Mitchell Gold – President, CEO, Director
Gregory Schiffman – CFO, EVP, Treasurer
[No Q&A Session for this event]
Dendreon Corporation (DNDN) J.P. Morgan Healthcare Conference (Transcript) January 9, 2012 6:30 PM ET
Let’s get going here. After what’s been quite a long first day, at least for me, it’s my pleasure to introduce a company whose story is anything but boring. Next up, we have Dendreon. And presenting from Dendreon, actually we have two presenters; one is President and CEO, Mitch Gold and then also the Chief Financial Officer, Greg Schiffman, will be joining him for the presentation as well. And following their presentation, there will be a breakout just across the hall in the Georgian Room.
With that, I will turn it over to Mitch.
Thanks Cory. I would like to remind you that I will be making forward-looking statements during my presentation today, and I encourage you to refer to our most recent SEC filings regarding the risk factors associated with these statements.
As many of you know, at Dendreon we’ve had a singular focus for the last 15 years, and that’s to really dramatically change the way that cancer was treated. For me, that’s a personal war, I lost many family members to cancer and I really believe that Dendreon has really been on the forefront of changing the way that cancer’s treated. And as Cory said, sometimes that creates a very interesting story along the way.
While we had a number of challenges in 2011, I’m also proud of the many successes that we had throughout the year. Many of you may remember that we had three facilities approved throughout the course of 2011; the remainder of our facility in New Jersey, and then two additional plants came online, one in Atlanta, and the other one in Los Angeles.
In addition, we worked through a very complex and perhaps unprecedented national coverage analyst where we worked closely with the Center for Medicare Services to standardize coverage for programs across all 15 NCAs in the country. And I’m very pleased with the way the national coverage decision was finalized.
Importantly, we brought more than 500 new physician centers online to prescribe PROVENGE and that’s indicative of strong physician interest, an increase in confidence in the utilization of PROVENGE in their practices. And that resulted in gross revenues for 2011 of approximately $228 million.
And I know, Cory, you’ve mentioned this in some of your notes; if you put that in perspective for some of the most recent oncology launches, that puts PROVENGE as one of the top ten oncology launches in history.
As we move forward into 2012, we anticipate that we’ll add roughly the same number of centers as we did in 2011, or approximately 500 centers throughout the course of 2012. And as we’ve said in our calls, most of the growth that we’re seeing in our revenues is coming from the addition of new accounts.
As we move into 2012, we’re really going to focus on deeper penetration and increased utilization in our existing accounts as they gain comfort with the utilization of PROVENGE in their practice.
Now, PROVENGE represents a large commercial opportunity serving a significant unmet medical need. And I thought it would be useful maybe just to take a step back and review the continuum of prostate cancer across the spectrum.
If you look to the left, many patients, when they’re first diagnosed with prostate cancer, are treated by the urologist or perhaps their radiation oncologist with some form of definitive local treatment. That could be a radical prostatectomy, or that could be external beam radiotherapy, a number of other radiation modalities that are currently employed today.
Now about 60 to 70% of patients that are treated initially are cured, they never need any additional treatment at all. But about 30 to 40% of patients have a recurrence and they go on hormonal manipulation or castration, medication castration typically. Now that will last for about three to five years, but all patients eventually become what’s known as castrate-resistant, meaning their PSA is rising despite the fact that they’re on hormonal therapy.
Now, at that time, most of those patients reside in the urologist’s office. Now, for the last eight years, the only true modality that we’ve had available for these patients has been docetaxel, a chemotherapy regimen that provides approximately a 2 1/2 to 3-month improvement in median survival, but is associated with significant toxicities. And most patients and most physicians wait until the patients become severely symptomatic before they initiate docetaxel-based chemotherapy.
Now, this is what the landscape looks like currently. We are going through a revolution in the field of prostate cancer. Now PROVENGE is driving that, and what we see here, what PROVENGE is filling is the trough here that existed between asymptomatic and significantly-symptomatic prostate cancer. And it also sits at the [inaudible] position between when these patients are being treated by the urologist and when these patients are handed off to the medical oncologist for infusion-based chemotherapy.
