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Dendreon Corporation (NASDAQ:DNDN)

Q2 2008 Earnings Call Transcript

August 12, 2008 4:30 pm ET

Executives

Jennifer Williams – IR

Mitchell Gold – President and CEO

Greg Schiffman – SVP and CFO

Dave Urdal – SVP and Chief Scientific Officer

Analysts

Mark Monane – Needham & Co.

Glenn Hanus – Needham & Co.

David Miller – Biotech Stock Research

Operator

Good day everyone and welcome to the Dendreon Corporation second quarter 2008 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jennifer Williams, Investor Relations. Please go ahead, ma'am.

Jennifer Williams

Thank you and good afternoon everyone. We're pleased that you could join us for today's conference call. With me today is Dr. Mitchell Gold, President and CEO; Greg Schiffman, Senior Vice President and CFO; and Dave Urdal, Senior Vice President and Chief Scientific Officer.

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

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

Mitchell Gold

Thank you Jennifer, hello everyone and thank you for joining us for our second quarter 2008 conference call. Before Greg reviews our financial results for the quarter, I'd like to highlight some recent accomplishments that we have made. As we await the clinical data from our ongoing Phase III trial for Provenge, we are continuing to make steady progress on multiple fronts including our product pipeline. First of all, we recently initiated a new Phase II trial for Provenge, our lead product candidate, which is an active cellular immunotherapy for the treatment of prostate cancer. A second Phase II trial should be initiated later this month. The first study PO71 known as the NeoACT study or NEOadjuvant Active Cellular Immunotherapy trial is enrolling approximately 40 patients at the University of California San Francisco and will assess the safety and immune response of Provenge in men with localized prostate cancer undergoing surgery. All patients will receive active treatment and each patient will receive Provenge prior to radical prostatectomy. The immune response to Provenge will be assessed in the prostatectomy specimen as well as in the peripheral blood. This study may provide insight into mechanism of action of Provenge as well as its potential role in patients at high risk for recurrence after surgery.

The second study PO72 known as the ProACT trial, which stands for PROstate Active Cellular Therapy will be a multi-center trial, which will enroll approximately 120 patients with metastatic androgen-independent prostate cancer. We are conducting these studies for two primary reasons. First, we will gain new scientific insight into the biology of Provenge and new indications in where it might be used. Second, it is part of our deep commitment to patients we are able to provide them with access to Provenge while we await the results from the IMPACT trial. Regarding IMPACT we know that there has been a lot of interest from many constituents regarding the timing of the results from this trial. So we are pleased to be able to provide more specific guidance on that front. We passed the event milestone which triggers the interim analysis, so we expect that the interim analysis for the IMPACT trial will be completed in October. If the pre-specified criterion for statistical significance is met, we would anticipate amending our BLA based on these interim results.

By way of background, our initial BLA filing was based primarily on an improvement in overall survival observed in our Phase III D9901 trial. Following the FDA Advisory Committee vote that there was substantial evidence of efficacy of Provenge and that it was reasonably safe, the FDA requested additional clinical data to support the proposed efficacy claim. The FDA has since indicated that a positive interim or final analysis for overall survival from the IMPACT trial would be sufficient to support the proposed efficacy claim in our BLA. Let me remind all of you that by design there is a higher probability of success of the final data analysis than the interim analysis. That said, the treatment effect at the interim analysis for the IMPACT trial is consistent with the integrated results of the previous two completed Phase III studies, D9901 and D9902A, we would expect to achieve the pre-specified criterion for significance and would amend our BLA submission with the FDA based on these interim results. On the other hand if the independent data monitoring committee reports in October that the pre-specified criterion for statistical significance is not met, then we would anticipate continuing the trial with the expectation of reporting final results next year.

Switching gears now to another product candidate, Dave presented promising clinical preclinical data at the American Neurology Association's annual meeting relating to our small molecule product candidate called D3263. This is our orally bioavailable small molecule which targets Trp-p8, a transmembrane cation channel protein. This molecule may have applicability to multiple cancers as well as benign prosthetic hyperplasia also known as BPH, a disease which affects a significant number of men in the world today. The data presented at AUA related to a preclinical study of BPH and included a statistically significant 39% reduction in prostate weight following a series of treatments with D3263. We are excited about this program and expect to file an IND later this year to begin a trial of D3263 in advanced cancer including patients with prostate cancer.

