a broader understanding about the world of immunotherapy and cancer will be a long-term tailwind for Dendreon.

So how can we leverage the compelling signs behind our product and unique position in the marketplace to grow PROVENGE sales. Overall awareness and understanding of the immunotherapy for the treatment of cancer is still in an emerging stage. And as the industry pioneer, our top-priorities since launch has been on education and awareness.

We have seen that when PROVENGE is recommended to pick its five physicians, some patients may hesitate because they do not understand immunotherapy. We also know that when a well-educated consumer asks his doctor for PROVENGE and he is an appropriate patient, there is an extremely high connect rate.

These dynamics make a compelling case for direct-to-consumer advertising. Our TTC ad has been running since March and the campaign continues to generate powerful and promising metric exceeding our expectations.

That said, the competitive effect on our base business was stronger than expected and we see DTC helping to balance these challenges. In addition to our direct to patient outreach we recognize the importance of helping physicians understand which types of patients may best benefit from PROVENGE prior treatment as well as to identify those with the best outcome following treatment based on their immunologic response. A key element of our ability to maximize the long term value programs with our physician customers lies in our ability to develop biomarkers which Mark will discuss later on in this call.

From a competitive standpoint, while new therapies continue to enter into pre-chemo space, physician feedback in the case two therapies would be either in sequence or combination. As Mark will also discuss, our phase two studies of sequencing of PROVENGE and ZYTIGA and sequencing of PROVENGE and ADP are both fully enrolled. We are planning a sequencing study of XTANDI and have named the Steering Committee and expect to begin enrolling patients in Q4 this year. As you are aware, combination therapy has long been a standard practice in oncology. We believe that there is much to be learned about the use of PROVENGE when taken with other therapies and (inaudible) physicians was further filled at ASCO this year.

Finally, we continue to focus on our commercial strategy to grow our account base. Our focus remains on penetrating our existing customer base to increase our gaps to fill with large volume and we continue to target the largest accounts, so we see the greatest opportunity. Through effective sales force including leveraging our key account managers in neurology and area of business managers in oncology we are working to drive sales volumes. We believe the opportunity for PROVENGE to expand beyond the US. At the end of June, we received positive comments on PROVENGE from the EMA’s committee for advanced therapy CAT and Committee for Medicinal Products for Human Use, or CHMP.

We are in discussion with potential partners and are prioritizing our plans for launch in Europe. Over the long term automation will be key to cost efficiency, not only in Europe but also in other select markets around the world. As a reminder, we continue to maintain all of the sales and marketing rights for PROVENGE in all markets around the globe.

Let us move on to our second P, profitability. We continue to focus on reducing our costs without compromising the quality, we are focused on spending more efficiently and managing our balance sheet. We have set the goal to be cash flow positive on US operations at approximately 100 million in sales. Since competitive launches have slowed our growth trajectory, we have the plan to reduce our cost structure. However these adjustments will not hit until next year. We will update you as appropriate as we implement these changes. We continue to believe that we can achieve our goal of becoming cash flow positive and remains a key strategic imperative.

As you know we have the majority of our convertible debt due in 2016. While we are more than two years out we have been looking at our options to address this and are putting a plan in place consistent with our objective to reach profitability.

Finally the third P, pipeline, when PROVENGE was launched, Dendreon was an immune-therapy pioneer. PROVENGE was the first and still the only FDA approved treatment that uses the body’s autoimmune system to fight asymptomatic and minimally symptomatic metastatic castrate resistant prostate cancer. With PROVENGE we created an entirely new treatment paradigm for an entirely new market. Pioneering the force comes with certain challenges and we have learned about and navigated the unique dynamics of bringing a personalized product like PROVENGE for market.

Everything all that we have learned from the launch of PROVENGE, our R&D efforts remain focused on immune-oncology research to advance effective, convenient and cost effective immunotherapy products for the treatment of cancer. This research will not be limited to activated cellular immunotherapy. We will look for select opportunities to externally augment our portfolio, so that we can leverage our deep expertise in the area in immunology and cancer. We believe we are uniquely positioned to help bring products in this important field to market and you’ll be hearing more about this in the quarters ahead.

With that, I’ll turn the call over to Joe.

Joe DePinto

Thanks, John, and good afternoon, everyone. During the second quarter, we made progress turning around over the challenging first quarter, enabling us to achieve the low end of our guidance.

We added 42 net new accounts during the quarter. In terms of our customer composition we ended the quarter with community clinics accounting for 71% of total sales, which as we’ve said in the past is where we believe the long-term revenue potential for PROVENGE exist. Oncology clinics accounted for 38% of our total business during the quarter and urology clinics accounted for 33%, academic accounted for 18%.

During the second quarter, we saw a strong rebound in community urology with sales up 37%, which is the highest level the company has ever seen. Urology has continued to be a key growth driver for PROVENGE.

