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Dendreon Corp. (NASDAQ:DNDN)

Cowen and Company 34th Annual Health Care Conference Transcript

March 4, 2014 11:20 AM ET

Executives

John Johnson - Chairman and CEO

Analysts

Unidentified Analyst

Good morning and thank you for joining us at Cowen’s 34th Annual Health Care Conference. We are joined today by John Johnson, Chairman and CEO of Dendreon and looking forward to his updates. Thank you.

John Johnson

Thank you very much and thank you to the entire team at Cowen for hosting us today and for those of you that are joining us not only here in person but also on webcast. During the presentation today, I will be making some forward-looking statements. I would point you to our SEC documents, including the 10-K that we recently filed to understand the risk associated with the statements I may make today.

So if you look at Dendreon, yesterday we announced our fourth quarter earnings and so I'll talk a little bit about that today and provide little bit more color from the call. Our net product revenue for the quarter was $74.8 million, up 10.1% sequentially quarter-over-quarter. We ended the year with approximately $199.4 million.

Key highlights from the quarter, we have a new focus on large accounts. Our large account is defined as an account that generates more than $1 million of sales year, on that kind of run rate. We’ve seen that number now grow with this new focus to 100. This is almost doubled from where it was back in the first quarter of the year.

In the fourth quarter, we did see our business stabilized. This is the first time we have seen growth quarter-over-quarter since competitive entries have come into our labeled indication.

Specifically, we are very pleased to see oncology go up 19% on a sequential basis, urology continue to grow as well as the academic group of hospitals. If you look at our cost of good we continue to make progress in that area. Our pro forma basis they have went down now to 51% in the fourth quarter.

As we look at our business into the first quarter, we look at our enrollment which is our version of new prescriptions. We've seen that those have stabilized and I think consistent compared to last year. We project that and we believe as we look at the first quarter, it will be similar to the first quarter of last year, which will be for us the first time since competition. On a year-over-year basis, our business has been stable.

So I will spend some time today talking about these investment highlights. I will go into each of these areas and give you as much as depth as I can here during the presentation. I am happy to dive into any of these growth areas during our Q&A.

So if you look at the prostate cancer space, specifically the metastatic castrate resistant prostate cancer space, we see a significant opportunity. We estimate in the United States there are about 48,000 patients who fall within our label. And as we look at just 11 of the EU countries, we see that at about 63,000. Yesterday, during our earnings call, we announced that we will make the product commercially available to patients in Europe beginning in the fourth quarter. We believe that this over time represents a very substantial opportunity for the company. This market in PROVENGE dollars in the U.S. is about $4.5 billion, and we see significant room for growth in the years ahead.

So if you look at, at what’s changed at Dendreon, I mentioned just briefly earlier we have put a new commercial model in place. This model is an account-based model, it’s not a model focused on reaching frequency across the broad spectrum of specialties or account types, it’s really focused on large account management. And the reason we went to the models, we found where we were most successful.

We, in fact, had three different champions, and in some cases, multiple champions within these three segments in our key accounts. Someone what would represent the clinical side, which you would expect, but unlike other products, there is a component as it relates to PROVENGE where you need both someone that understands the operational aspects as well as reimbursement aspects, because they are unique with PROVENGE being the first personalized immunotherapy.

When we look at our success is where we had these three champions across the board. These accounts became more self-sustaining, required less resources from the sales and sales operations side, and we have, in fact, seen success with that, as I indicated, a moments ago.

To assist them in making sure that these accounts have patients flowing in and have educated patients flowing in. There was clearly a need for increased patient education and awareness. So we launched last year around this time a landmark campaign with the first ever direct-to-consumer television ad that featured in oncology product and a survival benefit. We did a lot of research in advance. We found that, it in fact was well received and now that we have run it, it has in fact met our expectations.

We've looked at it in a lot of different ways from our research and with programs being the product it is, we are actually able to tie back through an independent third-party prescriptions that were generated as a result of the advertisement to actual infusions in patients. And so, we know from that data that we have, in fact had an impact with this campaign.