On a financial note, we are pleased to have completed a registered direct stock offering earlier in the quarter. Our net proceeds from this offering were approximately $46 million. I'll now turn the call over to Greg to discuss the financial picture in more detail.

Greg Schiffman

Thanks, Mitch. As Mitch indicated, we executed a financing transaction early this quarter which resulted in net proceeds of approximately $46 million. We finished this quarter with approximately $127 million in cash, cash equivalents and short and long-term investments. This provides us with a balance sheet that is capable of financing our operations through final results from our IMPACT trial.

The registered direct offering we completed in April consisted of 8 million shares of common stock and 8 million warrants to purchase common stock and was executed at a 17% premium to the then current stock price of $5.08. The warrants have a strike price of $20, approximately a 300% premium. For accounting purposes, the stock is treated as equity and the warrants are treated as a liability. This quarter we recorded a non-cash fair value adjustment of $2.4 million to other income associated with a change in the fair value of the warrants. The warrants will be remeasured each quarter and to clarify how this affects our consolidated statement of operations, if our stock price increases, losses will be recognized in other expense and if our stock price declines, gains will be recognized in other income. For transparency to our investors these adjustments are specifically identified in our consolidated statement of operations in other income and the warrant liability is in our balance sheet. It is important to recognize that the potential gains and losses associated with the revaluation of the warrants have no impact on the company's cash balance, liquidity or cash flow from operations.

Yesterday we filed our 10-Q in which we reported our financial results for the second quarter of 2008, which included revenue of $26,000 compared to $523,000 for the quarter ended June 30th, 2007 and revenue for the six months ended June 30th, 2008 was $57,000 compared to $603,000 for the six months ended June 30th, 2007. Dendreon's total operating expenses for the second quarter were $18.6 million compared to $23.4 million in 2007. Operating expenses for the six months ended June 30th, 2008, were $37.8 million compared to $55.4 million for the same period in 2007. The net loss for the quarter ended June 30th, 2008 was $16.5 million or $0.18 per share compared to a net loss of $22.2 million or $0.27 per share for the quarter ended June 30th, 2007. The net loss for the six months ended June 30th, 2008 was $36 million or $0.41 per share compared to $53.1 million or $0.65 per share for the six months ended June 30th, 2007. Cash, cash equivalents and short and long-term investments at June 30th, 2008 totaled $127.3 million. This includes the approximately $46 million financing I mentioned previously. This compares with $120.6 million at December 31st, 2007. For the quarter, our net cash usage, excluding the net cash raised from a registered direct offering, was approximately $21 million and for the first six months our net cash usage was approximately $40 million. This is consistent with the guidance provided on our year-end conference call where we projected net cash usage of approximately $80 million for 2008. We believe that with our cash in hand, we are well positioned to continue to advance Provenge through the regulatory process.

At this time, I'll turn the call back over to the operator and we'll open the phones for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions) We will take our first question from Mark Monane with Needham & Company.

Mark Monane – Needham & Co.

Thank you. Good afternoon, greetings from New York City.

Mitchell Gold

Thank you, Mark.

Mark Monane – Needham & Co.

Could you go over the timeline of the NeoACT study, the trial just initiated?

Mitchell Gold

Sure. As you said, Mark, that's a study that's being done at the University of California San Francisco. It's a single site study that's looking at patients getting Provenge prior to radical prostatectomy and that study has just begun enrolling patients.

Mark Monane – Needham & Co.

Could you review again how many patients you expect to enroll and what you think the timeline is?

Mitchell Gold

Sure. It's approximately 40 patients and as we said on our last call we really can't give specific guidance on how long we think enrollment is going to take until we get more experience with the study.

Mark Monane – Needham & Co.

That's fair. There have been some questions raised in cancer immunotherapy, active immunotherapy about the difference of the cellular response in the blood versus at the tumor site. There's been some suggestion that maybe there's some sort of block or immunological block that happens in the tissue that neutralizes the effect that we see that's seen in the bloodstream. Can you talk about that information and how it might be relevant to Provenge?

Mitchell Gold

Sure. I'm going to let Dave fill in, but at least initially I think what we know from the literature is that cancer patients in general have an immunosuppressive environment and I think one of the big advantages to our approach for using immunotherapy is that we isolate the androgen presenting cells ex vivo. And by doing so we take those cells outside of the immunosuppressive environment of the patient and then we expose them to our androgen delivery cassette which is the target androgen in the case of Provenge, it is prosthetic acid phosphatase fused to a GM-CSF head. So I think one of the reasons that we may be successful in these studies is that we are able to activate the androgen presenting cells outside of the potentially immunosuppressive environment of the patient.