We have seen a consistent positive trend over the past year and half in urology as our marketing campaigns that help drive growth even in light of competitive dynamics. Strengthen in urology is important, because urologist are on the frontline often providing the first diagnosis to patients.

Academics was up 7%. This was the first quarter academic increase sequentially over the last four quarters. Community oncology was down 10% where we are seeing the greatest effect of competition.

During our Q1 call, we talked a lot about the competitive pressures given the December FDA approval of Zytiga and our labeled indication, and compendia listing for XTANDI. In the second quarter, the competitive landscape remained largely unchanged over the first.

We continue to feel the greatest competitive effect primarily in oncology in small and low volume accounts. As we’ve said in past, we believe PROVENGE is best-positioned early in the progression of therapeutic choices for patients within our label. Our focus remains on our largest accounts.

Given enrollment trends, it will be important for us to continue to focus on telling to all our targeted customers across our key market segments and executing on our new professional marketing campaign both branded and unbranded.

Improving yield which is a measure of how many enrollments lead to first infusion and the time between enrollment to first infusion should also assist in our efforts to efficiently held advance prostate cancer patients receive the benefit of PROVENGE.

Last year, we began to deploy our dedicate nurse field team to ensure that in infusions actually occur once a patient is enrolled and we have also brought our scheduling in-house to improve yield.

We have both the right commercial strategy and the right commercial team in place to focus on driving clinical conviction for the use of immunotherapy and PROVENGE in mCRPC.

We are pleased that in the second quarter we saw greatest stability within our sales force. Our representatives are engaged and focused on deeper penetration of large accounts and focused on maximizing our efforts in all our key market segments.

As John discussed raising awareness both about PROVENGE and about the importance of early screening and detection will continue to be a top priority for Dendreon. On the consumer side, it not just about reaching patients directly, it’s about reaching families and caregivers as well.

Our DTC national campaign is a key piece of this strategy. Our commercial has been running since March and early indicators continue to exceed expectations. In Q1, we shared with you that since the first commercial aired we began to see a significant increase in call center activity and web traffic.

Those trends have continued and during the second quarter we are seeing that across the country registrations to our relationship marketing program increased significantly when the ad is on the air.

In addition, we saw some early positive lagging indicators. During the second quarter, we saw registrations convert to enrollments faster than expected, which is encouraging given that we estimate the average patient need to see the ad seven times before taking action. We look forward to reporting more as we see trends materialized. We will continue to execute the campaign in a targeted and efficient manner with the expenses at approximately $5 million per quarter and we will continue to closely monitor the campaign’s effectiveness and can dial it up or down as needed. Given the current trends we are seeing the entire team and I remain confident in the DTC campaign. In addition, to support our education and awareness initiatives, at the end of January we launched two new professional marketing campaign that we believe will provide value to our oncology and neurology healthcare practitioners. The first is immunotherapy and cancer care, a comprehensive education platform that provides clinical and scientific rationale for establishing immunotherapy as an important class of treatment for cancer patients.

The second is our new PROVENGE campaign that focuses on efficacy to drive clinical conviction in the new metastatic castrate resistant prostate cancer patient to driving early detection and therapeutic intervention.

With that I will turn the call over to Greg to discuss the financials.

Greg Schiffman

Thanks Joe and thank you John for the kind words. I will now walk through the financial review of the quarter. Earlier today, we reported our financial results for the second quarter of 2013. Net product revenue for the quarter ended June 30, 2013 was $73.3 million compared to $67.6 million for Q1 2013. This was at the lower end of our guidance and represent the growth of approximately $6 million in net revenue or 8% sequential growth.

For the quarter, we had a cost of goods sold of $43.8 million or 59.7% of revenue. For the quarter ended March 31, 2013, we had a cost of goods sold of $43.4 million or 64.2% of revenue. We saw a sequential improvement in COGS as a percentage of revenue or approximately 450 basis points. We are investigating opportunities to further reduce our COGS while maintaining our service level. Following the closure of our New Jersey facility and it’s taken longer to hire staff for Atlanta operations than we had expected. This combined with lower than expected revenue level has delayed realization of some of the operational efficiencies we were expecting in Q3. As such we do not expect the COGS below 50% in the third quarter but instead expect it to be consistent with this quarter.

We have initiatives focused on automating our manufacturing process. We have selected the automation vendor and are in the process of characterizing our data. This is the next step in the regulatory process.

Our antigen is the most accepted raw material outside of the selection process. We have efforts underway which have potential to reduce the cost of the key component. In addition, we have been successful in improving our processes which have yielded, improved efficiencies in our manufacturing operations. We are continuing to look for areas of improvement and expect that we will be able to acquiring additional savings going forward. We expect to see many of these efficiencies targeted for Q3 to be realized in Q4 and we would expect to see our cost of goods sold continue to decrease.

