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Dendreon Corporation

Q2 2011 Earnings Call

August 3, 2011 04:30 p.m. ET

Executives

Katherine Stueland – VP, Corporate Communications and IR

Dr. Mitchell H. Gold, M.D. – President & CEO

Hans Edgar Bishop – EVP & COO

Gregory T. Schiffman – EVP & CFO

Dr. David L. Urdal, Ph.D. – EVP & CSO

Dr. Mark W. Frohlich M.D. – EVP of R&D and CMO

Analysts

David Miller – Biotech Stock Research

Salveen Richter – Collins Stewart

Joel Sendek – Lazard Capital Markets

David Nierengarten – Wedbush Securities

Cory Kasimov – JP Morgan Securities Inc

George Farmer – Canacord Adams

Ying Huang – Gleacher & Company

Mark Schoenebaum – ISI

Lee Kalowski – Credit Suisse

Atna Sarusda – Goldman Sachs

Mark Monane – Needham & Company, Inc.

Reni Benjamin – Rodman & Renshaw

Chris Raymond – Baird Research

Howard Liang – Leerink Swann

Rachel McMinn – Bank of America Merrill Lynch

Marko Kozul – ThinkEquity

Robyn Karnauskas – Deutsche Bank

Lucy Lu – Citi Investment Research

Operator

Good afternoon, ladies and gentlemen, and welcome to the Q2 2011 Dendreon Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct 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, Katherine Stueland. You may begin, ma’am.

Katherine Stueland

Good afternoon, everyone. We’re pleased that you could join us today for our second quarter conference call. Joining me is Dr. Mitchell Gold, President and Chief Executive Officer; Mr. Hans Bishop, Executive Vice President and Chief Operating Officer; Mr. Greg Schiffman, Executive Vice President and Chief Financial Officer; Dr. David Urdal, Executive Vice President and Chief Scientific Officer; and Dr. Mark Frohlich, Executive Vice President of Research and Development and Chief Medical Officer.

Before we begin, I’d 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.

I will now turn the call over to Dr. Gold.

Mitchell H. Gold

Thank you, Katherine. Hello, everyone, and thank you for joining us today. One full year after launching PROVENGE, we have made significant progress in introducing the world’s first autologous cellular immunotherapy into the marketplace. Our first year was marked by a series of significant accomplishments that have created a foundation for long-term growth. In doing so, we have also learned a great deal about some of the unique aspects of commercializing PROVENGE that we look forward to sharing with you today.

As you saw in today’s press release, in the second quarter, we reported gross revenues of approximately $51 million, an increase of approximately 81% over the prior quarter. While this quarter-over-quarter growth is impressive, it was slightly below our own internal projections for the quarter. In July, we recorded gross sales of approximately $19 million, which is below our anticipated growth.

While August bookings are already at higher levels than either of the two prior months, they still fall substantially below the trajectory required to meet our previous guidance. We believe these results reflect a shift in the launch trajectory with a more gradual adoption of PROVENGE.

While these revenues don’t meet our expectations, we believe that the overall market opportunity for PROVENGE is significant. Let me share with you why this is the case.

There is strong physician interest in PROVENGE. By the end of the second quarter, we had more than 255 accounts infusing PROVENGE which was in excess of our guidance of 225. At the end of July, we had more than 300 accounts at infused PROVENGE.

In addition, at the end of July, there were more than 500 total sites that have completed the end servicing process, of which approximately 350 have either infused product of have their patients scheduled for their first PROVENGE regimen.

So clearly, there was an interest in infusing PROVENGE and the number of physicians infusing PROVENGE has exceeded our previous guidance.

Furthermore, it is clear that the market potential for PROVENGE is substantial. As we took a closer look at 17 large urology and oncology community practices, our market research revealed that there are approximately 1,000 eligible patients for PROVENGE in these accounts alone. So, on average about 50 patients per account. These community practices are where the most patients for PROVENGE exist.

What surprised us was that less than 10% of these patients actually received PROVENGE. We had anticipated one to two patients per account per month, but what we’re actually seeing at the end of July is closer to 0.8 patients per account per month. Why haven’t more patients been prescribed PROVENGE?

We identified three key issues which we believe are all readily addressable and will move us towards the goal of ensuring all patients who need PROVENGE are getting it.

First, reimbursement still remains the most prominent concern amongst physicians prescribing PROVENGE. The reimbursement landscape for PROVENGE has recently become much more favorable with the issuance of a broad NCD and Q-code. Interestingly, the majority of physicians are still unaware of these improvements, so we need to educate them on these positive changes to the reimbursement landscape.

Second, we need to help physicians identify, which patients are eligible for PROVENGE in their practice. Third, our product is novel. It is personalized and has a unique supply chain. In speaking with our physicians, it is clear to me that we need to streamline our customer experience to ensure that patients and physicians have a simple and expeditious way of easily accessing PROVENGE.

I’d like to walk you through our plans to address each of these critical success factors. First, the dynamic that’s clearly having the most significant impact in our business is the unique attributes of PROVENGE on the practice economics of our customers. As you know, PROVENGE is administered as three infusions over the course of approximately 4 to 6 weeks. Therefore the total cost of $93,000 is incurred by the practice over 30 to 45 days. While PROVENGE is priced similar to other oncology products, the cost coupled with the short duration of therapy results in a higher cost density for PROVENGE compared to other oncology products which are administered over the course of many months or years.

This cost density coupled with concerns related to a more restrictive label, restrictive reimbursement label has heightened our customer’s awareness and anxiety relating to reimbursement. This was particularly true for our recently added customers, who have had less experience with PROVENGE. Our job is to help address this uncertainty. Two recent events provide us with a significant opportunity to build reimbursement confidence for physicians moving forward.

First, CMS recently issued a National Coverage Determination. Prior to the NCD, reimbursement in some regions was based on complex patient eligibility requirements that were more restrictive than our labeled indication, since they were based on our clinical trial criteria.

We believe that these highly restrictive criteria made it more challenging for customers to assess patient eligibility and undermine their confidence in reimbursement. It is important to recognize that the NCD clarifies and simplifies reimbursement for PROVENGE by aligning the reimbursement criteria with our strong and broad FDA label.

Our sales force is already on the road making sure physicians know about these positive changes and they are already making headway with 25% of physicians now aware of these changes. Furthermore, like all new oncology products, PROVENGE has been reimbursed by CMS since approval via miscellaneous code which requires manual claims review and can extend reimbursement timelines to as much as several months. This in combination with PROVENGE’s cost density has created significant customer anxiety regarding outstanding receivables, as well as our cash flow management.

As we look at the complexion of our accounts and their sensitivity to reimbursement, it is important to note to-date the vast majority of our top accounts were academic medical centers, which tend to be less sensitive to these cost density issues compared to community practices.

Consistent with most oncology launches, the majority of accounts that we have added over the last six months have been in the community setting. Given what we now understand to be their increased sensitivity to the impact of cost density on their practice economics, we have seen that the average number of treatments per account has declined.

Physicians in the community setting tend to be more cautious in the initial number of patients they put on PROVENGE until they see consistent evidence of reimbursement. Therefore, we believe that the issuance of the NCD and the Q-code will eventually resolve most of these concerns.

Now with the product specific Q-code that went into effect July 1st, claims can be submitted and adjudicated electronically, which typically shortens time to reimbursement significantly. In fact, we already have reports of mass (ph) providing reimbursement in as little as two weeks using this code. However, we believe these headwinds will persist until practices gain more experience and more confidence with this new reimbursement paradigm. Our job is to help accelerate this process by building confidence in PROVENGE reimbursement.

Finally, in order to ensure that any patient who is eligible for PROVENGE has access to it, we’ve expanded and optimized our patient assistance programs to ensure that the uninsured, underinsured, and those needing travel assistance have access to PROVENGE.

Overall, we believe we can do a better job of addressing the practice economics that physicians are facing today, and thus positively impact the adoption rate of PROVENGE.

Next, we need to help physicians identify, which patients are eligible for PROVENGE in the physician’s practice. Unlike most cancer drugs, the prostate cancer market spans both the oncology and neurology practices. In many ways, we are building an entirely new market.