And when we launched PROVENGE, we had to do two significant things. One is, is we had to educate the urology community on how to utilize infusion-based medicines in their practice, and that’s not an easy task. I can tell you, as an urologist, to get urologists to change their ways, that takes time. And I’m very pleased that we’ve been successful in getting urologists, particularly the large urology group practice organizations, to learn and increase the utilization of PROVENGE in their practice, so it now accounts for about 20% of our revenues for PROVENGE.
In addition, this market did not exist before. The concept of metastatic castrate-resistant prostate cancer was not a market that existed. We had to develop that market de novo. We had to educate both the urology and the medical oncology community to build into their mindset, to build in to their clinical thinking, how do you use an infusion-based immunotherapy to treat metastatic castrate-resistant prostate cancer, and that, too, took time.
Now, with that being said, I think the fourth quarter was indicative of the fact that we’ve been successful in that regard, educating both the urology community and the medical oncology community to better understand how to utilize PROVENGE in the practice of clinical medicine.
Both Zytiga and Jevtana are used after chemotherapy, and I’ll talk a little bit later on about how we see the prostate cancer landscape changing over time, and how I see PROVENGE really fitting in to the continuum of care.
Now, the approval of PROVENGE was based on a definitive randomized Phase 3 clinical trial known as the IMPACT Study. It was a 512-patient study. Patients were randomized two to one either to received PROVENGE or placebo. Okay? And a 4.1-month improvement in median survival that we observed in the IMPACT study is one of the top survival benefits seen for any solid tumor clinical study. Overall, there’s a 22.5% reduction in the risk of death.
Now, with immunotherapies, very different than other forms of therapy. Keep in mind that a course of PROVENGE is three infusions over one month’s time. After you get your three infusions you’re done, go in the office one month, you can go travel the world, you can play golf. You don’t need to keep going into the physician’s office every two to six weeks to get an infusion of chemotherapy. Get it onboard, and it takes its effect.
Now, what’s the benefit to the patient? When we look at the effect of that over time, for example, at three years, we see that those patients in the PROVENGE arm had a 38% increase and three-year survival compared to those patients in the control arm of the study. And that’s a very easy thing for a physician to communicate to their patients. Three years from now, you take the drug, you have a 38% higher chance of living than if you don’t get the drug.
Now, what’s the tradeoffs for that? One of the most appealing elements of using the immune system to fight cancer is you get rid of sometimes very debilitating side effects associated with chemotherapies. And so the most common side-effects that we see with immunotherapy are fevers and chills, they’re usually low-grade short duration. They last for about one to two days, and then they go away. So it was this data set that resulted in the FDA approval of PROVENGE.
Now, how do we see things changing over time? We see PROVENGE really establishing itself as the foundation of care. It’s three infusions over one month. You get it done and then you can go on other forms of treatment. And just like with other solid tumors, one drug isn’t going to do it all. You need to think about how you’re going to use these drugs in combination, and how you’re going to sequence these drugs together.
Now, we know that Zytiga is approved in the postchemotherapy setting, and we anticipate that it’ll have data that potentially supports this utilization in the earlier stages of disease. But with Zytiga, you also have to use Prednisone. Now, Prednisone is an immunosuppressive agent that is not recommended to be used with an agent like PROVENGE that uses the immune system to fight cancer. So our physicians have been asking us for supportive data to better educate them on how to best sequence these agents together.
Now, one of the things we know about the urology community is that they are reluctant to use Prednisone in their practices. It’s complicated to bring on, it’s complicated to monitor these patients, and it’s complicated to taper these patients off of steroids. So the utilization of Zytiga and the urology clinics, even in the pre-chemo setting, is unlikely to be high. Okay?
And so the fact that PROVENGE is enjoying utilization in the urology clinics establishes it as a foundation of care as frontline treatment, part of the initiation of other therapies that require concomitant Prednisone.