Sales, general and administrative expenses were $66.8 million this quarter, down from $80.2 million in Q2 of last year and up from $62.4 million last quarter. The slight increase in SG&A expenses is consistent with the guidance we provided last quarter and was driven by spending associated with external vendors including the direct to consumer advertising campaign.

Research and development expenses for the quarter were approximately $18.2 million compared with $19.7 million for the same quarter a year ago and approximately $18.4 million last quarter. in Q2 2013 we experienced adjustment in non-cash stock compensation expense was decreased, non-cash stock compensation to approximately $3.6 million of expense. This was primarily driven by changes in our forfeiture rates used to calculate non-cash stock compensation expense based upon our historical data. We expect to see non-cash stock compensation expenses closer to $7 million per quarter, going forward.

The company had a GAAP loss of $0.45 per share this quarter, down from approximately $0.65 per share in Q2 of last year and down from Q1 2013 GAAP loss of approximately $0.48 per share. We have cash, cash equivalents in short and long-term investments at June 30, 2013 of approximately $280 million compared to December 31, 2012 of approximately $430 million.

For the quarter, the company had a net cash usage of approximately $56.7 million. This is consistent with our expectations for Q2 and down substantially to our Q1 cash usage of approximately $93 million.

We expect to realize further spending reductions in the second half of the year, primarily associated with third-party vendor activities consistent with the guidance we have provided. As John indicated earlier, we have a plan to reduce our cost structure.

We’ll update you as appropriate as we implement these changes. We continue to believe that we can achieve our goal of being cash flow positive and remain a key strategic imperative.

With that, I’ll turn the call over to Mark.

Mark Frohlich

Thanks Greg. As John mentioned, immunotherapy was center-staged at ASCO this year providing further validation that immune-mediated mechanisms can provide clinically meaningful results for patients with cancer.

We continue to receive strong support for the key opinion leader community for PROVENGE. At the conference, important data were presented on how PROVENGE maybe combined or sequenced with other advanced prostate cancer treatments, underscoring their potential complementary nature of the agency approved metastatic castrate-resistant prostate cancer.

The PSA quartile and immunologic data are also leading to increasing conviction that PROVENGE should be used early in the metastatic castrate-resistant prostate cancer treatment paradigm.

One of the milestones of the quarter was receiving positive opinion from CHMP for PROVENGE in Europe, which we think demonstrates the importance of providing a new potential therapeutic option for appropriate prostate cancer patients in the EU, with a differing mechanism of action than the already approved Zytiga.

We continue to enroll patients in the EU open label study and plan to have a presence at the European Cancer Organization, ECO and European Society for Medical Oncology, ESMO conference. The regulatory process is ongoing. We believe this will receive a final regulatory decision by the European commission in the second half of this year.

Since PROVENGE was approved for use in the U.S., more research has been presented and published supporting its mechanism of action. We’re seeing a correlation between immune markers and overall survival, evidence of T cell infiltration in the prostate and new adjuvant setting and a longevity of immune response, many years after the initial therapy.

We have intensified our efforts in our biomarker discovery program. Later this year, we were presenting data demonstrating that the immune response following PROVENGE treatment spreads beyond the antigen for PROVENGE to include other relevant antigens.

We expect that these data will further increase physician confidence in PROVENGE. In addition, post treatment markers like this may help determine who is likely to benefit the most following the use of PROVENGE. We also recognized the great value that pre-treatment predictive biomarkers would have to patients and clinicians in making clinical decisions regarding the treatment options.

Based on our PSA quartile data, we see PSA is playing a key role as both a prognostic and a predictive marker. And we’re aggressively working to identify more specific markers. We’ve identified some potential pre-treatment predictive signatures in the preliminary data set entering the process of confirming our initial findings in a larger data set and working to drill down to specific markers with clinical utility.

We’ve initiated a study name Prime in which we collect blood specimens in patients receiving PROVENGE in our ongoing registry or other clinical trial. This study will serve as an important source of samples for our biomarker program obtained from patients in whom you will have baseline characteristics and clinical outcome data.

Other important ongoing clinical trials include our PROVENGE and antigen deprivation therapy, sequencing study as well as our PROVENGE and Zytiga sequencing study. We’ve completed enrollment in these studies and presented initial data on both studies at ASCO-GU and ASCO. Complete six months in immune-monitoring data for these studies will be available in 2014.

The randomized phase II trial for sequencing PROVENGE with XTANDI has been finalized, sent to investigators and we expect to begin enrolling patients in the fourth quarter of 2013. To increase our engagement with clinical researchers, Dendreon is supporting 19 novel investigator-initiated trials independently developed by experts at 16 centers of excellence.

