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Dendreon to Pursue Sale or Reorganization in Bankruptcy -- 3rd Update
12:50p ET November 10, 2014 (Dow Jones) Print
Dendreon to Pursue Sale or Reorganization in Bankruptcy -- 3rd Update
By Peg Brickley And Ron Winslow
Dendreon Corp. filed for Chapter 11 bankruptcy protection Monday after coming to terms with senior lenders that had backed the company when hopes of big profits from its pricey cancer drug were running high, and are now poised to take it over or sell it.
Unless a buyer can be found that is willing to continue producing Provenge, a novel treatment for prostate cancer that never really gained traction in the market, the biopharmaceutical company and its long-promising drug will belong to lenders.
When Provenge won approval from the Food and Drug Administration in April 2010, it was touted as ushering in a new era of treatments to marshal the immune system to fight against cancer. Dendreon basked in the promise that FDA approval cleared a path to profits. With its stock at more than $55 a share in May 2010, Dendreon's market capitalization topped $7.5 billion.
But at an average of $93,000 for a course of treatment that improved median survival by just over four months, Provenge wasn't adopted readily by doctors.
"Dendreon combined undue optimism in sales projections with excessive risk in its capital structure. It is a case of moderate product success and immoderate management failure," said Erik Gordon, professor at University of Michigan's Ross School of Business.
Then came competition. Johnson & Johnson's Zytiga was approved for advanced prostate cancer in 2011 followed by Xtandi from Medivation Inc. of San Francisco and Astellas Pharma Inc. of Japan.
Both were pills that were easy to prescribe, required no upfront investment for doctors and were backed by clinical trial data that made doctors more comfortable. In the face of these rivals, Provenge's market share was under 5%, according to one recent analyst report.
The fallout over Provenge's promise versus performance still lingers. The Wall Street Journal reported last month that trading in Dendreon in the summer of 2010 is being looked at as part of a probe into whether employees of the Centers for Medicare and Medicaid Services have leaked information that wound up in the hands of investors.
Dendreon's stock fell 10% on June 7, 2010, the same day officials of the agency that oversees billions in health-care spending began discussing whether to set new coverage limits on the costly new prostate-cancer treatment. Those discussions were supposed to be kept under wraps.
Having borrowed to expand capacity for demand that never materialized, Dendreon cut costs and engaged in talks with lenders aimed at reshaping its balance sheet, court papers say.
The Seattle company will continue producing Provenge while in Chapter 11, it said in a news release. Dendreon has support from investors owning 84% of a $620 million issue of convertible senior notes, including big holder Deerfield Management Company, L.P., for a two-path course out of bankruptcy.
The investors have agreed to convert their debt to equity in a reorganized company, unless bidders offer to buy the business. No prospective buyers stepped up during a quiet market test last year, according to court papers.
In August 2011, Dendreon withdrew revenue guidance of $350 million to $400 million for the year, telling shareholders to look instead for "modest quarter-over-quarter revenue growth."
The company's fall from stock market darling status was sudden and sharp, once it admitted Provenge wouldn't be bringing in big revenues.
Dendreon's stock plunged 67% after the announcement, and investors sued, accusing management of fumbling the launch by, among other things, failing to provide physicians with options to finance the treatment. The suit was settled last year for $40 million, with no admission of liability.
The company filed for protection with $100 million in cash or cash equivalents, and won't need bankruptcy financing, according to the release.
As of the period ending Sept. 30, 2014, Dendreon had $340 million in assets and $660.7 million in liabilities on a book value basis. When hopes for Provenge were running high, Dendreon had 1,500 employees. Cost-containment efforts have reduced the workforce to 698 people, court papers say.
Jeffrey Ng
contributed to this article. Ron Winslow contributed to this article.
Write to Peg Brickley at [e-mail] and Ron Winslow at [e-mail]