Now, even the medical oncology setting, we want to educate that physician group on what’s the best sequencing of PROVENGE with Zytiga. So we’ve started a study this year, looking at patients who get PROVENGE plus abiraterone, and starting the abiraterone after the first leukapheresis, the first blood collection that we to manufacture PROVENGE. And we’re comparing that against the second arm, those patients that get PROVENGE and then wait six weeks after the last infusion of PROVENGE before they start Zytiga with Prednisone. And we’re using a very specific marker that we use as a potency assay as part of our product called CD54. And we know that the amount of CD54 up regulation that we see correlates with the potency of our product, and we’ve seen correlation of this endpoint with overall survival in our clinical trials.
And this, I believe, will help educate physicians on whether they can get abiraterone and start it early during the PROVENGE treatment, or whether they need to wait for six weeks after the last infusion of PROVENGE. And that will help better educate the medical oncology community about how they sequence these agents together.
Now, I’d like to emphasize to you that this is a very important study for us. We’re going to kick it off in the first half of this year. And as you think about our R&D expenditures for 2012, you should expect it to be lumpy and particularly weighted in the first half of 2012 as we enroll and treat patients into this study.
As we’ve learned more and more about PROVENGE, one of the key questions that we’ve got asked is, I understand the survival benefit, I’ve seen it in three Phase 3 clinical trials, but I really want to better understand the mechanism of action. Help me better understand how this drug actually works. It doesn’t lower PSA, so how is this drug actually working in vivo within the patient.
So we began a study called the Neu-ACT study. It was a study that administered PROVENGE to patients prior to radical prostatectomy, prior to having their prostates removed. Then once we removed their prostate, we were able to look at the cell that infiltrates into the prostate to see if we were able to generate a mononuclear cell infiltrated in the process that was indicative of immune response against the prostate tissue, that’s what you’d want to see.
Now, that data will be presented by Larry Fong at two meetings this year, both GU ASCO and the annual ASCO meeting later on this year. That will be an important data set, I think, to educate physicians on the potential mechanism of action of the product.
The other thing that we hear a lot, particularly in the urology community is when we designed the IMPACT study the patients that were in the control arm of that study had the opportunity to cross over and receive a frozen version of PROVENGE. And we’ll be presenting additional data this year that looks at those patients that got randomized to get PROVENGE, comparing those patients that never crossed over and what the potential survival benefit may be.
And while there’s always inherent biases in those types of analyses, it may better predict what the true clinical benefit for these patients are in the real-world clinical study.
Now, throughout 2012, we’ve been focused on three key initiatives to really strengthen our commercial execution of PROVENGE. One is improvement of the reimbursement landscape, the other is optimizing our marketing messages, and the other is improving the effectiveness of our sales force.
Now, we’ve been – while the reimbursement landscape was admittedly very tough for the first eight months of 2011, and I think created a fair amount of reimbursement anxiety amongst physicians, I think that is now subsided. We’ve had a Q-code issued. We’ve worked through the NCA, we finalized the NCD and the coverage of PROVENGE is now standardized across all 15 Medicare regions in the country and time to payment now averages less than 30 days for our physician group.
So once physicians get comfortable with putting a couple of patients on PROVENGE, getting paid, they’re getting much more comfortable with utilizing PROVENGE more broadly in their practice. That was not the case for the first eight months of 2011 and that is the case now.
And approximately 75% of the patients, because of our patient assistance programs and secondary insurers, have limited out-of-pocket expenses for PROVENGE. In fact, 75% of patients have no out-of-pocket expense associated with it.
One of the key things we’ve learned throughout the course of 2011 was that the urology community and the medical oncology community responded to different messages about the benefits of PROVENGE. Urologists think about things one way and medical oncologists responded to different sets of messages. So we’ve developed different sales aids to really support the messaging to the distinct physician segments.
Now, keep in mind that urologists are holding onto these patients. These are patients that sit in the urology practice, and for the last 20-plus years or more, the way urologist have managed these patients is they’ve watched their PSA rise over time, and then when they become symptomatic they’ve sent them off to the oncologist to get infusion-based chemotherapy. With the advent of PROVENGE and the ability to administer PROVENGE in their practices, we’ve had to educate them to look for metastatic disease a lot sooner.