The program will advance our understanding of immunotherapy and the treatment of advanced prostate cancer. These trials include combining PROVENGE with other biologic agents for standard treatments, including checkpoint inhibitors and IDO inhibitor from monoagents and radiation therapy. We will complete enrolment of 1500 patients and proceed this year and important milestone is fulfilling our post-approval commitment to the FDA. This registry will serve as a rich source of data on patients treated with PROVENGE and how it is used in the treatment paradigm of metastatic castrate-resistant prostate cancer. We anticipate continuing to present data from this registry at the major prostate cancer conferences in the years to come.

As we have previously discussed with you, we are initiating a new early detection study which we have named PREDICT. Castrate resistant patients without known metastatic disease who are enrolled will be imaged. The study will explore factors that may be predictive for the presence of metastatic disease. The data from this study may help physicians better identify metastatic castrate resistant prostate cancer patients early in the disease state. We have selected a steering committee, finalized the protocol and expect to begin enrolling patients in the fourth quarter.

As John mentioned, as the pioneer in immunotherapy we are focusing our R&D efforts on immunoncology to advance effective convenient and cost effective immunotherapy products for the treatment of cancer.

We continue to advance our pipeline including DN24-02, autologous cell immunotherapy based on the same platform as PROVENGE by targeting the tumor antigen HER2/neu. We've been encouraged by patient accrual of this study and anticipate that enrolment should be complete by the second half of 2014.

At Dendreon we are in equally positioned to leverage our deep expertise in the area of immunology and cancer to help bring products in this important field to market. And as we move forward we will evaluate potential and licensing opportunities of complementary and novel platforms to enhance our portfolio. With that I'll turn the call back over to John.

John Johnson

Thanks Mark. Our core vision and mission remains the same. To revolutionize the fight against cancer through products that harness the power of the immune system. We continue to face challenges, some macro related, some Dendreon specific. However we believe we are making progress on the key issues. With the successful execution of our plan, we are working to maximize the potential of PROVENGE , drive profitability and develop immunoncology pipeline that create value for our shareholders, physician customers and patients alike.

With that operator, we will now open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Robyn Karnauskas of Deutsche Bank.

Robyn Karnauskas - Deutsche Bank

Thanks for taking my question and I don't know if Greg is there, but we wish him the best. It's great working with him. I guess I am really focused on your comments around planning to reduce cost structure but you are not going to tell exactly what that is. What gives you confidence that you'll be able to turn cash flow positive in a near-term timeframe and why not -- will these plans be -- take time? Will they be announced over a flow period of time or could they be more drastic? Just trying to understand also, you gave guidance last quarter by saying that you can have growth year-over-year and it sounds like a lot of the feedback from DTC is positive. What went wrong? I mean if you're getting a lot of impact of registrations or converting more to enroll patients and faster than expected what exactly went wrong and why are you confident that, that' won't happen in third quarter and fourth quarter?

John Johnson

Thanks Robyn, it’s John. Let me address both of those questions and certainly if anyone else wants to comment they can. Let me start with the sales line and give you a little bit more color into that. So nice increase in urology bouncing back, academics pop for the first time in long time. In large accounts we have more than we've ever had and we defined that as a million dollar run rate. So I mean those were the positives that we saw in our business. Urology is especially positive as you know, that's where the patients first present and it’s a big opportunity for us.

Where we had challenges was where competition made some inroads and that was specifically smaller accounts in oncology with patients who had geographic issues to get PROVENGE specifically had to travel for apheresis and/or infusion but we saw that patient population to be more effective just because it ought to be more convenient and those patients that have a higher burden of disease.

So it was all street buckets. In a higher burden of disease what we have seen is that all the audits are not perfect, but what we’re seeing with a higher burden of disease in the post chemo setting, that’s probably the piece of our business that got hit the hardest. Long-term based upon feedback from KOLs, we think that having an immunotherapy upfront in the sequence makes a lot of sense.

And as we look at our proceed registry earlier this year, we have seen the average PSA in the patients that we are treating go down which means we are getting more of that earlier use. That said, we did not grow our first line fast enough, to plug those places as the competition hit us and that’s where we had our challenges.

On the issue of PTC, it has exceeded our expectations and frankly by a significant manner. We have been to able to track patients who were called in post the commercial registered and then we had adjudicated through a third-party to protect privacy and found that they actually went on to receive treatment and that rate was much higher than we anticipated.

So clearly from everything we’ve seen earlier on, the early markers are good. What we have done and I give Joe and the team credit is when we run the ad we have an individual 800 number for each of the ads. And we are able to track where we can get our best return on investment and so we know a lot more today about where this patients look, where they see and what they watch and that’s going to help us, trying to be more effective with DTC going forward.

That said, am I satisfied with results, no. But I do think we made some progress in some key areas, we were clearly exposed in some areas with the competition and we weren’t able to cover that. And the first half is given us a spot where we don’t think we could beat the year-over-year guidance which is why we want to advise you that today.

That decision was based upon looking at the June enrollment trends, July enrollment trends as well as this first week of August and we thought it was the appropriate time to advise our investors at that. That said, we did bounce back from the last quarter.

