Friday, July 15, 2011

Dendreon Ramping Up Provenge Production

For years Dendreon was the Cheshire Cat of biotechnology companies. Its stock price zoomed up and down depending on results of trials and rulings of the FDA on the efficacy of its first therapy, Provenge for prostate cancer. For about a year now the cat has seen flesh added to its bones and paying patients receive Provenge treatments and facilities for those treatments have been built, certified by the FDA, and come online.

In the last 52 weeks Dendreon's price has been relatively stable (compared to pre-2010), the a low of $30.15 and high of $43.96, with the price as I write at $38.92. It its peak, after FDA approval for Provenge, it hit an auction-market frenzy driven level of $55.43 on May 3, 2010.

Dendreon is probably still a couple of quarters away from showing its first profits. On August 3, 2011, it will report on the second quarter, but keep in mind Q2 was one of limited production facilities and high costs as new facilities are built and certified. I would expect revenues between $30 and $40 million (they give annual guidance, not by quarter) and about $100 million for operating expenses, so another red ink quarter. The ball to watch, however, is Q4 2011. That should finally give us a realistic picture of gross margins and operating margins.

Capacity rollout is encouraging; management is executing well. The Los Angeles facility, with 36 workstations, was approved by the FDA on June 29, 2011. Workstations take patient's blood and tweek its immune components to attack prostate cancer cells. The original New Jersey facility with 12 workstations generated $25 million per quarter in revenues. 36 additional workstations in New Jersey were approved on March 10. It should be noted that approval of workstations does not mean they immediately begin operating at full capacity.

However, at $25 million for 12 stations, 48 means $100 million in revenue and approved equipment in New Jersey and LA together could generate roughly $175 million per quarter. I suspect that if extra shifts are worked and the machines have little down time, the figures could be higher. At the same time their is the other constraint: patient demand. Doctors can't just write a Provenge subscription. They need to work with certified infusion centers, which Dendreon has been hustling to set up.

There is another facility under construction in Atlanta. Dendreon is estimating Q4 revenues in the $200 million ballpark. All three facilities should be operating, but by no means will all the workstations be operating at the $200 million mark.

Beyond that, Dendreon is seeking approval for Provenge in Europe. After that, the rest of the world.

It will be interesting to see if Provenge is as effective in the field as it was in clinical trials. That could have a big impact on how it will compete with other therapies.

Finally, and why that $55 per share spike was not all that unreasonable, if a bit premature, Dendreon is a platform company. In other words, Provenge is hopefully just the first of a series of active immunotherapies against various forms of cancer. The down side of that is that a lot of money will continue to go into R&D. The upside is that any further success of the platform really would make Dendreon into a gold mine for its stockholders.

I have been covering Dendreon since 2006. As usual I will write up a summary of Dendreon for Q2 2011 after the conference on August 3, 2011. You can see all of my notes on Dendreon as well as links to other important data at my Dendreon main page.

Looking for the next Dendreon? You might want to check out my Hansen Medical page.

But in addition to known risks, their are potential unknown risks, so keep diversified!

See also: Provenge Press Releases

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