Dendreon Rises on Provenge Update - Analyst Blog

Dendreon Pharmaceuticals (DNDN) shares went up after it provided a detailed corporate outlook. It discussed plans for US commercialization, expansion and European filing for Provenge vaccine, for the treatment of prostrate cancer. The company also announced that it will start phase II studies for Neuvenge for the treatment of invasive bladder cancer soon.

Unlike traditional vaccines that prevent diseases, Provenge, which has blockbuster potential, treats by stimulating the body's own immune system to attack cancer cells. Provenge is the first product in the new therapeutic class known as active cellular immunotherapies.

US Commercialization Efforts

In addition to outlining its plans for the EU filing of Provenge, the company announced Provenge revenue of $48 million in 2010 (including $25 million in the fourth quarter), slightly above the guidance range of $46 million to $47 million, announced on the third quarter conference call. 2011 Provenge revenue guidance was reiterated at $350–$400 million with approximately half of that expected in the fourth quarter.

Dendreon is working toward expanding its manufacturing facilities for Provenge in the US. The company's New Jersey facility, which is currently operating at 25% capacity, is expected to be fully operational by March 2011. The facilities at Atlanta and California are also expected to start producing commercial material by mid-2011. Hence, the company expects capacity to increase ten fold during 2011. In the US, the company plans to spend $90 million to bring these facilities online.

The Provenge sales force is being boosted to 100 representatives who will target 450 centers in 2011, well above the current 50 centers. The company will also increase its marketing efforts to maximize the available capacity. Dendreon now has all 15 US Medicare contractors providing reimbursement for Provenge.

European Strategy

The company also discussed its European strategy for Provenge. It plans to file a Marketing Authorization Application (MAA) for Provenge in the European Union in late 2011/early 2012 without the need for additional clinical work. The filing will be based on data from the IMPACT study, supported by data from D9901 and D9902A, which was used for the US filing. A decision from the EU regulatory authority is expected in 2013.

The company plans to use a Contract Manufacturing Organization (CMO) to expedite commercialization until the company's own facility (to be built in Germany) comes online. Dendreon plans to roll out the drug in different European countries one at a time and will simultaneously secure reimbursement in those countries.

Dendreon plans to raise additional capital in 2011 to fund expenses for new capacity rollout and European filing and manufacturing. It appears the company will have no partner in the EU and will have to bear all expenses. Dendreon plans to spend $125 million for the effort with 50% each for capital expenditures and operating expenses.

It is believed that Europe has the largest number of metastatic castrate-resistant prostate cancer patients in the world, about 1.5 to 2 times the size of the US patient population. There is also a significant unmet clinical need for these patients.

Other Updates

Dendreon also announced plans to start phase II studies of Neuvenge (DN24-02), the company's second active cellular immunotherapy (ACI) that targets Her2+, in invasive bladder cancer soon. The company filed an Investigational New Drug Application (IND) in December 2010. The study will enroll 180 patients with the primary endpoint being evaluation of overall survival.   

Currently, Dendreon has cash of approximately $280 million. Due to the increased expenses discussed above, the company believes it will record a loss of $310 million - $350 million in 2011 including one-time items. Excluding one-time items, the adjusted loss is expected to be between $230 million and $270 million.

Our Recommendation

We currently have a Neutral rating on Dendreon. We believe Provenge has blockbuster potential and its successful commercialization should push Dendreon towards profitability. We are also encouraged by the upbeat commercial and regulatory update. However, we remain concerned about the company's dependence on Provenge and the lack of a robust pipeline. Dendreon has little to fall back on if Provenge's performance belies its potential. We therefore prefer to be neutral on the company.