Tough times continue for Dendreon Corp., the Seattle biotech company with a plant in Seal Beach, where the company just cut 70 jobs, according to a filing with the state Employment Development Department.
Investors smacked Dendreon earlier this month after the company released a disappointing quarterly update on its prostate cancer drug Provenge.
Dendreon said sales of Provenge, which is made from white blood cells harvested from patients, grew to $64 million in the third quarter, an increase of 30% from the second quarter.
But third-quarter expenses ballooned, resulting in a 10% gross margin, down from 42% in the second quarter.
Expenses included $19.4 million related to “workforce reduction,” said Greg Schiffman, Dendreon’s chief financial officer.
Dendreon trimmed a total of 500 jobs, about 25% of its work force, which includes its headquarters in Seattle and plants in New Jersey and Georgia.
And Dendreon projected “modest” sales of Provenge for the current quarter. That sent the biotech’s stock down 37% on Nov. 3, a day after the company reported financial results.
Dendreon’s stock is down more than 85% this year, to a market value of about $988 million.
Various commentators weighed in on the challenges Dendreon faces.
Adam Feuerstein, a columnist for thestreet.com., wrote: “Dendreon will not survive long with a 10% gross margin, or as cancer consultant Michael Becker of MD Becker Partners quipped on Twitter: ‘Dear Dendreon — ‘We lose a dollar on every sale but make it up on volume’ is not a viable business model.”
More commentary appeared after Medivation Inc., a small biotech company in San Francisco, said that late-stage trial results for its MDV3100 drug showed that patients live five months longer on average, after taking the drug, compared to treatment with a placebo. Side effects were reportedly mild.
“Dendreon really needs to watch its backside here” in the wake of Medivation’s news, said David Williamson, a writer for the Motley Fool investor website.
That’s because while Provenge is a first-line treatment, Williamson wrote, it’s having “a hard time gaining traction with doctors.”
Dendreon management claims to be making progress with Medicare reimbursement for the $90,000 treatment, and with physicians as well.
“But knowledge doesn’t equal sales,” Williamson said.
Williamson suggested that knowledge of Provenge may not stop doctors from prescribing MDV3100 off label.
He also brought up what could be another competitive threat to Dendreon—Zytiga, from medical behemoth Johnson & Johnson of New Brunswick, N.J.
“If there have been light concerns over Johnson & Johnson’s Zytiga and its encroachment on Provenge’s turf, then Dendreon investors are furrowing their brows harder tonight,” Williamson said.
Zytiga did come up during Dendreon’s conference call in a question asked by analyst Blake Arnold of Milwaukee investment bank Robert W. Baird & Co., who said that company officials have downplayed competitive threats in the past.
Baird doctor checks “detected a fair amount of Zytiga used in the pre-chemo setting … could you talk to what your recent experience has been here with regards (to) any competition from Zytiga?” Arnold asked.
Dendreon’s views “really haven’t changed,” Chief Executive Mitchell Gold said.
Hospitals Fight MediCal Cuts
Hospitals in California are taking on the government over pending reimbursement cuts to MediCal, the state and federal program for low-income residents.
The California Hospital Association, a Sacramento trade group, sued the California government and the federal Department of Health and Human Services, alleging that the cuts of more than 20% are similar to previous reductions that were “found to be in violation of the federal Medicaid Act,” according to a Bloomberg story.
Late last month, the California Department of Health Care Services said that the federal government cleared its proposal to reduce MediCal reimbursement. The state says the cuts will save $623 million.
Before the suit, the California Hospital Association criticized the decision, saying that rates paid to doctors and hospitals are almost 25% less than the national average for Medicaid programs and that MediCal underpaid hospitals in the state by more than $4.6 billion in 2010 on the actual costs of healthcare delivery.
In Orange County, MediCal patients tend to be spread among a number of hospitals since OC is one of only three California counties without its own public hospital.
That pattern was noted in a report issued last summer by the Center for Studying Health System Change, a Washington, D.C.-based nonprofit that looks at 12 U.S. communities, including Orange County, and their healthcare industries.
“Services to low-income people … also are more dispersed among hospitals,” the report said, noting that survey respondents said that UCI Medical Center, a teaching hospital in Orange, “has pulled back somewhat from its longstanding role as the main safety net hospital.”
Survey respondents said that St. Joseph Health System, an Orange-based hospital operator, was a “safety net leader.”
Bits and Pieces:
In other St. Joseph Health System news, the company received a $2 million grant from Blue Shield of California to expand the use of electronic patient health records and other types of technology related to patient care … Hoag Memorial Hospital Presbyterian in Newport Beach said that its advanced cardiac imaging unit is one of a few on the West Coast to perform a MRI scan on patients with Medtronic Inc.’s Revo MRI SureScan pacing system, which was recently approved by the Food and Drug Administration.