Prior to the approval of PROVENGE, the only treatment option for patients with metastatic castrate resistant prostate cancer was chemotherapy, typically administered by medical oncologists. But due to the toxicities and referral dynamics, many patients did not receive chemotherapy, until their disease has progressed to such a point where they experienced significant pain. As a result, many patients with asymptomatic or mildly symptomatic disease were not diagnosed and treated by their urologists where many of these patients actually reside.

We now have an entirely new treatment paradigm with the introduction of PROVENGE for these patients. There’s no shortage of PROVENGE eligible patients in our label. The market opportunity is large; however, we know that our early prescribers were clinical trialists, who were comfortable with the clinical data and logistics. As we bring new physicians on line, it takes time for them to gain experience with a new product such as PROVENGE.

Furthermore, as we’ve learned most physicians are unaware of the PROVENGE-eligible patients that are sitting in their practices. These patients need to be identified. In order to do this effectively, we need to provide physicians with greater education and earlier screening to identify the correct on-label patients. We also believe that the introduction of Xgeva and other products to the market will be additive to our earlier screening efforts.

The final area of focus for us is improving our customer experience. We’ve been incredibly successful in ensuring the continuity and strength of our supply chain and logistics. Importantly, we’ve maintained our high success rate for the manufacture of PROVENGE, but we also want to be sure that PROVENGE is easily accessible for physicians, practice managers, and patients, and becomes a routine for urologists and oncologists to use in their practices alike. Therefore, we are planning to improve and optimize the way that we interface with our customers to ensure that PROVENGE use is as standard, simple and seamless as possible.

Our overall belief in the long-term potential for PROVENGE remains strong, and we are committed to getting PROVENGE to all patients in need. These near-term issues are surmountable. They may take some time to navigate, but we believe they are readily addressable by our commercial organizations.

Our commercial team is led by our Senior Vice President of Global Commercial Operations, Robert Rosen, whose extensive oncology experience includes the launch of several major products including Eloxatin, Herceptin, and Nexavar. Rob fills the gap in our organization that has existed for approximately six months and we are glad to have him aboard.

I think, a fair question to ask is, why didn’t we see this trend earlier? Keep in mind, for the initial 12 months of our launch, we were capacity constrained and we did not see the real impact of the reimbursement headwinds until after additional capacity was brought online. It wasn’t until the July revenue was known, and the trends for early August orders came in that we realized the growth would be more gradual than we had anticipated.

Another important question is when will these headwinds subside? We believe that the reimbursement headwinds will indeed subside as physicians gain more experience and more confidence with the new clear and consistent reimbursement environment. But until we can see clear evidence of that changing, we are withdrawing our previous guidance for this year. For the remainder of this year, you should expect to see modest quarter-over-quarter revenue growth while we are resolving these issues.

For the month of August, we continue to see growth with total patients already booked at higher levels than the prior two months. However, the reality is we have staffed our facilities to support the capacity needed for our previous guidance. Given this shift today, we need to reduce expenses, including our workforce to support our near-term capacity and manufacturing requirements. This is clearly a difficult decision and a difficult message to deliver to our employees who are dedicated to our patients.

We do plan at keeping our manufacturing facilities staffed to a level that allows us to respond rapidly to a more robust growth rate. We will overcome these challenges, I’m confident of that. We have a product that provides a meaningful survival benefit with a favorable safety profile. There is a large volume of PROVENGE-eligible patients that need to be pulled through to prescriptions and we have a plan to get that done.

Importantly, we will continue to focus on what has guided us over the course of 16 years. The fundamental belief that we can help patients with advanced prostate cancer, live longer and live better life. That relentless focus is what got us here today and is what will help us realize the value not only of PROVENGE but our entire ACI platform technology.

I’ll now turn the call over to Greg who’ll review the financials for the quarter.

Gregory T. Schiffman

Thanks, Mitch. Earlier today, we reported our financial results for the second quarter of 2011. For the quarter ended June 30, 2011, we had revenue of approximately $50 million compared to approximately $3 million for the quarter ended June 30, 2010. For the quarter, we saw approximately $1.9 million of rebates and chargebacks associated with either Medicaid patients or other pricing discounts offered pursuant to mandatory federal and state government programs. This is a substantial increase relative to prior quarters as several institutions that did not previously applied for the chargebacks submitted request.

Gross revenue for the quarter before rebates and chargeback was $51.4 million. For the month of July, we saw sales of approximately $19 million. As Mitch indicated, reimbursement and practice economics concerns have influenced the rate of adoption. We expect to see modest growth quarter-over-quarter while the physician base stays confident on the certainty and timing of reimbursement for PROVENGE.

As we have limited visibility into the speed with which physicians will gain comfort with the final NCD decision, and implementation of the new Product Specific Q-Code we do not believe that we have adequate visibility into product adoption and revenue growth to provide meaningful guidance estimates and as such are withdrawing our previous guidance.

For the six months ended June 30, 2011, we had revenue of approximately $78 million compared to approximately $3 million for the six months ended June 30, 2010. For the year, we recorded approximately $2.3 million associated with rebates and chargebacks.

Gross revenue for the year before rebates and chargebacks was $79.9 million. We had not booked any reserve for rebates and chargebacks prior to this year. Labor and other expenses associated with starting up our manufacturing operations, prior to the approval by the FDA to sell commercial products generating revenue, flow through our SG&A line is startup expenses.

We have tried to be very transparent in the costs associated with these startup activities in 2010 as these are not typical for a biotech company. These startup costs are detailed in our quarterly SEC filings. For 2011, we projected approximately $90 million of startup charges for the year. For the quarter, we incurred approximately $34 million of startup expenses. For the first six months, we’ve incurred approximately $72 million of startup expenses.

It is important to recognize these startup costs are only incurred once for a facility and do not impact its ongoing cost structure. We have an FDA action date for the approval of our last facility of August 28. If the facility is approved, we will no longer be booking any startup expenses in our SG&A beyond Q3.

For the quarter, we had a cost of goods sold of approximately $28.8 million, and as a percent of revenue, cost of goods sold was 58%. For the six months ended June 30, 2011, we had a cost of goods sold of approximately $47 million, and as a percent of revenue, cost of goods sold for the first six months was 61%. We saw a slight improvement in our cost of goods sold this quarter as our volumes ramped.

Looking forward we would expect to be able to leverage the substantial fixed labor cost associated with running our facilities as we increase our revenues in 2012. We also expect to be able to obtain efficiencies associated with operating three facilities across the U.S.

We are reiterating our long-term guidance on COGS moving to the 30% range as we increase our production volume and began to gain operational efficiencies and eventually moving to the 20% range as our manufacturing volumes continue to ramp.

Sales, general and administrative expenses were approximately $105 million this quarter compared to approximately $48 million for the same quarter a year ago and for the six months ended June 30, 2011 our SG&A expenses were approximately $200 million compared to approximately $76 million for the same period a year ago.

These increases were primarily driven by increased commercial activities associated with the expanded launch of PROVENGE and the start up cost associated with the pre commercial expenses at our manufacturing sites. Research and development expenses were approximately $19 million compared with approximately $21 million for the same quarter a year ago.

R&D expenses for the six months ended June 30, 2011 were approximately $36 million compared to approximately $50 million for the quarter ended June 30, 2010. Expenses were down as expenses associated with our manufacturing operation are now classified as COGS or start up costs and no longer flow to research and development. We would expect to begin to see our research and development cost rise slightly as we initiate our first clinical trial in bladder cancer and late this year begin our M1 study in prostate cancer.

Interest expense for the quarter was approximately $12 million and approximately $21 million for the six months ending June 30, 2011. This expense is primarily associated with the convertible debt issuance of $620 million in January. The convertible notes may be converted into stock or cash at the Company’s option. This option creates an accounting bifurcation of the bonds into an equity and debt component. The Company recorded interest expense at a rate of 8.1% for GAAP reporting purposes. The actual cash interest paid is 2.875%. This adds approximately $21.3 million in non-cash interest expense for 2011. We will report the non-cash component of interest expense as one of the non-cash adjustments we made to our GAAP reported financial statements, as we think that this provides important insights in this Company’s ongoing financial performance.

On a GAAP basis, the net loss for the quarter ended June 30th, 2011 was approximately $115 million or $0.79 per share compared to a net loss of approximately $143 million or $1.04 per share for the same quarter a year ago. In Q2, 2011, GAAP loss of approximately $115 million includes approximately $31 million or $0.22 per share in non-cash expenses associated with depreciation and amortization, non-cash imputed interest expenses and non-cash deferred stock compensation. This generates a pro-forma loss of approximately $84 million or $0.57 per share.

