[Updated: 1:15 pm PT] People at Seattle-based Dendreon (NASDAQ: [[ticker:DNDN]]) have been waiting for five weeks to find out how many employees would lose their jobs, after the company said it was falling short of its sales forecast for 2011.
Now the other shoe has dropped.
Dendreon said today it has cut the jobs of 500 employees, or about 25 percent of the workforce it had at the end of June, as it seeks to conserve cash while it builds up the market for its immune-boosting drug for prostate cancer. Chief operating officer Hans Bishop is among those heading for the door. The company had about $674 million in cash and investments on hand at the end of June, and burned through about $106 million of its cash reserves in the most recent quarter ended June 30 as it continued investing in a national network of unique factories.
While the cash has been diminishing, the company’s headcount has been rising. Dendreon rapidly built up its staff to 1,915 employees at the end of June, from just 200 as recently as April 2009. The company has been on that hiring binge in order to build up sales, marketing, and manufacturing capacity to capitalize on what many analysts projected would be a multi-billion dollar drug.
Dendreon’s forecast for this year was that it would sell $350 million to $400 million in sales, but it only sold $77.6 million of the drug in the first six months of the year. It now projects just “modest” quarter-over-quarter sales growth in the foreseeable future as it seeks to iron out concerns among physicians about how to properly use this first-of-its-kind, infusion-based medicine, and whether they will get reimbursed for a product that costs $93,000 per patient. Medicare, the government agency that covers most of the elderly men who are candidates for Provenge, recently agreed to a new national reimbursement protocol after it concluded a yearlong review of the product’s safety and effectiveness.
Getting spending under control has been a pretty obvious imperative since Dendreon announced its troubles with sales and reimbursement. The announcement of the missed sales forecast greatly damaged the company’s credibility on Wall Street, which erased more than $3.5 billion worth of the company’s valuation. That, in turn, makes it much more difficult for Dendreon to raise more cash at favorable terms—hence the need for cost cuts.
It will be interesting to see how Wall Street reviews this latest round of cuts and restructuring at Dendreon, in terms of whether it can restore some faith. Many observers were skeptical heading into today’s announcement. “It’s not good enough for management to just tell investors that they think that can do X, Y or Z,” Eric Schmidt, a veteran biotech analyst at Cowen and Co, told Reuters in a story posted earlier today. “If Dendreon wants to convince us they can improve their margins to levels more in line with the industry, they are going to have to make actual progress before many of us buy in.”
[Updated info on August financials.] Dendreon said it generated about $22 million in sales of its prostate cancer drug in August. It had $600 million of cash left in the bank at the end of August, which it says should be enough to reach cash-flow break even once its drug reaches about $500 million a year in sales.
“While the last month has been difficult for our employees, these cost reductions are necessary to ensure the long-term growth of our company,” Dendreon CEO Mitch Gold said in a statement.
Dendreon management plans to discuss the restructuring in more detail on a webcast conference call at 4:30 pm Eastern/1:30 pm Pacific. I’ll have more to add in real-time during the call on Twitter at @ldtimmerman and more follow-up here later today on Xconomy.
