Dendreon: Righting The Ship

| About: Dendreon Corporation (DNDN)

Dendreon Corporation (NASDAQ:DNDN) held a very interesting conference call yesterday evening to outline its restructuring to deal with the slower than predicted launch of its newly approved cancer treatment, Provenge for late-stage prostate cancer.

Provenge trains the patient's immune system to fight cancer, and has been hailed as a major cancer breakthrough--the first cancer immunotherapy approved by the FDA.

The company had consistently guided for $350-$400 million in revenues for 2011 and the shares tanked 67% after its August 3 conference call pulling that guidance after slower than expected uptake, which the company said was related to doctors' fears about reimbursement.

It's obvious there was nothing the company could possibly say that would have instantly regained the lost ground for the share price. That is undoubtedly going to be a multi-quarter process as the company reestablishes its credibility with the Market, but all in all the call was very informative and encouraging.

There are many in the world of Dendreon investors who just want to debate whose fault the screw up was and to fire that person (CEO Mitch Gold is not going to be founding any new fan clubs anytime soon), but serious investors need instead to be more concerned about how the problem is going to be addressed going forward. Hans Bishop, the COO, took the fall for the screw up, and absent being on the inside and knowing the complete story of how it happened, there is no way to know whether that was fair or not. But what was enunciated on yesterday's call indicates some important changes in MO for the company.

It is not going to give guidance until it has the facts to support it. The company is going to under promise and work to over deliver. It made cuts--25% of the workforce and $120 million in annual expenses--to allow break even at a $500 million run rate. But it is not going to say exactly when that will be because it honestly doesn't know yet. I'd much rather be told that, than what they think I want to hear.

On the call there was a subtle shift from such thinking as--"If we have 600 centers and each prescribes to 2 patients a month, we get to x Billion (when it apparently was just relying on doctor representations about available patients--and pulling the 2 a month out of the air) to actually identifying the medical practices housing the most patients and working like hell to make those practices happy and productive. Not said outright, but that shift was clearly signaled as the new marketing guy, Rob Rosen's, plan in contrast to Bishop's plan of sign up as many centers as possible as quickly as possible. Now the company intends to focus on those practices it knows have patients waiting to get the drug and that will put patients into the system immediately.

And the company plans to work like double hell to educate doctors that Medicare has made a final decision to cover Provenge, has issued a uniform and simple National Coverage Determination that makes every label covered and has issued a Q Code to speed reimbursement by computer.

August sales were up 16%. September sales have already been booked for similar growth. August was the first month since the launch in which community urologist and oncologist practices prescribed to more patients than academic centers--possibly a big turning point.

The company is going out and examining practice records--the patients are there. The demand is there. Docs just need to be made comfortable that they will get paid. The company is keeping statistics and reimbursement since the Q code issued is now averaging less than 30 days--in one case as little as 8 days. Word of that will spread and they are working to spread it.

For sure the Market will stay in "we don't trust you, prove it" mode for at least a few more quarters, but the call was a good start. The company is doing what needs to be done to get back on track.

Provenge works. Nothing about that has changed. The FDA approval was based upon Provenge providing the largest survival advantage EVER in this patient population. It should be sequenced first--when the immune system it is trying to stimulate is healthiest--and offers almost a risk-free survival benefit, so I still believe the "competition" argument is overblown. Doctors are smart enough to know that it needs to go first, and smart enough as businessmen to like the $5800 they make from each patient treated.

Oncology launches historically have taken time to build. Take a look at this link and click on individual products at the top to see the launch trajectories of Genentech's oncology line. If Dendreon were marketing a bad, unsellable product and the market had just discovered that fact, the company would deserve to be in the tank. That hasn't happened. Dendreon's mistake was in not managing expectations properly. The company knows it has a game changer--a potential world beater--and it let its own enthusiasm for what it knows will be a revolutionary cancer product blind them to the fact that the rest of the world doesn't yet know what it does. Once the doctors are made aware and start to profit from quick Medicare reimbursement Dendreon will be fine.

Investors who can see the truth of that story and buy at these tremendously depressed prices stand to eventually be richly rewarded. Either the company gets back on track or it gets bought out. It's still a long-term hold at these depressed (not trusting management) prices.

Disclosure: I am long DNDN.

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