The 2010 loss includes a non-cash adjustment associated with warrant evaluation of approximately $74 million. The net loss for the six months ended June 30, 2011 was $226 million or $1.55 per share compared to $268 million or $2 per share for the six months ended June 30, 2010. The GAAP loss for the six months ended June 30, 2011 of approximately $226 million includes approximately $57 million or approximately $0.39 per share in non-cash expenses associated with depreciation and amortization, non-cash imputed interest expense and non-cash deferred stock comp, generating a pro-forma loss of approximately $169 million or $1.16 per share. The net loss for the six months ended June 30, 2010 includes non-cash charges associated with revaluation of warrants of $143 million or $1.06 per share. We plan to present these pro forma financial numbers, going forward. We believe that they provide important insights to the Company’s financial performance.

The warrants were exercised during the second quarter of 2010, and as such the Company will not be recording any further non-cash charges associated with the revaluation of our warrant liability. The growth, year-over-year, after adjusting for the revaluation – warrant revaluation is primarily driven by our growth in headcount and other cost associated with the commercial launch of PROVENGE.

We have a strong balance sheet with cash, cash equivalents and short and long-term investments at June 30th, 2011, of approximately $674 million compared to December 31, 2010 of approximately $277 million. For the quarter, the Company had a net cash usage of approximately $106 million, driven primarily by cost of manufacturing and commercializing PROVENGE.

We will be taking appropriate actions to curtail cash usage to assure that we can finance the commercialization of PROVENGE with our cash on hand.

I will now turn the call back over to Mitch.

Mitchell H. Gold

Thanks, Greg. Many of you who are on the call have followed Dendreon for a long time. You’ve seen our vision, passion, and tenacity in our goal of changing the lives of patients with cancer, and you’ve seen overcome challenges that many other companies have never had to face. We will overcome these challenges as well.

I want to personally thank you for your support both past, present, and future. Based on the information, I shared with you today, we believe these results reflect the shift in the launch trajectory and a more gradual adoption of PROVENGE early on in our launch. We believe that the overall market opportunity for PROVENGE is significant and hasn’t changed. Our entire management team is focused on steering Dendreon back on to the growth trajectory that we had anticipated. You have our commitment to that and we have a clear plan to get it done.

With that, turn the call back over to the operator, and we’ll open the phones for Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Cory Kasimov with JP Morgan.

Cory Kasimov – JP Morgan Securities Inc

Hi, good afternoon guys, thanks for taking the question. Mitch, you asked and tried to answer the main questions I have at the end of your prepared comments, but it’s still kind of bizarre to me that the reimbursement issues are just surfacing now, especially one month after a positive NCD and the Q-code took effect. So, I’m wondering what changed those suddenly because it doesn’t seem like capacity constraints would hide reimbursement issue from your field reps, and it seemed like this is something that was being positively talked about from a coverage standpoint as recently as ASCO in early June.

Mitchell H. Gold

Well, it’s a series of things, Cory. First, while we’re in capacity-constrained environment, these issues didn’t pop up, but it was really as we started to add new accounts online, we moved from the academic medical centers into the community setting, into the community urology and the oncology setting. And the NCD and Q-code just recently got issued and what we are seeing from doctors that are out just today is the community urologist and the community oncologist are much more concerned about the cost entity issue that I described to you than the academic centers. In fact, if you look at our highest volume prescribers today the vast majority of that were in the academic medical centers where they don’t have the same imbursement concerns as the community urologist and oncologist.

When we look in the community and we get a sense of how many of them are familiar with the positive reimbursement changes that exist today, only 25% of them are aware of it. The 35% of them that we need to reach out to and educate are confident that we can do that. But, we also know that they’re going want to see several incidences of patients moving through and getting positive experiences and positive coverage from their payers and (inaudible) to get comfortable with this new paradigm.

And so what we see in the community that do they these patients sitting in their practices that described to you for earlier, large community oncology account there are about a 1,000 patients there.

But approximately 10% come with programs prescription and the reason is there is patients on the PROVENGE until they get comfortable with this new reimbursement paradigm and they will be more confident that they’re going to get paid for these patients.

Cory Kasimov – JP Morgan Securities Inc

But as part of this same question, isn’t it a mandate from CMS, its not essentially what this NCD was, so for the 70% or whatever the population that fall under medicare reimbursement should no longer be an issue?

Mitchell H. Gold

Yes, it will. The NCD has recently issued, in fact we don’t anticipate that across the majority of the map until August 8th, and even after that time when we go out and we’re starting to interface with our physicians, what they’re telling is, yes they see it, but they want to see evidence that their local med cares are going to cover according to the new entity which is consistent with out broad and strong regulatory level.

Cory Kasimov – JP Morgan Securities Inc

Okay. All right, I have other questions but I will hop back in the queue.

Mitchell H. Gold

Okay, thanks Cory.

Operator

Our next question comes from Michael E, with RBC Capital Markets.

Michael E – RBC Capital Markets

Yeah, I had questions, my guess to start with just the demand, how do we know its not a demand issue from the patient side, do docs say they have a lot more patients to treat and I guess, what do you thinking when you read that through, what do you thinking on patients preside because you’re saying 0.8 per month and you just even at the half a patient a month times 500 side, just getting (inaudible) double the revenue you’re thinking about is that isn’t a reasonable sort of a run rate?

Mitchell H. Gold

Without getting into run rate issue, Mike let me just say that we have a lot, we do market research in the large community, urology and oncology. There is clearly patients that are within the PROVENGE label that fit these accounts. But, let’s also very clear and I said in my prepared comments that the physicians are unaware that these patients actually sitting in their account. Do we need to educate both the oncologist but even more so the urologist where these patients are residing to screen for these patients to know that there is a new treatment that they can treat so that they can get them on treat.

Even once we do that, the docs still need to be comfortable that he is going to get paid. So, it’s a combination of identifying the patient and getting the physicians comfortable with reimbursement. And there is really three lives on stool on reimbursement that I talked about right there is rapid payment with the Q-code, there is NCD that’s more consistent with our FDA label and then there is a patient assistance program that I talked to make sure that patients can get out regardless of their financial needs.

Michael E – RBC Capital Markets

So, do you think in a worst case scenario these doctors who are taking a lot of time are going to treat one patient per two months, one patient per three after they get their reimbursement after 60 days?

Mitchell H. Gold

Yeah, I think what we would like to see Mike as we bring account online, I gave you some metrics for. We are very pleased that physician interest in PROVENGE is extremely high and what we are seeing as you bring new accounts online they are identifying the patients and they are putting few tests to patient to make sure they’re going to get paid for these patients. I think once they get confident with this new reimbursement landscape that exist today, we would expect those numbers to come up. But, they may stay favor, they may even trend down overtime as we have more accounts and will start to see them elevating. I don’t know Hans if you have anything to add to that.

Hans Edgar Bishop

I mean its exactly right. I mean to the question, what happened as we have been adding more these accounts, is the new accounts will treat the patient and wait to that time before treat next patient and that’s why we are at the point 8 per month and below the number we previously guided. As doctors get more conformable reimbursement that’s going to put them up picking the trend and which is early remark of course, the motivation then to screen patients on identified patients that we know are sitting in this practice that also goes up.

Michael E – RBC Capital Markets

Okay, I’ll hop back in, thanks.

Operator

Your next question comes from (inaudible).

Unidentified Analyst

Hi, guys. Number one, do you think you misplaced the product. Number two, I know you talked a little bit about this in your marks, but maybe you could be a little more explicit. Its not about things that you can’t control, how exactly should we be modeling SG&A and R&D expenses this year and next year. Can you give us more clarity around restructuring and more clarity around expense trends? Thanks a lot guys.

Mitchell H. Gold

I will take the first part. In terms of pricing actually now we think, we priced the products very consistent with other products in the oncology market place, particularly given the unique benefits, the risk profile programs, in particularly given the magnitude of the survival benefit that we are providing the patient. And so that’s no different. What I emphasized in my prepare comments, what’s different about PROVENGE is the cost density issues. The fact that the physician is incurring the cost of PROVENGE over a one month period as opposed to over several months or even over a year. So, that’s just a unique paradigm that we need to deal with, and we believe that the combination of the NCD as physicians get educated on it, as well as the more rapid reimbursement timeline with the Q-code, once that starts to become a routine part of the practice, they will get much more comfortable with the cost density issues.