Dave Urdal

Hi, Mark. It's Dave.

Mark Monane – Needham & Co.

Hi, Dave.

Dave Urdal

One of the things that excites us most about the NEOadjuvant trial that Mitchell described is that it provides us with an opportunity to look directly at the target organ to evaluate what the immune response is within that organ, the prostate, in prostate cancer. And I think you cited correctly that one of the challenges in attempting to measure immune responses in the peripheral blood is that you're looking where the light happens to be brightest, but it's not necessarily the place where you can expect to see much. And I think that's not been uncommon in immunotherapy trials to – when you see something in the peripheral blood, chances are it may not be as meaningful as what you might be able to measure if you have access to the tumor itself or to the original organ that's the target of your immunotherapy.

Mark Monane – Needham & Co.

That makes sense. (inaudible) subject, I read in the 10-Q about the SEC investigation being completed. Can you talk about the resolution or any outcome and do you expect any next steps?

Mitchell Gold

No. So, obviously, as we said in our prior comments, we cooperated with the SEC. We're pleased with the outcome and the recommendations that they've made.

Mark Monane – Needham & Co.

Very good. And I have a financial question from my colleague Glenn.

Glenn Hanus – Needham & Co.

Hi, this is Glenn. Quick question, do you have any illiquid securities on your balance sheets such as auction rate securities?

Greg Schiffman

No. We have never invested in any auction rate securities as a company and don't have any of those in our balance sheet.

Glenn Hanus – Needham & Co.

And I have a marketing question. I mean the timeline is about four months away from the interim analysis and possibly a year away for the final data, what's your plans for commercialization and building a sales force at this point?

Mitchell Gold

Sure. Just to be specific the guidance that we gave for the interim analysis Glenn is October so that's roughly two, two-and-a-half months away, just to be specific, and of our plan for the US is to build our own commercial organization in the US and seek a commercialization partner outside the US.

Glenn Hanus – Needham & Co.

Thank you very much for that information.

Mark Monane – Needham & Co.

Yes. Thanks Dave. Thanks, Greg. Thanks, Mitch.

Mitchell Gold

Okay, you guys. Take care.

Operator

We'll take our next question from David Miller with Biotech Stock Research.

David Miller – Biotech Stock Research

Hi. Good afternoon. For the D3263 you said that you're going to be going into multiple cancers including prostate. Is that going to be solid tumors and what prostate cancer population would you be looking to go into?

Mitchell Gold

Sure. Do you want to answer that Dave?

Dave Urdal

Yes. You're right, David. It is solid cancer patients that would include breast cancer, colon cancer and prostate cancer primarily but it would really be – melanoma, I think were the cancers that we originally reported as being cancers that expressed Trp-p8.

David Miller – Biotech Stock Research

And I assume that would be androgen independent in the prostate cancer?

Dave Urdal

Initially in the prostate cancer, that's correct, later stage of the disease.

David Miller – Biotech Stock Research

Right. Can you talk about how ProACT differs from IMPACT in terms of enrollment criteria, if at all?

Mitchell Gold

The enrollment criteria are very, very similar, David, obviously the main difference is it's a single arm study.

David Miller – Biotech Stock Research

Right. And how many sites?

Mitchell Gold

It's approximately 120 patients that will be involved in that study.

Dave Urdal

Yes. We haven't given the specific number of sites, but certainly it will be much small in number than what we saw in the IMPACT study.

David Miller – Biotech Stock Research

Okay. That's what I was wondering, alright, thanks.

Mitchell Gold

Sure.

Operator

And that does conclude our question-and-answer session. At this time I'd like to turn the call back over to you, Dr. Gold, for any additional or closing remarks.

Mitchell Gold

Thanks very much. I'd like to thank you all for your questions. It was a productive second quarter for Dendreon and we look forward to continuing to update you on our progress, particularly with regard to the IMPACT study. We'll have several opportunities to do so during the fall as we'll be presenting at several investor conferences including the Biocentury Newsmakers Conference. We appreciate your participation on today's call and thank you all for your continued interest and support of Dendreon. Thank you.

Operator

That does conclude today's conference. Thank you for your participation. You may disconnect at this time.

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