Specialty drug maker Dendreon Corp. is planning to cut jobs at its manufacturing plants—including one that opened last month in Seal Beach.
The planned cuts follow a report that sales of Dendreon’s Provenge prostate cancer drug are growing at a slower-than-expected rate.
The Seattle-based company’s stock plunged 67% on the news earlier this month. Shares have since halted their slide and seen a slight gain to a recent market value of about $1.94 billion.
Provenge is a drug that is custom-made for patients based on their white blood cells and costs about $93,000 per treatment. Word of the slower-than-expected sales came during a second-quarter earnings call with investors and analysts.
“The reality is we have staffed our facilities to support the capacity needed for our previous guidance,” said Mitchell Gold, Dendreon’s chief executive. “Given this shift today, we need to reduce expenses, including our work force to support our near-term capacity and manufacturing requirements.”
Dendreon’s in the process of sorting through expected cuts to its work force, Gold said.
California Cuts
Gold later confirmed in other published reports that the majority will come from its manufacturing operations in California, Georgia and New Jersey.
Seal Beach is Dendreon’s only California manufacturing plant.
The drug maker had said it planned to make several hundred hires at the Seal Beach plant, which opened earlier this month after two years of planning. Dendreon has said the plant would eventually have the capability to make up to $750 million worth of Provenge annually.
The company said in a statement that the Seal Beach plant was “currently FDA-approved and will continue to manufacture Provenge.”
The Seal Beach plant is in the Pacific Gateway Business Center near the Garden Grove (22) Freeway. The drug developer signed a 10?-year lease valued at $13.6 million for 184,000 square feet there two years ago.
Seal Beach was picked for several reasons, including its proximity to airports. It is roughly 25 miles from Los Angeles International Airport and about 20 miles from John Wayne Airport. Dendreon ships much of its product by air, according to the company.
Dendreon said Provenge sales came in at $49.6 million, well below consensus estimates of $58 million.
The company posted a net loss of $114.6 million in the second quarter, compared to a net loss of $142.6 million in 2010’s second quarter.
Analysts expected Dendreon to lose $102.1 million in the quarter.
Dendreon also withdrew its previous formal guidance of $350 million to $400 million in overall revenue this year.
Analysts now expect the drug developer to have revenue of $216.7 million in 2011.
The slower sales appear to be driven by concerns among doctors about the price of Provenge and the reimbursement process.
Those concerns remain despite Medicare’s approval of Provenge.
“We are puzzled by the decision to withdraw 2011 guidance even though the official national coverage decision was published by (Medicare) and a (payment code) was issued, which should significantly facilitate reimbursement,” Ying Huang, an analyst with New York investment bank Gleacher & Co., said in a research note.
High-Price Hurdle
Huang noted that Provenge’s high price remains a hurdle despite Medicare’s approval.
“Community physicians, who account for 70% of potential market, (hesitate) to risk $93,000 per patient under the buy and bill model,” Huang said. “In particular, the urologists are not familiar with the buy-and-bill model associated with infusion products such as Provenge.”
An article on Xconomy.com, a website that covers the biotechnology industry, also alluded to the reimbursement issue: “Essentially, Dendreon said that most of its physician customers are afraid they won’t get reimbursed by Medicare or they won’t get a timely reimbursement, meaning they’ll be stuck holding the bag on a drug costing $93,000 per patient.”
Xconomy.com praised Dendreon’s manufacturing and supply chain buildup, but also said “if you’re touting a company into something worth $5 billion and hiring a staff of 2,000 people around the country, there are no excuses for major stumbles like this.”
Downgraded
Analyst Mark Monane of Needham & Co. downgraded Dendreon in a client note, “based on the expected gradual adoption” of Provenge in community-based cancer centers, rather than academic medical centers.
Dendreon’s efforts “emphasizing the positive changes in reimbursement will be easier to market” than other challenges the drug maker faces, including a need for improved patient identification and education on “the novel aspects of Provenge’s mechanism of action and delivery,” Monane said.
Provenge is designed for men whose prostate cancer has spread and is resistant to chemical castration hormone therapy, which is used because prostate cancer feeds off testosterone.
Chemical castration is the conventional way to fight advanced prostate cancer but comes with unpleasant side effects, including the development of menopause-like symptoms.
Dendreon makes Provenge from white blood cells harvested from individual patients. After each patient’s cells are taken, they are sent to one of the drug maker’s plants, which convert them to Provenge and return them to the doctor’s office for custom treatment.
Provenge works by spurring white blood cells to attack cancerous cells in the prostate gland.
Prostate cancer affects some 2 million men annually and is the most common non-skin cancer found among men.