Gregory T. Schiffman

With regards to modeling on expenses, as you can imagine, this is activities that we’re working through real–time, we’re getting this information out very promptly and we’re not at a point to be able to give the exact specifics with what we’re going to be working through. However, we will look to get that both out to our employees as well as to the investors in a very prompt fashion. When I look at the expenses in total, as we guided, I would expect R&D itself actually will be going up somewhat because we have some studies that we’ll be bringing on board; however, R&D is not where we have most of our expenses, our expenses really are focused in on the SG&A, in our manufacturing facilities, and we will be looking at both of those with regards to reduction and be sharing specific details very shortly with both employees and the market.

Unidentified Analyst

Any plans to just ease payment terms by the way, and then I’ll pop back in the queue to get around this cost density issue?

Mitchell H. Gold

Yeah. I think we’ve extended dating our physicians which is one tool that was given to physicians to deal with the cost density around PROVENGE, but I think it’s fair to say that Rob and the commercial are looking at a number of options to make sure that we can help physicians deal with the reimbursement paradigm around PROVENGE.

Unidentified Analyst

Okay, thanks for taking all the questions.

Operator

Our next question comes from Robyn Karnauskas with Deutsche Bank.

Robyn Karnauskas - Deutsche Bank

Hi guys, thanks for taking my question. So, I just want to think a little bit longer term past this year if I’m thinking about the numbers you provided. So, if you’re talking about; point A, average-on-average 0.8 patients per month or less, and you get 500 patients up online, that’s a run rate roughly, according to my math – which is probably wrong, around like $400 million a year, and it just looks like the current valuation of stock, as far as the guidance you’ve given, you’re really looking at a large number of eligible patients, you’re talking more like in – you’ve said about of the 30,000 eligible, maybe at least – maybe 18,000 or 20,000 are going to be treated every year – could be treated at peak, or eligible for PROVENGE. Help us get comfortable that that average number of patients per month can go up over time, and get to estimates that I think the Street is really thinking is achievable right now, and help us think about how long it might take you to get that number up. I mean, are we talking a year is it really just limited to reimbursement or are there other factors that you’re thinking about as far as competition that might influence that ramp?

Mitchell H. Gold

Those are all good questions, Robyn. So, first off, let me say, we talk about 500 accounts infusing PROVENGE by the end of the year. You should know very clearly that’s not where we’re stopping, right. We’re going to continue to bring more and more accounts online that have access to infusing PROVENGE, expanding the number of physicians that are Dendreon systems ready enable to infuse PROVENGE, that’s number one.

Number two, I highlighted for you some record research that we have done with 17 of our large community oncology and neurology practices, and in just 17 of those accounts alone there are over 1,000 patients, on average about 50 patients per account. So, there is a large number of patients that are residing in these accounts that are within the PROVENGE label. When we gave you the 0.8 patients per month at the end of July, that’s the number that we think is going to continue to change, as there’ll be more accounts online, particularly in the community setting, at least through the course of this year that number may in fact go down as these accounts start to dribble on patients. But as these physicians get comfortable with reimbursement, okay, and we expect that’s going to happen, I think, you are going to see those numbers start to go up in these accounts and that’s really when you’re going to start to get back on the trajectory that we had anticipated for our growth this year. I think the best way I can describe it to you Robyn is to think about this as a shift of the curve to the right, until the physicians get comfortable with reimbursement and as we help them identify that these patients are sitting in their practices today.

Robyn Karnauskas - Deutsche Bank

I guess and to follow-up with that question and going back to Cory’s question in the beginning, like how do we get comfortable, what have you learned over the last few months as far as how to better guide us and get better clarity on what that ramp is going to be, so that as you – when you do follow through for the rest of this year, and you provide guidance again next year. How do we get comfortable on the accuracy of that guidance?

Gregory T. Schiffman

Yeah. Well, I think, one of the things, you’re seeing today is the company withdrew its guidance for the remainder of this year, and we continue to expect modest quarter-over-quarter growth and exactly how long it’s going to take for the physicians to get educated and gain confidence in the positive reimbursement landscape that now exists today, it’s up to them, we can’t predict, but I can tell you it is the top priority for our commercial organization to pursue. The other thing that I think that’s really going on out there today is we are seeing our accounts shift, and I said this earlier from the academic setting which is where the vast majority of our large volume prescribers are today, into the community, and in particular, we are shifting into the community urology setting. Now for urologists, they are relatively unfamiliar with the buy and build model of infusion based products, and so we have to educate them on that and really make sure that they are comfortable with those issues. And they are also very sensitive to the reimbursement issues around PROVENGE, so we need to make them comfortable with that as well, and I think, once we accomplish those issues that will put us back in the trajectory that we had anticipated for 2011.

Robyn Karnauskas - Deutsche Bank

Okay, great. Thanks.

Operator

Our next question comes from Mark Monane with Needham & Company.

Mark Monane - Needham & Company, Inc

Thanks very much for taking the time to answer my question, and for your thoughtful comments. Time seems to be something that’s talked a lot about in this press release and on the call, it’s almost time for it to rain here, it takes time for active cellular immunotherapy to work. So we understand time. I guess, the question that I have that’s related to time is, do you find that these – when you’re doing the messaging for each prescriber, and Robert Rosen (inaudible) scrip, are you spending equal amount of time on each of these three buckets with physicians, because it seems that on the one hand, they’re all related, you have to get each physician over each of these hurdles in order to get them to prescribe the drug, and there’s an opportunity for intervening, or is it that each individual has his own – each physician has his or her own area of unmet need or unmet knowledge that they need to focus on?

Mitchell H. Gold

I think, one of the things we’ve learned recently, Mark, is that the oncologists and the urologists have very different ways that they think about PROVENGE. The oncologists, as you know, are very comfortable with the buy and build model, and they’re very comfortable with giving infusion based medicines in their practice. The urologists, not so much so. So, we need to educate them on that area. That’s something that we’re doing as well as others. For the urologists in particular, the patients are sitting in their practices, and you’ve heard me talk about this before, the patients are there. They just need to screen for them. There’s a large volume of patients with asymptomatic and minimally symptomatic disease that are residing in the urology practices, but they never thought to look for them until they had a product like PROVENGE because they would just wait till they were symptomatic and then think about referring them to the oncologists. So, that’s an active effort that Rob’s team is doing both on getting the urologists comfortable with the reimbursement paradigm, as well as the community oncologists, and two, getting the urologists to start screening much more aggressively for these patients, because when we look at it, clearly the volume of these patients is larger in the urology practices than it is in the oncology practices.

Mark Monane - Needham & Company, Inc

Thank you.

Operator

Our next question comes from Salveen Richter with Collins Stewart.

Salveen Richter - Collins Stewart

Thanks for taking my question. Maybe you could just help us with how we should think about workstation management for the rest of 2011? So, I may have missed this, but were there 12 workstations that came on board in 2Q? How should we think about, if that’s the case, the 30 that exist? Will you be continuing to manage all of those and in addition, how should we think about the LA and Atlanta facilities?

Hans E. Bishop

Yes. Salveen, we’re not going to give you guidance today on the exact number of workstations or the ramp-up over the rest of the year, but what I would like to say is that we are starting a plant, all three of our plants consistent with our ability to respond quickly to an increase in the prescribing trend. So we’re going to make sure we’ve got that capacity on hand and as we see the trends improving that will make sure that manufacturing that support doctors needs. I think, it’s an important one to just as we look at our manufacturing or logistics step back from – we’ve got two facilities approved, we’ve got a third one which we are looking forward to being able to talk about an approval just later this quarter, I don’t think that really manufacturing capacity ability to supply the product is something that anybody could have a concern with regards to, when I look at the staffing and the cost issue, that our balance sheet is such that we can finance our operations this year and next without having to access capital markets, but really I think the focus at this stage is a 100% out on bringing the physicians comfort level on the reimbursement practice economics and others, so that we get the number of prescriptions per month back to what we were thinking. We clearly have the physician, we have the capacity; we just need to get the penetration greater in the account.