And so in the past they may screen every two years, they may wait until their PSA’s above 20, now we’re saying you should be screening, on average, every six months, and we know that when the PSA is 20, 70% of patients already have a metastatic lesion. In fact, when the PSA is 5, 25% of the patients already have a metastatic lesion. So we’re really starting to educate the urology community about screening early and screening often, and that’s going to identify more patients that could potentially benefit from PROVENGE treatment.
And of course we’re working much more effectively on our direct-to-patient campaigns to educate patients on the potential benefits of PROVENGE.
So lastly, our sales force, I think, has really refined their techniques for communicating with physicians. They’re educating both the oncology community and the urology community about how to utilize PROVENGE effectively in their practices. Because urology community had to be educated in how to use infusion-based medicines and particularly get educated on the buy-and-bill model in their practices, we’ve developed a urology-specific sales force that’s just going to focus on the urology segment. They’re going to be an adjunct to our existing 125-person sales force that’s out there today, but really handholding the urologist through the uptake of PROVENGE.
And I think that’s one of the reasons we’ve had the success in the urology community were others have found it much more difficult to penetrate that existing physician segment.
And then lastly, as I said in my initial remarks, we’re really focused on how we’ve grown the number of accounts throughout 2011 and we’re going to grow it again in 2012. We’re really going to start to see the acceleration in growth, and we get our existing accounts to become much more consistent and larger prescribers of PROVENGE, and that’s a big focus of us in 2012.
Now, all the work we’ve done in the U.S. really sets the foundation for the global expansion of PROVENGE, and I’m pleased to say that we filed our marketing authorization application in Europe, and we expect a decision sometime next year on that product.
Now, the European opportunity represents a significant one for us, and while the patient population there is significantly larger than the U.S. market, because of the challenging reimbursement environment that currently exist in Europe, the truly addressable patient population is probably on par with the U.S. market.
The market characteristics are the same. These patients are treated by both urologists and medical oncologists and there’s a significant unmet medical need for these patients.
And we’re beginning to explore opportunities outside of Europe as well, we’re beginning discussion with the Japanese regulatory authorities there to better understand the best pathway forward with our existing dataset in the Japanese market.
Now, we’ve talked about PROVENGE all the time and everyone focuses on PROVENGE, but people forget that Dendreon’s not just about PROVENGE, it’s about a lot more than that.
Dendreon was based on a key piece of technology called an antigen delivery cassette. And what the cassette does is it uses a GM-CSF head, and we fuse it to a target antigen, via dipeptide linker. And for PROVENGE, that target antigen is prostatic acid phosphatase. And we can clive this off and plug in another antigen and we can develop a whole new product, target a number of different tumor-associated antigens, and our next product candidate is HER2/neu positive cancers. That programs known as DN24-02, for some of you, formally known as Neuvenge, and we’ve initiated 180-patient Phase 2 study, an invasive HER2/Neu positive bladder cancer looking at a survival as a principal endpoint of that study and that study just began and rolling.
We have another program targeting CA9 and another one for CEA for different forms of solid tumors. So with that, I’ll hand it over to Greg.
Thanks, Mitch. So as Mitch indicated, for 2011, from a manufacturing standpoint, our real focus was getting three sites approved, ramping up and scaling of our manufacturing infrastructure, training the individuals and maintaining a very high success rate for the manufacturer of PROVENGE.
If you go back a couple years ago, I think this is an area that very few people felt we would be successful, and I think we’ve seen a great degree of success; all three facilities up on time within the budgets and we’ve certainly, from a logistics or others, I think, met or exceeded anybody’s expectations.
For 2012, for the first time, we really do have a chance to look at a process; a process that has transitioned from development into commercial where you didn’t have any experience. You didn’t have high volumes that you’d run this product before. Now look at how we can focus on reducing the costs associated with that.
What we have today is a very manual process, so we look at what we’re doing first, just volume growth, as you grow your volumes we do have a reasonable amount of our manufacturing costs that are fixed, whether it’s depreciation, amortization, rent, utilities. And volume in and of itself will see our COGs get better.
