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Expert Financial Analysis and Reporting

Manufacturing and Logistics Issues (DNDN, $32.57)

Dendreon intends to increase manufactruing capacity in 2011 to ten times the level of December 31, 2010. This should be able to support sales of $1.2 billion or more.



Provenge was approved in the US on April 29, 2010. It recorded sales of $2.7 million in 2Q, 2010; $20.2 million in 3Q and $25.0 million in 4Q bringing full year 2010 sales to $47.9 million dollars. Dendreon is providing guidance for 2011 sales of $350 to $400 million with half of sales occurring in the fourth quarter. Possible quarterly sales trends in 2011 are as follows: 1Q, $28 million; 2Q, $60 million; 3Q, $99 million; and 4Q, $188 million which would result in full year sales of $375 million. In this note we analyze the build up in manufacturing, infusion centers and promotional effort that will be needed to reach these sales goals.

Manufacturing Build-up

In 2011, Dendreon will increase manufacturing capacity by ten fold. It is currently operating with 12 workstations in its New Jersey plant. The company hopes to obtain regulatory approval for an additional 36 workstations in New Jersey in March and from this will start to see orders starting in April that will sequentially increase over the next few months. This is because the bringing on of the additional workstations will be staged rather than bringing them on line all at once. Hence, by the end of 2Q, 2011 or sometime in 3Q, 2011 New Jersey should have 48 workstations. This is four times its current capacity.

In mid 2011, the company will also bring on new facilities in Atlanta and Los Angeles that will each have 36 workstations. Again these will be staged, so that by the end of the year, they will have 120 workstations in all three plants. This is 10 times as large as the 12 that are now up and running.

The 12 New Jersey workstations currently support monthly sales of $9 to $10 million per month or annualized sales of $108 to $120 million. According to Dendreon, by the end of the year, the ten fold increase in capacity will be able to support at least $1.2 billion of sales and through logistical and other efficiencies the company believes that it might support as much as $2.5 billion of revenues. In terms of patients, $100 million of sales represents something over 1100 patients.

New Infusion Centers and Sales Push

Dendreon began the US launch of Provenge through 50 infusion centers which were those that participated in the clinical trials. The company was capacity constrained and wanted to keep Provenge use in sites that already had product experience. By the end of 2011, Dendreon plans to increase the number of infusion centers by nine fold from 50 to 450. These will include 350 centers that represent approximately 80% of prescription volume for prostate cancer in the US. To achieve $375 million of sales, about 4200 patients will have to be treated. The average number of patients treated per center would be about 9 to meet the 2011 sales goal. Obviously, there will be a wide range around this number.

The size of their apheresis network is being tripled.

The number of sales reps is being increased from about 25 to 100. In 2010, they were careful to assure that demand could be met with their limited capacity. They were doing very little marketing. This year the enlarged rep force will push hard on brand awareness and making sure that physicians are sufficiently educated on the scientific merits of Provenge. The average salesman needs to be directly or indirectly responsible for bringing in about 42 patients to meet the 2011 sales goal.

Reimbursement Is Lined Up

Very importantly, the company has received reimbursement from all 15 Medicare providers in the US. This is important because 75% of prostate cancer patients are on Medicare. In the private pay sector, they have reimbursement for payors that cover 80% of lives in that sector. The company has set up a co-pay assistance program to assure that even poor patients get access to Provenge. If a prescription is written, it will almost certainly have reimbursement.

Will Bringing On the New Plants Cause Problems?

Investors have been trained to be cautious when biotechnology companies build new plants; they always seem to be plagued by delays and problems. However, Dendreon’s plants are not the traditional biotech, recombinant protein manufacturing facility. Their facilities take 12 months from ground breaking to completion of construction. It then takes another half year or so to go through validation of the plant. Recombinant protein facilities can have five year timelines from ground breaking to the start of manufacturing.

Dendreon points out that so far they have executed perfectly in terms of the timelines that were laid out in getting the New Jersey plant completed and operational. Atlanta and Los Angeles are identical to New Jersey in terms of the equipment and design.

Disclosure: The author of this article owns shares of Dendreon at the time this note was written. This should be taken into account as it may introduce bias into the conclusions and interpretations that are made. In reading this note, you acknowledge that you have not used it as the sole basis of your decision making and that all investment decisions are based on your own analysis. An investment in Dendreon carries substantial risk and investors could potentially lose much of their investment. The reader acknowledges that he/she has carefully read the Investment Approach, Terms/Conditions and Disclosures sections in the About Us section of the website. The reader acknowledges that he/she will not hold SmithOnStocks accountable for any investment loss that may be incurred if a decision is made to invest in Dendreon.

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