On the cash flow breakeven, this is obviously driven in part by where our sales line is. We do believe that it is extremely important to reduce our cost and I want to be very clear on that. I will be very clear where to look at all aspects of our cost structure not just COGS.

We have a lot of levers to pull. We will be discussing these in depth on our future call. I think if you look at COGS in particular while we have seen those come down over time, our plan in terms of long-term action as well as some short-terms actions. These are everything from how to be more effective and efficient in a term process, automating the process and thus requiring a small footprint in getting better throughput.

And we also believe in the antigen which is a very high piece of our costs that we have ability to look at ways to reduce that. Those actions as people there are working on those each and everyday and are focused on those. We’re not going to give specifics around timing or size of any of these actions but we want to make it very clear to investors that we have a focus on this. So thanks for your question, Robyn.

Robyn Karnauskas - Deutsche Bank

Thank you.

Operator

Our next question comes from Cory Kasimov with JP Morgan. Please go ahead with your question.

Unidentified Analyst

Hi. This is actually [Whitney] on for Cory today. I am wondering if you can give us, I guess, maybe some metrics around the DTC campaign if you could talk about maybe the conversion rates from seeing an ad to calling into actually receiving an infusion? And then secondly just wondering if you can talk about how kind of the progress in the U.S. and kind of the cost reduction decisions are changing just thinking about yields? Thanks.

John Johnson

Thanks Whitney. As we look at DTC we are not going to reveal our metrics for competitive reasons. We think that this is -- long-term is going to be a source of competitive advantage for us.

But all I will say is that their conversion ratio certainly through the first four months exceeded in a significant manner what we were expecting. As we look at Europe, I think a couple of things have been key to our thinking. First and foremost is how we handle manufacturing and we will be going with a contract manufacturing organization in Europe, and not having a high capital expenditure. In Europe, I am not going to go into details of our current launch plan for competitive reasons but what I will say is that we are in discussions with potential partners and we are prioritizing our plans for a launch there. Beyond that we are going to keep the details of that as you might expect to ourselves. So thanks for the question.

Operator

Our next question comes from Michael Yee of RBC Capital Markets.

Charmaine Chan - RBC Capital Markets

Hi, this is Charmaine on for Michael. We applaud your results to continue on reaching profitability. So can you give us some guidelines on how the EU piece might help you get there? And secondarily out there triggers which needs to happen for you to consider other strategic alternatives more carefully given current growth trends.

John Johnson

Thanks Charmaine. Well, as we look at the EU, part of our looking at it is saying how do we prioritize the key markets where frankly Dendreon could go in a relatively cost effective manner, with looking at all 27 countries that one would like to have the product available to patients in. And that's why we initiated discussions with potential partners. There may be a deal that is attractive for them and attractive for our shareholders or there may not in the event that there is not, we would be prioritizing our markets and going into those markets that we feel we could go into most cost effectively upfront.

I am not going to speak to any triggers specifically on what would cause us to look at strategic alternatives. All I will say is we will be open to whatever is in the best interest of our shareholders as we always are. But right now we are focused on executing against our strategic plans to drive value and that's where we are focused at the present time. So thank you for the question.

Charmaine Chan - RBC Capital Markets

Understood. So if I may just follow-up, in EU do you have named patient programs in place or do you plan to apply for those prior to you getting pricing reimbursement agreements?

John Johnson

We don't have any at the present time. We do have an EU open-label trial though that will allow some patients to receive the product.

Operator

Our next question comes from Chris Raymond of Robert W. Baird.

Laura Chico - Robert W. Baird & Co.

This is Laura Chico in for Chris Raymond. Question on I guess the oncology segments just wondering if you could update us on how the community oncology segment performed in Q2 and also I guess if you could from a bigger picture kind of just discuss little bit how this fits into the overall framework?

Joe DePinto

Sure. Hi, Laura. So the community oncology is one of our key market segments and the community oncology market in second quarter was down 10%. This is an improvement in the first quarter we were down 17%. We need to continue to focus on the community oncology marketplace. This is a big marketplace for us and we continue to feel some of the competitive pressure here as John had stated with the new entry in the first quarter of the indication for ZYTIGA in our label as well as the Compendia listing for XTANDI.

Our focus in the community oncology setting continues to be our large accounts where the good news story there is we have seen that that some of those accounts continue to grow in numbers. In the second quarter we had progressed there in growing the number of large million dollar plus accounts. So our focus is to continue to drive deeper penetration into those community oncology accounts and to continue to make sure we're driving clinical conviction across small customer bases so that when those patients come in from the DTC advertising that there is a receptive healthcare practitioner there to accept that patient and put them on PROVENGE, so that's our focus in community oncology.

Operator

Our next question comes from Mark Schoenebaum with ISI Group.

Wes Nurss - ISI Group

I have two…

Operator

Please go ahead with your question.