Salveen Richter - Collins Stewart

Thank you.

Operator

Our next question comes from Chris Raymond with Robert Baird.

Chris Raymond - Baird Research

I don’t mean to be repetitive, and I know you’ve addressed a lot of these issues with your comments and answers to questions, but it’s still something that I’m struggling with here is in your comments you described these hurdles as near term, but work force reduction is typically in for something longer term, could you maybe just address that directly? Is that, am I just seeing too much of a – reading too much into this?

Mitchell H. Gold

Keep in mind, Chris, I think it’s a very fair question. When we staff our plants, we staff them looking fairly far forward, right, because there is a fair amount of training, et cetera, associated with them, and I think, where you are seeing us today is really reflecting a more gradual launch curve than we had anticipated both for 2011 and for 2012, right. I did make comments in the prepared section that we are going to continue to keep our facilities staffed at a level that allows us to respond very rapidly to when these reimbursement changes do take hold in the physician community, so we’re in a position that we can respond to them very rapidly. We’re not going to cut our workforce, so drastically that we don’t think we can respond quickly to get ourselves back on the trajectory that we have anticipated.

Chris Raymond - Baird Research

Did you say if any of these cuts are in the sales force?

Mitchell H. Gold

We haven’t said where they’re going to be at. The vast majority of them will be in our manufacturing facilities, but there will be certain other sections of the organization that will be impacted. The commercial organization is a part of the organization that’s obviously very critical to us right now, it’s an organization that’s probably more growing than shrinking.

Chris Raymond - Baird Research

Thanks.

Operator

Our next question comes from Howard Liang with Leerink Swann.

Howard Liang - Leerink Swann

Just trying to get a sense of the contribution from the new sites that were started this year. Can you – and also half in their reordering, et cetera. Can you give us the sales or estimates of sales from the original 50 sites?

Mitchell H. Gold

Sure, we haven’t broken that down, Howard, but what we have learned when we go back and we look at who are our largest accounts, and if we look at our top largest accounts and you break them down, 70% of our largest volume prescribers today are in the academic setting. And the reason for that is these reimbursement concerns are much less of an issue in an academic environment than they are in a community environment. As we bring on new accounts, which are mostly in the community setting, right, these reimbursement concerns kind of come front and center. And this is going to take time for them to get comfortable with the cost density of PROVENGE and getting comfortable with the new NCD and having issued – submitted a few Q-code patients where they get rapid reimbursement, we think those are going to resolve over a period of time. Exactly how long that’s going to take in the community setting, I don’t think we’re in a position to really opine on right now.

Howard Liang - Leerink Swann

Have the new sites that got started, let’s say, by the end of first quarter, have you seen most of them reorder?

Mitchell H. Gold

Yeah, I mean, in general, what we see in the community setting – and this isn’t true for all accounts because we do have accounts in the community setting that tend to be repetitive, high-volume prescribers, okay. But if I were to give you a big trend in the community setting is they tend to put on one or two patients wait for payment, put on one or two patients wait for payment, and once they see this – once they get comfortable with the fact that they are going to get paid in a rapid fashion under this new NCD, keep in mind that for the last year docs had a number of criteria that they needed to jump through, to make sure that the PROVENGE – patients who are going to be within the reimbursement label, and that label was highly restrictive. That’s now all gone with the new NCD, but we need to educate physicians that they don’t need to jump through these hoops any longer, and that’s just going to take time to educate these docs on that.

Howard Liang - Leerink Swann

Thank you.

Operator

Our next question comes from Rachel McMinn with Bank of America Merrill Lynch.

Rachel McMinn - Bank of America Merrill Lynch

Yeah, a couple of questions. I guess, just first, can you give us the monthly sales for the quarter so we have a better sense of what the run rate actually was?

Gregory T. Schiffman

I think, we have provided the monthly sales for July. Are you asking monthly sales for last quarter?

Rachel McMinn - Bank of America Merrill Lynch

Yeah, just specifically for June, so we can get a sense of what that trend was. You said it was up a – July was up a little bit, I just want to try to understand what that run – or was there no growth, it was just flat?

Mitchell H. Gold

No, we don’t give the monthly breakup by quarter, Rachel, but what we did say is that the August orders that we’re seeing were higher than the prior two months.

Gregory T. Schiffman

Yeah. So, as we look at it, we do look – we look week to week and we looked at thus far for this – the first two months of this year – this quarter versus the prior quarter, we are up the first two months of this quarter in terms of orders, but we haven’t given the actual monthly, and part of it is you can’t always draw an absolute trend from that because depending upon workdays within a month and holidays that fall there, which affect us different than most other drugs, you have a weekly seasonality but you don’t have month-to-month necessarily that you can look at it without adjusting for those.

Rachel McMinn - Bank of America Merrill Lynch

Then, I guess, I’m confused about a couple of things. Just, when I think about what you said about the academics making up a big portion of your high volume prescribers, it almost seems like they – did they run out of patients to prescribe drug to? In other words, like this concept of moving from one to two patients per account, and I understand that’s being is – that average is being weighted down by all these other accounts, who are only going to put on one or – basically like you’re getting the accounts on, but they’re not going to sign patients on. It’s just – it’s a real struggle to understand like why you don’t at least have a run rate that’s higher based off of your very aggressive academic prescriber?

Mitchell H. Gold

Yeah, it’s a good question. So you have a group of academic prescribers that tend to be high volume prescribers consistently, month after month after month. As you bring on additional spenders in the community setting, what you’re seeing is, you don’t want to refer into the academic centers anymore. So they’re holding onto these patients, because they’re now DSR ready. DSR is Dendreon Systems Ready. So, they’re able to infuse PROVENGE. They know they can treat these patients, but they look at the reimbursement issues, and they’ll come and treat one or two patients now to see how it goes from a reimbursement perspective, and then I’ll treat my next one, but I’m not going to refer them off to the academic centers yet, because I want to keep them within my practice.

Rachel McMinn - Bank of America Merrill Lynch

So you’re saying that basically an academic is not price sensitive and the community is, and the community docs are now holding these patients but not actually using the drug?

Mitchell H. Gold

It’s not, I’ll just be clear it’s not price sensitivity. The issue, the reimbursement issue that we are highlighting here are cost density. In other words if you have a line of credit with your bank to buy a certain amount of drug and you have an accounts liability for PROVENGE to get a certain amount per month that limits your ability to buy other drugs, if you’re getting paid very rapidly, and as we expect with the Q-code that that’s going to occur, that becomes less of an issue. You don’t see that cost density issue popping up. We are not seeing it pop up in the academic centers, we are seeing it pop up in the community centers.

Gregory T. Schiffman

There is one, we provided a cash flow financing vehicle, which works for PROVENGE but where many of these communities centers have other financing mechanisms it puts their balance sheet into a position that can affect their other financing that they have got. That’s where I think getting confidence in the timing and speed of reimbursement and also the assurance, and this is where many of I think the new centers offer. As we’ve indicated, there’s been several MAC restrictions beyond just sort of the label, and I think there is always an anxiety of will I get reimbursed for this specific patient and its building confidence in both of those that we are needing to see at the academic center.

Rachel McMinn - Bank of America Merrill Lynch

Just one last question. The idea that only 25% of this community doctors which was a high, the real high volume prescribers that you are targeting, know about the reimbursement change of four or five weeks and I guess it’s pretty shocking. What do you think that is, is it a sales force issue what’s going on here?

Gregory T. Schiffman

It’s not 25% of the high volume prescribers, its 25% of the physicians that we told about, they had their own market research. I think if we talk to our commercial team on that this just happened a couple of weeks ago in fact the NCD isn’t even posted on the MAC website yet. It probably won’t be posted there till August 8. So, I don’t think that that’s bad, but it clearly shows that we have a lot of work to do in educating the physicians community and I don’t think it’s going to be just education, so I think if once they know about it they are going to say yeah, yeah, let me submit it to your patients here and get comfortable with it, which is why we’re kind of giving you this kind of more gradual launch curve and more modest growth for the remainder of this year.

Rachel McMinn - Bank of America Merrill Lynch

Thanks very much. I appreciate it.

Operator

Our next question comes from George Farmer with Canacord Adams.

