Dendreon struggling with defecting sales force and falling sales

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Six hundred impending pink slips and a 12-month restructuring plan that includes shutting its New Jersey manufacturing plant were just the beginning of the changes Dendreon introduced during its Monday earnings call.

“Today we set a new course for Dendreon,” president and CEO John Johnson told investors.

The company said the changes, which include keeping its plants in Atlanta, GA, and Seal Beach, CA, open, will help the company save $150 million per year. It expects the New Jersey plant closing to be done by the fourth quarter of 2012, after which the company forecasts its cost of goods to fall by about 50%.

The biotech said its second-quarter ills included an evaporating sales force—18% of its sales staff left—and what EVP, global commercial operations Joe Pinto called an unusually high rate of cancelled sales. The falloff meant the drug rang in $2 million less during the quarter ended June 30, when compared to sales of the infused drug for the same period last year.

Execs said talent poaching was partly behind the migrating sales reps, and said that the impact was indisputable -- sales among areas with good rep coverage were 30% higher than those without.

The sheer impact took some analysts aback, including Credit Suisse's Lee Kalowski whose research note was titled “You can't cut your way to prosperity,” and in which he noted, “We've known DNDNers were being poached, but we did not expect this to impact sales to this magnitude.” Kalowski added that Dendreon's sales force could shrink even further as competitors Algeta and Bayer accelerate hiring to support the potentially near-term launch of Phase III prostate cancer drug Alpharadin.

Pinto said patient access and enrollment issues were behind some of the sales problems. He said the company is trying to fix this by deploying nursing field teams help take patients from enrollment to treatment. He said Dendreon has found that patients who make it to the first infusion generally stick with the drug through the third.

Pinto also noted that administrative issues are not the only reason for the drug's performance: he said the company still needs to make physicians comfortable with the product itself.

The company said it is also working towards trimming SG&A costs and that it expects the company will be cash-flow positive once quarterly sales reach $100 million. The company would not provide sales guidance until the restructuring was further along.

“This process will take time, focus and effort, but we are committed to the task ahead,” the CEO said.

Barclay's analyst Ying Huang's July 31 research note indicated he was taking a cautious approach to interpreting Monday's changes. “While cost-cutting measures are clearly a step in the right direction, DNDN must also deliver on the revenue side. We are concerned that Provenge sales are likely to remain weak throughout 2H12, given Q2 sales...DNDN faces an uphill battle to gain top-line traction,” he wrote.

Credit Suisse's Kalowski sounded a similar note. “We believe the cost-cutting program is of far less importance than seeing meaningful upward trajectory in Provenge sales,” he wrote.
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