Importantly though, we’re looking for operational efficiencies in our current processes this year. We’ve had about three months now where we’ve been in a stable environment with the product growing, but we haven’t been either ramping up substantially our headcount, or as we went through in the third quarter, a reduction in force.
We’ve isolated a lot of efficiencies in the process in areas that we think we can improve the process as I would expect. This is not a system that’s been refined over a period of years, it’s actually had its first three months where we’ve been able to focus in on looking at how does it work in volume, and even those volumes are still relatively small.
We also are looking at ways to automate and put system enhancements into the process. And I think this is where you’ll see some potential step function improvements in terms of our cost of goods sold.
So there’s three areas that we’re looking at when you look at both systems, or automation. The first is one that we expect to see implemented late this year and that’s going from a very manual batch record to an electronic batch record. So today, there really is a large amount of paperwork associated with every process that we manufacturer for PROVENGE. It takes a large amount of labor. We’re putting in an electronics batch records system. The project has been underway for quite a while. It will implement later this year and we will get a lot of efficiencies from a labor standpoint.
I think if you remember, we reported cost of goods sold last quarter; about 60% of our total cost of goods sold is labor at this point in time.
The second one is automating the test environment. This is one that we believe should be able to be implemented in 2013. It’s an area that it’s doing exactly what we do today, but doing it with automated equipment as opposed to a large amount of manual processing.
We’ve been evaluating optimal approaches to utilize for this automation and at this stage, we’re starting to move into a development phase.
Finally is automating the activities that take place and actually the manufacturer of PROVENGE at the hood. And it’s an area where we, again, we see tremendous opportunities. We’ve had some research efforts over the last year and it’s moving into a development phase. We believe that that’s probably around 2014 that you’ll see it implemented. It doesn have a little more regulatory impact that we have to work with the agencies if we’re changing things at the hood.
We believe that with the ability to be able to affect just improvements in our processes as they are today as well as electronic and automation efforts, we have the ability to drive our cost of goods sold down dramatically over the next couple of years. We’ll look to be able to demonstrate some of that this year.
We finished the year with a very strong cash position. We had approximately $618 million of cash on hand. We used about $75 million of net cash burn last quarter. So we saw our cash burn decrease as we expected.
We’ve generated revenues last quarter of approximately $82 million and for the year about $228 million. These are both gross numbers. We’ve seen our net-to-gross about 6%. It was just over that last quarter.
We are anticipating modest quarter-over-quarter growth. As Mitch indicated, most of that growth has happened from bringing new accounts onboard. We’re looking to add a similar number of new accounts next year. And as we indicated on our last call, we do expect that we can achieve a cash flow breakeven at around $500 million of net revenue associated with our U.S. business. And so we feel very good with the cash that we’re carrying.
With that, I’ll turn it over to Mitch for closing remarks.
Thank, Greg. As I said in my initial comments, for the last 15 years we’ve been focused really on dramatically changing the way that cancer’s treated. Now, we’ve been through an incredibly rigorous FDA process, we’ve brought three plants on line, we’ve been through a – perhaps an unprecedented national coverage anlaysis decision, but we’ve been singularly focused on making sure as many patients with late-stage prostate cancer get access to it as possible. And the work that we’ve done has positioned PROVENGE as one of the top ten oncology launches in history.
Now, Nixon launched his war on cancer almost 40 years ago and I’d say we’ve made progress to them. But Koli actually started the first concept of immunotherapy almost 100 years ago. And to sea we have of immunocology coming in the forefront and become a mainstay of treatment is incredibly gratifying to all of us at Dendreon; the work that we’re doing, the work that Bristol-Meyers has done with Urvoy, this has all really been an effort to transform the field of oncology and make sure that immune-based agents are the mainstay of treatment for these patients.
And I know, PROVENGE is the first version of these types of products, but I’m confident that Dendreon will be the leader in developing the next phase of these compounds.
Thanks very much, and we’ll see you in the breakout session.
[No Q&A Session for this event]
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