George Farmer - Canacord Adams

Hi, thanks for taking my question. Mitch, just want to address a comment that you made about physicians being able to identify suitable patients. It seems to me that simplistically, maybe I’m thinking about this over simplistically, but a rise in PSA should warrant a bone scan and hence if a bone scan comes back positive, that’s your PROVENGE patient. Is it not that simple and if it is that simple, then why should there be any education that needs to be done?

Mitchell H. Gold

It actually is that simple, George. It’s not much more complicated than that. You have a rising PSA on hormonal therapy, these patients should be scanned at some regular intervals that interval can be debated amongst physicians, and if you have metastatic disease, you’re potentially a candidate for PROVENGE and so what physicians need to be educated on particularly the urologists, because these are patients that primarily said in the urology community as, when you have these patients with rising PSA don’t just watch until they become symptomatic. There’s a new drug out there PROVENGE, which you can infuse in your practice and you can screen for these patients and you can find them, you can treat them with PROVENGE. And when we go to our big large urology group practices that we’ve been working with, we’re seeing these programs pay off. So, there’s several group actually that I’ve worked with out there in the field. They’ve put these screening programs in front of every one of that prostate cancer patients starting to say scan if they have a rising PSA and they’re identifying patients there. That being said, I’ll tell you that’s not the whole case here, because even though they’re identifying the patients, they’ll say okay, I get it, but I’m running a business here, I need to make sure that I’m going to get paid at the end of the day and so they need to get comfortable with the reimbursement environment.

George Farmer - Canacord Adams

What about the necessity of these larger group practices and even the smaller ones for building out infusion centers in order to administer PROVENGE. Does that – now with this reimbursement overhang, does that delay the move for these practices to do that?

Mitchell H. Gold

Obviously, not in the oncology setting, because the infusion capabilities exist within oncology. In the urology setting, it’s not as much the infusion centers that you just need to educate the physicians and the practice managers on the buy-and-build model which they really haven’t had to deal with before, certainly with the products that’s of the characteristics of PROVENGE. So there is some education there, George, but it’s not the big issue.

George Farmer - Canacord Adams

All right, thanks very much.

Operator

Our next question comes from Atna Sarusda (ph) with Goldman Sachs.

Atna Sarusda - Goldman Sachs

Yeah, thanks for taking my question. I mean, couple of things I wanted clarification on. I mean is cost density going to be continue to be an issue even if reimbursement becomes seamless. Just given the sentiment, it seems to be carrying across as you are talking about it, and what should we expect for 2012 when you don’t think that reimbursement should be an issue at all? Just help us understand that The second thing is just on the workforce reductions. I know you made some comments on it. I want to understand, can you really only adjust your workforce for the six months to an eight month impact, how are you thinking about that?

Mitchell H. Gold

Sure. The cost density issues that we’re seeing in the physician community is squarely focused just on the reimbursement paradigm, and we think that’s just educating the physicians on the new landscape that exists out there and the physicians going through it, having several positive experiences with this new landscape that’s really going to resolve this issue, and that will take time. Exactly how much time it’s going to take, I don’t think you hear us being prepared to comment on that just yet. In terms of keeping our workforce size appropriately, we will keep our plans slightly overstaffed or overstaff to a level that we think we could respond very rapidly if physicians want this new paradigm starts to take hold.

Atna Sarusda - Goldman Sachs

Just one observation, I mean this was recently launched, ipilimumab, fairly expensive, highly cost dense drug as well, and it had an amazing first six weeks of launch. I mean, how should we read about the differences? Is this also the way the drug is being administered that’s going to be a challenge along with the cost density issue?

Mitchell H. Gold

I’m sorry, could you repeat that? I couldn’t hear you, you were breaking out.

Atna Sarusda - Goldman Sachs

Yeah. No, I apologize. Just we recently (inaudible) launched ipilimumab, fairly highly expensive cost dense drug, which had a very good launch in the first six weeks, and I was just trying to understand the compatibility across, is it either really administration or the disease or demand, what else can come into play besides cost density?

Mitchell H. Gold

That’s a great question. We asked ourselves that question as well, and it turns out, with PROVENGE, we had the NCD that was out there prior, and the NCD really created a significant amount of headwind for us because the physicians were getting very accustomed. In fact, they had to jump through all these hoops. The patients have a PSA level above five. They had a number of other criteria that the physicians needed to jump through to make sure that it met the reimbursement criteria. So, the NCD really did create headwinds for us over the last years that we now need to educate physicians on that that’s gone away. The other part of the equation is YERVOY, that’s very different than PROVENGE is the fact that, primarily with PROVENGE, the patients are in a Medicare-eligible patient population. So, you can’t do any prior authorization for PROVENGE as you would with a product like YERVOY as used in the patient population where you may be able to get prior authorization. That just amplifies the physician anxiety around reimbursement with the historic NCD that’s been out there. So, that’s the big difference really that we’ve seen, and again, it’s all going to come down to just the physician gaining confidence, having multiple positive experiences with this new reimbursement landscape that we think is going to get them over the hump and put us back on this trajectory, and really, we did see this as a shift to the curve to the right.

Atna Sarusda - Goldman Sachs

Thank you.

Operator

Our next question comes from Marko Kozul with ThinkEquity.

Marko Kozul – ThinkEquity

Hi, thanks for taking the question. I was wondering, what does your market research tell you could define inflection points in the reimbursement discussion? In other words, you’re talking about the concept of cost density, is it speed other levels that would cause an inflection point and maybe result in physicians gaining more confidence in prescribing the drug more?

Mitchell H. Gold

Yeah. I think it’s two issues that we’re tracking. One is that, the physicians see that the new NCD is consistent with our FDA label and making sure that patients within that reimbursement label get paid, that’s one. Two is speed ,and within the Q code it’s going to solve a lot of that. With the electronic adjudication, we’ve already seen MACs pay within two weeks on physicians that are using Q-code, they have consistent experiences where they’re getting that rapid reimbursement like that. Those two things are going to take the issues around cost density and costing away (ph).

Marko Kozul – ThinkEquity

Thanks for taking the question.

Operator

Our next question comes from David Miller with Biotech Stock Research.

David Miller - Biotech Stock Research

Hi, thanks for taking my question. Since we’ve been writing about this cost density issue since May where you have a little bit of a head start, so I am going to shift a little bit and ask about whether this means anything for how fast and as particular with the cash spend you will address EU activities?

Mitchell H. Gold

So, we view the EU – clearly, David our primary focus is making sure that we can maximize the opportunity in the U.S. That being said, the EU is a substantial opportunity for us and there is a large unmet medical need for programs in the EU. We are on track to file our MAA in the EU either later this year or early part of the next year and that’s going fine. Beyond that I think those are going to be things that Greg and I and the rest of the team will get in terms of how we maximize the value of the EU while we focus on the U.S. opportunity.

David Miller - Biotech Stock Research

Will this have any effect on pipeline spend or any of the other PROVENGE trials that you currently have planned?

Mitchell H. Gold

Again, we’re going to look at expenses across the board, but if you look at our overall expenses on what we’re investing in our pipeline compared to what we’re spending on a commercial sense is relatively small. It’s not a huge part of where we spend it today. Most of our spend is on the launch of PROVENGE.

David Miller - Biotech Stock Research

Then if I can, I just want to go back to something that Greg said in response to Rachel’s question is, you do have a cash flow vehicle out there for PROVENGE, but it doesn’t seem to be helping. Greg mentioned something about how if the practices use this vehicle that you provide, it kind of affects their other lines of credits. Can you talk a little – other lines of credit for the rest of their non-PROVENGE parts of their practice? Can you talk a little bit more about that?

Mitchell H. Gold

It’s not specific to what we do. So, physicians in general have a line of credit with the bank that they use to purchase other drugs or line of credit with a supplier that they use to buy other drugs in their practice. We give the physicians dating, which means that while we are in a manual claims adjudication process, it allows them to deal with the extended reimbursement timelines around that. And I think what we anticipated was if we gave them dating that would solve a lot of the issues in fact it’s not, at least in the community setting where they have a line of credit with the supplier and that line of credit can be used to purchase all their drugs. So if they put 30, 40 patients on PROVENGE in one month and they had an extended receivable around that that could limit their ability potentially to buy other drugs because the cost density of PROVENGE is so much different.

David Miller - Biotech Stock Research

But the – I mean – but the credit line that you – well, it’s not really a credit line, but the financing that you’re providing shouldn’t that relieve some of that line of credit issue?