Wes Nurss - ISI Group

Hi. This is Wes Nurss sitting in for Mark. I have two related questions on revenue. One is, could you provide any commentary or information about the (inaudible) month-to-month from April through July on the revenues and if month-to-month revenues are helpful at all indictor?

And the second question is, in your large accounts, do you have any anecdotal bits on the use of PROVENGE in sequence or in combination of Zytiga and XTANDI, and what percent of those large accounts actually actively use your competitors or, excuse me, prescribe your competitor’s products?

John Johnson

Mark, Joe, you want to take that one?

Greg Schiffman

Yeah. This is Greg Schiffman. Maybe just for the very first piece there with regards to the monthly seasonality. We really have not provided that, one of the reasons is some of our monthly seasonality is actually tied to the number of days that are available to infuse patients and we see the volumes go up and down, and it really isn’t a strong indicator in terms of trends within a quarter and so for that we’ve not provided any and I don’t think that something we would start with today.

Operator

Our next question comes from Rachel McMinn of Bank of America Merrill Lynch. Please go ahead with your question.

Tanya Joseph - Bank of America Merrill Lynch

Hi. Good afternoon. This is Tanya Joseph in for Rachel McMinn. What can if you might be willing to give us some guidance on 3Q given July and August trends? Thank you.

John Johnson

Greg, do you want to take that?

Greg Schiffman

Well, I think at this point we are not issuing guidance. We are going back I think the mode where he had historically been. I think that we’ll share information on our next call with regards to the quarterly results but in between that we’re not giving updates.

Tanya Joseph - Bank of America Merrill Lynch

Thanks.

Operator

Our next question comes from Yaron Werber with Citi. Please go ahead with your questions.

Kumar Praveen - Citi

Hi. This is Kumar Praveen for Yaron. I wanted to know what would be the strategy post the - post-data from the sequencing studies and also you have substantial amount of NOLs, when do they start expiring? Thank you.

John Johnson

Mark, why don’t you take the first half of that question and Greg take the second.

Mark Frohlich

Sure. So the focus for the sequencing studies both the Zytiga and the XTANDI one is as you look for evidence of synergy. And I think I may have mentioned in the last call on this anecdotally some at least report from top viewers groups about a patient with a dramatic clinical response following treatment with both XTANDI and PROVENGE.

And I think with some of the more sophisticated immune monitoring that we’ll able to do. I think we’re encouraged that we’ll be able to demonstrate evidence of synergy between these hormonal agents in immunotherapy.

In terms of where this leads us next, I think it really depends on what kind of results we see. I think if there is encouraging evidence of clinical activity it could potentially lead to larger trials with hard clinical endpoints to explore that.

But based on what we’re hearing from key opinion leaders, I think we’re beginning to get increasing confidence on some of these immune markers and that alone maybe enough to convince patients about how to properly use these patients in combination or sequence.

John Johnson

Yeah. And as far as, this is Greg. As far as the NOL, we have about a little over a billion in NOL, majority of those occurred over the last five years. And for specifics on when they started to expire we update those every 10-K so I would refer to the 5 or 10-K. Greg, do you have anything to add to that?

Greg Schiffman

No. I think that’s going to in the majority of the NOLs have been driven post the launch of the product if you could imagine because that’s when our expenses ramped substantially and so from that standpoint there is still a lot of like majority NOL.

Kumar Praveen - Citi

Thank you.

Operator

Our next question comes from Mara Goldstein with Cantor Fitzgerald. Please go ahead with your question.

Mara Goldstein - Cantor Fitzgerald

Great. Thanks for taking my question. My question to some extent is on this dynamic on net new accounts versus the difficulties in some of the segments. So if you look at the release net new accounts are up by 40 or 42, I apologize in the quarter. So my question is, is the pace of enrollment growth in those net new accounts now at least approaching equilibrium with share loss to competition in the community setting?

John Johnson

Greg, do you want to take that?

Greg Schiffman

Sure. So Mara thanks for the question. So it’s great that we have the interest in PROVENGE and have 42 new accounts in the second quarter that’s greater than what we saw in the first quarter. And we continue to see good amount of interest in adding new accounts. And it's a balance of new accounts coming on being clinically convicted in PROVENGE having advocates in the practice for PROVENGE and then becoming large accounts as they progress. We've seen some progress quicker than others but our focus again is as those large accounts in our key market segments urology and oncology as well as academic. The majority of the new accounts that we're seeing are coming out of two market segments, the urology market segment and the oncology clinic - community clinic market segment.

Those are the two market segments that we're seeing the greatest volume of our new accounts. So having 42 up from the first quarter is a good sign and we'll continue to look at interest in PROVENGE, again driven by a variety of factors occurs bringing on new accounts certainly helps us. But our focus is to make sure that those new accounts become large accounts and we're having deeper penetration in all of our accounts.