How we use DTC going forward? We will make based upon data-driven decisions. We have found what commercial are running and what particular segment and show are most effective. Each of our ads has a different 800-number. So in fact, we are able to really target quite closely and become more effective with our advertising. And we believe that this has been an important component of stabilizing our business in the face of significant competitive pressures.

So, as I mentioned yesterday, we announced that we would be making PROVENGE commercially available through centers of excellence in Europe. We see the process of going into Europe as a two-step process. Step one is to go to a limited number of centers and then step two, once automation is approved and we are able to scale up our manufacturing more quickly and our margins improve to take it more broadly across the entire continent.

So this is a very cost-effective way to enter this market. We will have minimal commercial investment. We will begin with less than 10 centers in Germany, in U.K. initially and probably a couple of other countries, not too far after that. We would expect the cash burn this year associated with making the product available commercially to be less than $10 million, which includes a scale-up and manufacturing and going from clinical to commercial with our contract manufacturing organization realized PharmaCell in Europe.

We have spent considerable time working with the Health Technology Assessment committees to understand what reimbursement and what support is needed. And as I mentioned, we will expand further once automation comes in. We will make an important distinction in Europe and why we believe we are going to be able to receive favorable reimbursement and that differentiation is really compared to the U.S. label. The European label has more information in it as it relates to which benefit -- which patients may benefit from PROVENGE, specifically the quartile analysis is included in the European label that shows the patients with lower PSA are more likely to get an increased benefit.

For example, patients with less -- the PSA of less than 22 in this ad hoc retrospective analysis showed an overall survival versus controls of around 13 months. This is significant to the payors and both bottom two quartile showed a significant benefit. This is going to help, inform them in the reimbursement and also how they might direct physicians to consider utilizing PROVENGE.

Beyond that as we look to build this business out, over the longer term as is the case in oncology combination therapy is frequently used. We have begun sequencing trials with both Zytiga and Xtandi. We believe that this -- these data will be important in helping physicians determine not only how to use those products together but in fact how to sequence those products. And certainly in Q&A session, Andy Sandler, who is with us today, our Chief Medical Officer can provide more details on that.

Beyond that, if you look across the other work that Andy’s team is doing, the PREDICT study which is screening for metastatic disease in these patients is in fact an important component of helping patients get optimal treatment. As you look at screening in United States today, it is not standardized, it is not consistent. It varies by ZIP code, it varies by specialty.

Helping drive awareness is to what the true instance might be, how and when to do that, we think is important data and will help not only the patients but also the medical community at large manages to the state most appropriately. Our proceed registry have completed enrollment. This will be a rich databank for us in the years ahead and Andy and his team will continue to mind that and share the information that we gain from that registry at meetings in the near future.

The prime study is to help develop our biomarkers. I’ll talk more about biomarkers in a minute and beyond that as we look at immuno-oncology and immunotherapy in cancer in general, we have seen a landmark shift this year in the way that clinicians specifically oncologists are beginning to view immunotherapy. It was front and center at ASCO.

We saw it again at ASCO GU. Clearly at ASH, it was front and center as well as one of the pioneers where we've taken our share lumps along the away. It’s great for us to see this wave of support building for what we believe is an important new way to treat this disease.

Beyond that as we look at ASCO GU, we did present some data on our DN24-02 compound and as well we saw some data on the cross resistance between formal agents begin to appear, which we think will help the positioning of immunotherapy and the treatment algorithm of metastatic castrate resistant prostate cancer. And we have 23 investigator initiated trials going on at 19 different sites at the present time.

So when you look at biomarkers, both payors and patients and physicians all support the development and understanding of what biomarkers may be helpful in selecting the optimal treatment for patients. The pre-treatment biomarker would really be the most valuable of the three biomarker pieces of work we’re doing right now, which would help inform before the patient receives treatment, who is most likely to receive a benefit and how potentially, how significant that benefit is and that work is ongoing at Dendreon.