Gregory T. Schiffman

David a lot of it ties into more typical metrics that you can think of organization having and whether that’s working capital ratios or others. (inaudible) looks very unusual to a traditional practice if they have 5 or 10 patients out there we have $500,000 to $1 million receivable and a concentrated risk to one product.

David Miller - Biotech Stock Research

Right, all right, perfect. I understand. Thank you very much and thanks for the update.

Operator

Our next question comes from Ying Huang with Gleacher & Company.

Ying Huang - Gleacher & Company

Thanks for taking my questions as well. My first question is, do you think you have already saturated the academic markets here in terms of the highest prescribers? Then number two, can you provide the current prescribers split between oncologists and urologists?

Mitchell H. Gold

Sure. Without question we haven’t saturated the academic market. I mean we are continuing highest volume prescribers today continue to be in the academic setting, but that being said, we believe a substantial portion of the market exists out in the community setting and this is where we are running into these cost spends and these reimbursing issues that we think can be solved over a period of time. So that’s never working towards on this year. In terms of urology versus oncology, both of those physician groups play a very important role for us. We believe that the patients are residing in urology practices and we need to really ramp up our education efforts in urology to make sure the patients are identified there.

Ying Huang - Gleacher & Company

Then also can you elaborate whether you are seeing some negative impact from Abiraterone, the Zytiga commercialization right now?

Mitchell H. Gold

Yeah, first off, let me say that it’s really kind of a golden era for patients with prostate cancer, that several years went by, even decades where they were no new treatment options for patients with prostate cancer, now you have several new agents that have been introduced in the market, and we see PROVENGE really acting as a foundation of care for these patients to get PROVENGE onboard first, you get it done in one month’s time and then you can on to other treatments. And we look at what’s going in the market, now we are seeing minimal if any impacts of Zytiga on our patient population.

Hans E. Bishop

I think the other thing we are encouraged by is all the surveys we do suggest that if Abiraterone is approved in prechemo setting the consensus is that it should be used after PROVENGE. That’s a very encouraging trend for us to see at this point in time.

Ying Huang - Gleacher & Company

Thanks.

Operator

Our next question come from Reni Benjamin with Rodman.

Reni Benjamin - Rodman & Renshaw

Can you just talk a little bit about the backlog? Is there any sort of analysis that’s been done? Are you seeing a shift in the prescriptions? Are these community docs still putting them in queue, but just much more separated, can you give us a sense?

Mitchell H. Gold

Yes. As we said on the last call, as we are adding these new accounts, we always wanted to be sure that we had enough manufacturing capacity to further – to expand our plants. As we bring on a new account, they never have to wait to access PROVENGE, and we executed that very successfully. So, we have – we plan our capacity to make sure that they aren’t waiting list as we add these new accounts and we expect that we’re going to continue to execute on that successfully going forward as well.

Operator

Our next question comes from Lucy Lu with Citigroup.

Lucy Lu - Citi Investment Research

Couple of questions as well. Do you know by any chance what percent of patients who were offered PROVENGE decided to decline it or turn it down?

Mitchell H. Gold

No, I don’t think we’re aware of that number.

Lucy Lu - Citi Investment Research

But, Mitch, do you have a sense it’s minority, like – majority, just do you have a general sense, and also if there’s anything you can do to obviously change their mind?

Mitchell H. Gold

Yeah. It’s a good question. It is a minority. One of the three legs of the stool that I described for you in the reimbursement paradigm is ensuring that patients that are uninsured or underinsured, that they get access to PROVENGE through our patient assistance programs, and we’re really getting out there making sure that physicians are aware of our patient assistance programs because it’s an important element to make sure that patients get access to PROVENGE regardless of their economic means.

Lucy Lu - Citi Investment Research

Also Mitch, I guess, maybe you talked about this already, based on your current projections on R&D and SG&A, what kind of sales level will Dendreon become cash flow positive, just talking about the U.S. business?

Mitchell H. Gold

Yeah, that’s a great question, and now let’s see, if you wants to answer that?

Gregory T. Schiffman

Sure. I think it’s one that we have got the internal models but I want to be a little cautious. I think right now until we’ve had the three plans up and running and we get some of the experience that I think we’ve historically talked about in terms of the efficiencies of those facilities, it’s difficult for me to give a specific number because COGS is one of the key drivers, and I think a lot of the efficiencies in the cost reductions we expect really come about from getting those three plans running and being able to load and much more efficiently use the facility. So, I think it is the number that we will be getting out, it’s preliminary for us, we need to get some experience on the COG side with the three plans before we could really firm the answer to that.

Operator

Our next question comes from Joel Sendek with Lazard Capital Markets

Joel Sendek - Lazard Capital Markets

Obviously, I felt the stock a long time and you guys has overcome many challenges and I expect you do so again. One of them that I want focus on and Lucy kind of talked about it a little bit is, your cash burn, I guess if I project your burn right now, even factoring in the cost cuts and growth and things like that, I kind of have you running out of money by the end of next year, and I’m wondering, what you can do if the growth doesn’t really come in a way that you expect it to, to address that and I’m wondering if one of the options is to sign on a U.S. marketing partner, and even talk a little bit about partnering in the EU, can you discuss that a little bit?

Gregory T. Schiffman

Sure.

Mitchell H. Gold

Two separate things. I’ll let Greg talk about the cash flow issues, Joel, and then I’ll take on the partnering concept.

Gregory T. Schiffman

Yeah. So as you look at cash flow, I think , Joel, a couple of things. One; you’re right if you looked at sort of our quarterly number, I think that our cash usage was just over $100 million, so about 30 – a little over $30 million sort of a month. At that rate, with the cash balance we have if nothing changed, I think you’ve got about six months – I’m sorry, six quarters worth of cash. Now, that being said, there is a fair amount of capital that has been spend this year associated with capital expenditures, facilities or others that we will not be spending a lot of the startup and the other costs with labor where we’ve not been receiving revenues, and so that in itself – some of that is one-time cash, some of that will be affected due to restructuring. But we would expect to see the cash usage decreasing, and we are projecting at this point in time, and focused on going through an effort that assures that we have a reasonable projected cash balance in a fairly conservative scenario at the end of next year. So, the biggest shift is going to be the level of capital expenditure, some of the facility build-outs and other startup costs that we’ve incurred that are more one-time oriented and really dominated in the first half of the year. As well as, I guess the other going with that, when I think about the capital, is the inventory, and that’s another one where we’ve been building inventory, associated predominantly with the bringing up of our second source supplier in antigen, while we’re continuing to order, and as we look at next year, we should have good inventory reserves and we shouldn’t be building inventory again.

Joel Sendek - Lazard Capital Markets

And then on the partnering?

Mitchell H. Gold

Yeah, on the partnering question, Joel, you said it well, which is this Company has overcome a lot of challenges over the years, and I think the reason for that is we’re blessed by employees that have the vision, the passion, the tenacity to really plow through brick walls and get things done. So they’re trying to change the way that cancer is treated, and we’ve done so much here in the U.S. bringing PROVENGE through the regulatory process, working through the NCD in a very successful way, building three plants, getting them through the approval process. So, this team has been able to accomplish a tremendous amount, and we would like to see what’s going on in the U.S. now as really shifting the curve to the right, and we’re just seeing to educate physicians on this new reimbursement landscape, we’ll be able to get ourselves back on a strong trajectory of growth that that’s going to be very beneficial to us. In terms of Europe, look, I think we’re looking a variety of different structures there, we are not committed to do anything at this point, but it’s something that we’re going to look at.

Operator

Our next question comes from Lee Kalowski with Credit Suisse.

Lee Kalowski - Credit Suisse

So J&J reported about $60 million in revenues for just two months of Zytiga sales, and obviously their major reimbursement obstacles inherent to the managed care and (inaudible) Part D, I think some people will say it’s even more challenging than Part B. I guess, what makes you confident that this is primarily a reimbursement issue and not indicative of bigger issues, and you say that the number of patients per count is going down improving reimbursement. Is there any additional color on that, and I guess just lastly, can you say this quarter whether any single doctor was denied reimbursement?