Mark Frohlich

And let me just add a little bit of color to that as well. So even if you look insight some of our large accounts, we are seeing this dynamic where you have multiple clinics within a parent account, in some of the clinics that are farther away from apheresis, we have seen those clinics fall off, those sites within the larger practice. So you've seen that and you've also seen this dynamic that I spoke to earlier about higher burden of disease patients tending to go on to Zytiga or XTANDI in place of PROVENGE or perhaps before we were the only product approved you would have seen that patient be put on PROVENGE first. And it's that dynamic that is trying to be balanced out by the new accounts and the DTC. It's hard to get real specific data on some of that, the data sets aren't perfect but that should give you at least a sense of what we are seeing.

Mara Goldstein - Cantor Fitzgerald

And if I can just ask a follow-up on the guidance question. The guidance is that the fiscal year '13 revenues are not likely to exceed fiscal year '12. And consensus is already there, so I guess my question is this more of a code for what we should expect on a sequential basis for the third and fourth quarter, but those numbers should be below where they were same time last year?

John Johnson

Well, we are not going to provide any guidance. We are going to go back and return to our policy of not providing it. We are happy to try and give you as much color into our current business, but we are not going to project going forward.

Operator

Our next question comes from Ying Huang with Barclays.

Unidentified Analyst

Hi. This is actually [Christina] in for Ying Huang. I would also like to give Greg my congratulations and best wishes in his next endeavor. I'd be curious to see your confidence level on that you are targeting the right patient population through DTC campaigns. Or put another way what percentage of patients that are contacting Dendreon directly actually fit the criteria for receiving PROVENGE?

Joe DePinto

So thanks for the question. Again the goal of our DTC campaign as we stated in the past is to educate and bring awareness to patients, their caregivers and their families about immunotherapy and PROVENGE. When you look at the market research there are some key influencers. It's not only the patient but it's the caregivers, it's specifically the wife and the daughter that are very, very influential and in the treatment decision making of these patients. Interesting when we look at our registrations, the registration into our relationship marketing campaign is, they either contact the call center or through the web in our web traffic. A high degree of those folks that are calling in and contacting us and registering for our relationship marketing are actually patients.

So we believe that our ad is really hitting the mark. Now we want to develop a continual relationship with that patient, from interest in PROVENGE all the way to first infusion and what we have found with our DTC campaign is sometimes you get some people earlier that aren't metastatic that you will be develop that relationship with, they will get collateral material and some alright in our stock. We don't have metrics at this point and we are not willing to share that from a completive standpoint to be able to tell you x-percent patients within our label, but what we can tell you is that our call center, our web traffic when we show the Ad on television, it’s significantly higher those registrations than when that ad is not on the air.

John Johnson

I think beyond that too, we’re able to track obviously the patients to come to us from call through enrollment and infuse. But this also bank of patients that go in the office that don’t register with us first. That hear about it and directly ask for physician and it’s much tougher to get anything that’s been anecdotal research on that but I will tell you that going to both the AUA meeting and the ASCO meeting, I had a lot of positive feedback from our customers on the ad and that patients were asking them.

If we get any more clarity into that and find the way to give the kind of accuracy we like for the Street, I will be happy to show that but that is a group that we know we get some benefit from but it’s hard to quantify.

Operator

Our next question comes from Chad Messer of Needham. Please go ahead with your questions.

Chad Messer - Needham

Yeah. Thanks for taking my questions. I was wondering if you just -- on the cost to good side, I know you’re going to provide more details in the future call on, how you’re going to work to get those down in the future but can you maybe give us some more details on what is gone wrong up to now in terms of needing to withdraw your previous guidance for 50% to lower by third quarter.

I understand one of the factors is economies have scaled but are there some things you’re expecting to happen or happen quicker that didn’t, anymore detail there would be great?

John Johnson

Joe, you want to take that.

Joe DePinto

Yeah. Thanks for the question, Chad. I’ll reflect on my opinion and then I’ll ask Greg or John to join in or when they feel need it or they can ask me. I think as we indicated on the call, two of the biggest factors that we saw were delay in the hiring staffing about land of facility. Close to closure on New Jersey facility and that combined with our lower than anticipated or expected sales volumes delay basically our realization of the cost efficiency that we saw.

I do want to reiterate as John indicated and I indicated in the script, we do have plans in place to help reduce those things and we do believe some of those will triple into or will be substantial in Q4 and then one in Q2, we will see physicians updating. Greg.

Greg Schiffman

I think with that Chad, as we said, when you’re recruiting and hiring with Dendreon in the land and it has taken it to get longer than we thought in terms of bringing the employees onboard, some other individuals with client that I think are equally hiring at this stage. And so there is a little bit longer dynamic.