Beyond that, we’re also doing work on in-treatment biomarkers as well as post-treatment biomarkers to help both physicians and patients to understand the benefit in the response that may be seen to PROVENGE. As you are aware, PROVENGE does not have an immediate impact on the PSA levels of these patients and that has been a concern for some providing these biomarkers may in fact help alleviate those concerns.

When we look at DN24-02, it has advanced significantly over the last year. We continue to enroll patients in our Phase II trial. And that is nearing completion at this point in time. We have seen robust immune responses and in fact 75% of the tumors express HER2 protein which is higher than we originally thought when we undertook this program.

We also discussed yesterday our efforts to lower our cost of goods and improve efficiency through the use of automation. In December, we had a very productive meeting with the FDA, they recognize the importance and are working with us on bringing automation to this class of therapies.

As we have worked in this area, we are now at this stage in which we have an awful model that will in fact be the machine that we will launch with once automation is approved, all that remains once we do our comparability work is to adjust the software that will in fact run these machines.

This step reduces and minimizes human error. It really significantly decreases the footprint and the personnel associated with manufacturing PROVENGE and in fact makes going into markets like Europe, like Japan, like Brazil and other markets much more affordable. You can go in much quicker and a much lower footprint and in fact have a completely different manufacturing paradigm.

So for us, we believe this is a very significant, strategic driver for the company. We have made progress on cost of goods sold. I joined the Board of Dendreon for quarter prior becoming CEO and the first meeting I was at, our cost of goods sold was 122%, today it’s 51%. We believe that automation will take us into the 30s. So we are making progress. We think that this is important work and I want to thank the team at Dendreon for all their efforts in this area.

So if you look at the company, from a 50,000 foot view and you look at our cost position, we do see it improving, accelerating our path to profitability is a key priority. We began restructuring and cost reduction plan last November. We believe that we will see net benefits of that beginning in this quarter. When you step back and look at the work we have done over the last couple of years, we have substantially changed the face of the company.

We have had to make a difficult decision to reduce employee and FDE population by more than 60%. We have shutdown our manufacturing facility and sold it. We have streamlined our processes and will continue to do so. We believe that there are other levers that we can continue to pull, to improve our cost position because we are focused on becoming cash flow breakeven as soon as possible.

As I mentioned yesterday, we have spent considerable time at the Board level reviewing our options and looking at our convertible debts. We have made significant progress in our thinking. We are not going to release details as you might expect prior to a transaction of how we might approach that. But I want to ensure everyone that that is front in centre in our minds. And our goal remains to get our cash flows and our balance sheet aligned.

So as we look ahead, we believe that in fact, immunotherapy and cancer will continue to gain stature as a validated treatment approach, was cleared at ASCO, it was cleared at ASH, it was cleared at ASCO GU but this is an important area. We think that this is a long-term tailwind for Dendreon.

We are positioning the company to succeed as a winner, winnable biotech, accelerating that path of profitability is our top priority and we are laser-focused on that. And we believe the new commercial model will help us be more effective on the commercial side and in fact use fewer resources. Our growth in the fourth quarter sales was in fact driven with 30% less sales people than we had at our peak.

From a strategic investment side, making PROVENGE available in Europe, we believe is important, very important for the long-term. In the short run, it will be limited to product availability through the centres of excellence. We will begin to expand that and once automation is approved, we will launch across the continent.

The clinical data we believe especially as you look at combination data and the biomarker program will help and grow PROVENGE in this large market in the years ahead. And therefore, we believe that as you look over the longer term, the potential for this company and this product is significant and we believe that we can create value for shareholders positions and patients alike.

And with that, I will go ahead and close the presentation portion and we will go to Q&A. We will take questions in here to start and then we will go further.

Question-and-Answer Session

Unidentified Analyst

(Inaudible)

John Johnson

Greg, if we just close -- we haven’t disclosed what that is, but I would say that we are comfortable with the in the 30s across a wide variety of...

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