Mitchell H. Gold

I think I’d answer for derivative question. When you look at the Zytiga launch compared to PROVENGE, they are very different. The Zytiga had a tremendous amount of clinical trials that were ongoing at the time and they were a huge number of patients that were sitting in these clinical trials that were essentially low-hanging fruit for J&J to pick up and put on the drug. I think if you follow this over a period of time, you’re going to see that trend, it is more difficult for them to maintain that same type of trajectory. We didn’t have that with PROVENGE. We had the IMPACT study, and then we had to go out and build the market ourselves. So, it’s a totally different market, and plus, Zytiga’s volume, if you look at the data it’s falling into later lines of therapy in prostate cancer, where PROVENGE is developing an entirely new market for the asymptomatic, minimally symptomatic, and building a market is always harder than stealing share and that’s really what we are doing today.

Hans E. Bishop

The point you referred to, that’s driven by the fact that we’re adding a lot of new accounts, and many of those new accounts will treat a patient or two, and then they wait until they get paid, and that can take a couple of months. That’s the dynamic that’s impacting the average number of patients per account.

Lee Kalowski - Credit Suisse

Can you say whether any doctor has been denied reimbursement this quarter?

Mitchell H. Gold

I don’t know about this quarter. We have very few outright denials. There are several requests, but it’s not unusual for practices to get request for further information and that of course represents hurdle (ph) to the practice and indeed delays the time at which they’re getting paid. So, the number of outright denials is still very low.

Operator

Our next question comes from David Nierengarten with Wedbush Securities.

David Nierengarten - Wedbush Securities

Digging down just a little bit, and maybe you can help me think about this, for your expense line, you mentioned you had, if you break it out by quarter, $38 million or so in startup costs in Q1 and $34 million in Q2. If you take that out of your SG&A line, what I end up getting is roughly $14 million increase in SG&A plus $10 million increase in cost of goods, equaling about $20 million to $25 million increase essentially in cost of goods plus G&A versus a $21 million increase in the top line. Could you help me out on how you’re going to achieve the improvement in margins over the next few quarters?

Gregory T. Schiffman

So, I guess when you look at the margins to start with, margins long-term, we expect to see improve. I will say, in the short term, as a lot of expenses are moving from SG&A that turn up to COGS and we are not fully utilizing those facilities. I’m not going to say and I don’t think we know is a fact that really tries to speed up revenue ramp, but they will and won’t improve in the very short term. However, as you look at it moving out let’s go to 2012, we will be at a point that we will be utilizing the facilities at a reasonable level and the biggest areas that we get the benefits in the facilities is the ability to be able to move from that $9 million to $10 million per month per workstation which is what we are seeing today, to something that could be up to potential twice that amount. And the answer is probably somewhere between those and we do that with the same level of headcount. So you either watch your revenues grow fairly substantially a real pick up precision fees in the facility. And that’s the driver in COGS that’s why getting these three facilities running and some experience there is going to be so important because at point we will change our practices and how we schedule patients and actually load the facilities more efficiently.

David Nierengarten - Wedbush Securities

Are you still just one quick question. Are you still planning on the same number of workstations in the Atlanta facility going forward?

Mitchell H. Gold

Well, I mean the total number of workstations is fixed based on capital we’ve put in and so we have 36 in LA, 36 in Atlanta and 48 in New Jersey. The absolute number of workstations that we will staff and utilize is ones that we are in the process of sorting through. We certainly have staff and we staff based on a growth trajectory to ensure that we would be able to meet that which is not consistent with our growth trajectory now and that’s unfortunately the issue we are going to have to address in the near term, because we had brought on trained and head staff that’s been brought on well in advance to sort of some of those ramps.

Hans E. Bishop

I will just finish saying, staffing levels that we will get to in our plants across the country will be consistent with our ability to respond quickly to an increase in the prescribing trends.

Operator

Our next question comes from Mark Schoenebaum with ISI.

Mark Schoenebaum – ISI

Number one, I was just wondering when do you plan on providing more specific cost guidance around this. Are we going to need to probably wait for the third quarter call, do you think you’d be in a position to at your broker meeting, maybe in September? Then the second one, you mentioned that demand is better – at least the reimbursement concerns are better than the academic thing. Could you remind us maybe you’ve said this before Mitch, I just don’t remember, but what percent of your eligible patient population do you think is treated in academic centers and if you’re willing to drill down into the – and actually give us a number of infusing sites that are academic sites and what the average infusions per month per site is an academia that will be great, but if not even just to answer the first question, a rough cut on how the market divides up?

Mitchell H. Gold

Let me take the second part of the question first Greg and you can take the cost guidance issue. In terms of the academic centers today, a vast majority of our largest accounts are in the academic centers today. But we believe Mark that the real market opportunity is in the community and that’s not any different for PROVENGE than it is for any other oncology product. Approximately 70% of the business is probably out in the community and so we’ve been living off of the – I wouldn’t say the largest, but a good chunk of our business, our large volume prescribers have been in the academic centers where they have less sensitivity around this cost density issues, especially with PROVENGE. And as we move out in the community, and we educate them, and help them gain confidence in the reimbursement paradigm, we think that’s going to be the key metric that really allows us to get back on the trajectory that we had planned for 2011.

Mark Schoenebaum – ISI

What’s your penetration in academic centers, if I could just follow-up on that? Do you have any idea what percentage of the available patient population is typical academic center, you’ve penetrated right now?

Mitchell H. Gold

I don’t think we have a sense of that, but I think if we talk to our commercial teams, they’d tell you that 70% of the market is probably out in the community.

Gregory T. Schiffman

With regard to feedback and more granularity on the expense side, we certainly will be getting information out well ahead of our next quarterly call. I can’t give a specific timeframe for it, but our intent of this is an activity that we are actively working through, I think it’s very important both for employees and those inside the Company, as well as individuals like yourself to get the information and our goal is to do that as fast as possible, and it’ll certainly be well ahead of a quarterly call.

Operator

Our next question comes from Robyn Karnauskas with Deutsche Bank.

Robyn Karnauskas - Deutsche Bank

I guess, so it sounds to me like in summary there was a lot of centers that they are high prescribing centers from before, they can actually sell the capacity to give PROVENGE and were giving PROVENGE, and now you are seeing a shift towards patients being remaining in their community centers and not being referred, but not being treated. I was just wondering if there is any thoughts to targeting patients, as far as from a marketing perspective, especially given in the beginning of the launch you were helping those patients find ways where they could actually get treated?

Mitchell H. Gold

Yes, it’s a good question, Robyn. So we are currently conducting, you may have seen some of our ads in New York as well as in LA where we do regional direct to consumer advertising, and that’s important because we pull the patients both into the academic centers (inaudible) community setting, but when they do go their community urologists and oncologist, even though the patients are there that are identified they are on label, we still need to make sure that the doctor is comfortable with this cost density issue within their practice to really convert them for being onesie-twosie per month into something that’s much more substantial than that.

Robyn Karnauskas - Deutsche Bank

But aren’t some of the high prescribing centers that had ramped up their hires to support PROVENGE, giving PROVENGE into building a lucrative business. Aren’t they losing business now and are those high prescribing centers now in jeopardy of eventually sort of scaling back?

Mitchell H. Gold

Are you referring in the academic community or in the –

Robyn Karnauskas - Deutsche Bank

In the academic community, some of the centers that you had built up after the 50, you had built up additional centers that were prescribing higher amounts of PROVENGE and streamlining their process, and are they at risk for now scaling back the amount of money that they spent on giving PROVENGE and treating PROVENGE patients?

Mitchell H. Gold

I mean, the academic centers still have their referral pathways, both within their community, and obviously from abroad, right. So, we’re still seeing those sites being very active, high-volume prescribers for us that they’ve always been, but what we are seeing is that, at least locally, that the doctor are becoming Dendreon Systems Ready, and even if you have our early community centers that were high-volume prescribers, if we open up satellite centers kind of around that, then you’ll see those referral dynamics change too. So, it’s just a matter of as you bring up more and more sites, you may consider that these docs get comfortable with the reimbursement paradigm because they have the patients that are sitting in the practice, they want to hold onto them.

Operator

At this time, I’d like to turn the conference back over to our presenters for any closing remarks.

Mitchell H. Gold

I’d like to thank you all again for joining us today for the update on our launch. We look forward to seeing many of you at upcoming conferences and upcoming meetings. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. You may now disconnect and have a nice day.

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