The same individuals that are engaged in those activities, there are some of them who are going to be implementing some of the efficiencies we had planned and that caused the delay. And it really is the attention I’m bringing the people on board and getting it staffed where it needs to be and slow the realization -- implement -- as well as the implementation of some of these programs that would be realizing the benefits. So we indicated on the call, we’d expect to see the majority of that taking place in the fourth quarter.

Chad Messer - Needham

Okay. I think, I understand, but just so I’m clear it’s distraction of hiring going on longer than you expected that’s contributing to not being able to focus on some other things?

Joe DePinto

It’s a same people that are involved with that activity in the training that would be involve on the other side and so, that’s perfect way to put it.

Chad Messer - Needham

All right. Understood. Thank you very much.

Operator

Our next question comes from Geoff Porges of Sanford Bernstein. Please go ahead with your question.

Unidentified Analyst

Yeah. This is (inaudible) for Geoffrey. Thank you very much for taking the question. so just given the current trajectory that you see for PROVENGE sales and effect that you have in to contain cost. Do you foresee any additional restructuring activities?

And then, secondly on the net price of PROVENGE, can you give us sense of how would we change in the second quarter just compared to last year? Thank you.

John Johnson

Well, as it relates to our restructuring in particular as I said earlier, we think it’s important to reduce cost across all the different aspects of our business, whether that’s in cost of good sold, how efficiently are with DTC and how we run our admin functions. I think every single piece of our organization needs to be looked at and we believe we have a lot of levers to pull.

We’ll give a better sense of what that looks like in an upcoming call. But I want to be clear that that we are focus on cost and that we have stated as a strategic imperative one of our three to get cash flow breakeven we are committed to doing that.

Unidentified Analyst

Okay. Thank you. And regarding the price.

John Johnson

Greg, do you want to discuss that.

Greg Schiffman

Yeah. Excuse me, maybe if you could just repeat the specific question on the price.

Unidentified Analyst

Right. So just regarding the net price, can you just give us a sense of how it has done in the second quarter just versus the prior year?

Greg Schiffman

So if we look at the net price on our product. I think, with very slight variations its remains pretty constant overtime. We haven’t really seen any substantive changes there, I think, since really it launched.

Unidentified Analyst

Okay. Thank you so much.

Operator

Our next question comes from David Miller of Biotech Stock Research. Please go ahead with your question.

David Miller - Biotech Stock Research

Hi. Thanks. And Greg, I should say congratulations and best wishes going forward. It’s been a pleasure working with you over the last two years.

Greg Schiffman

Thank you, David.

David Miller - Biotech Stock Research

And on other things we’ve been looking at is, we’ve been tracking your DTC spend, and it looks from our data that it’s doubled over the last couple of slides beginning in July. Can you give us a bit more color on why you did that and is the kind of the level we’ve seen in the last the slide in July and the one that just started, is that kind of what we are going to be expecting going forward?

John Johnson

Yeah. David, I have saw your note on that. I’m not sure that the audit is as accurate. I would say, but that’s not consistent with what we plan, now some of that could went different channels are being…

David Miller - Biotech Stock Research

Right.

John Johnson

… played and perhaps some other mechanism that was in the audit that hasn’t been where we’ve been at this point. But what we have seen as Joe said earlier, when we run it, we definitely see difference. We have refined where we go, audit could have been picking up, but fact that for example, certain new shows we know are highly productive for us.

And so what you may have picked up was we may have tripled on a certain network new show, but we know we get a better return on investment and if your audit somehow tied to that. I think that’s probably what you are picking up more is our refinement as it relates to our spending not our absolute spend. But for us, we’ve been very pleased with the results.

David Miller - Biotech Stock Research

Okay. And what point do you start talking about eliminating a manufacturing site and can you talk about, if you don’t want to talk about that, can you talk about how you have to think about the elimination of a manufacturing site in terms of how it decreases your ability to reach all geographies in U.S.?

John Johnson

Well, first of all, I’d like to say, at this point, we are committed to serving our customers. And we know we have to do that more cost effectively and we have to do that without compromising quality. We talked about some levers today [immunogene and automation] which are relatively big levers and there is a number of smaller levers behind that.

At this point, we don’t have any plan to reduce service levels across the board. We think that is important try to make this product as available as broadly as we can. We’ve got of course, always we visit that, but that’s our thinking today.

David Miller - Biotech Stock Research

Okay. Great. Thank you very much.

Operator

Thank you. At this time I’d like to turn it back over to John Johnson for closing comments.

John Johnson

I’d like to thank everyone for joining us today and for all the questions from the analyst community. I also want to thank all of the employees at Dendreon that have worked so hard to bring this pioneering treatment to patients and we talk about our 3Ps from a strategic standpoint but we based that on our fourth P, which is our people, which is a foundation of our company and I’d like to thank all them for their efforts as well and thanks again for joining us, we look forward being on the future call with you. Thank you.

Operator

Thank you, ladies and gentlemen. Thank you for your participation on today's conference. This does conclude the program. You may now disconnect. Have nice day

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