UPDATE 3-Dendreon to cut 500 jobs in restructuring

Thu Sep 8, 2011 6:31pm EDT

* Says employee-related cost of restructuring $21 million

* Reports August Provenge sales of $22 million

* Sees modest quarter-over-quarter sales growth

* Shares up 4.6 percent after cuts announced (Adds analyst, company comment, share price)

By Bill Berkrot

NEW YORK, Sept 8 (Reuters) - Dendreon Corp (DNDN.O) said on Thursday it would cut 500 jobs as it seeks to trim expenses in light of diminished sales expectations for its high-priced Provenge prostate cancer vaccine.

The total employee-related cost of the restructuring is expected to be about $21 million, the company said, citing a need to align staffing "with the shift in the (Provenge) launch trajectory and meet the company's manufacturing requirements."

Investors appeared to be pleased by the moves, sending Dendreon shares up more than 4 percent in extended trading.

"Their SG&A (Sales, General and Administrative) cuts are more than expected and will mean $120 million in SG&A savings," said RBC Capital Markets analyst Michael Yee.

Dendreon also announced the departure of Hans Bishop, the company's chief operating officer, and said it was starting a search for a replacement.

Dendreon stunned analysts and investors last month when it withdrew its often repeated Provenge sales forecast. The surprise move sparked a massive stock sell-off in which the company lost two-thirds of its market value.[ID:nN1E7721QB]

The company said with reduced expenses it expects to have sufficient cash to achieve a cash flow break-even position in the United States at an annual run rate of about $500 million in revenue.

"While the last month has been difficult for our employees, these cost reductions are necessary to ensure the long-term growth of our company," Mitchell Gold, chief executive of the biotechnology company, said in a statement.

Dendreon reported August Provenge sales of about $22 million -- a 16 percent increase over July sales -- and continues to expect modest quarter-over-quarter growth.

Given the modest growth expectations, Dendreon said it was significantly overstaffed in its manufacturing facilities and said some job cuts would also come from its Seattle headquarters. The total job cuts account for about 25 percent of the company's staff.

"To some extent they are stuck between a rock and a hard place," said Sanford Bernstein analyst Geoffrey Porges.

"Just bringing expenses down by 20 percent doesn't mean they are going to generate a significant profit and investors want profits."

Management said it would refrain from closing any of the company's three manufacturing plants in its cost cutting efforts, noting that such a move would be counterproductive to long-term growth plans.

The company previously blamed slow initial Provenge sales on manufacturing constraints, promising robust sales once it had all three of its production facilities up and running.

But last month, Dendreon management had new reasons for the disappointing sales and withdrew its bullish 2011 Provenge revenue forecast of $350 million to $400 million, with half coming in the fourth quarter.

The company blamed the slow sales ramp on a steeper-than-expected learning curve for physicians on how to use the new immunotherapy vaccine and doctor uncertainty over whether the drug, which runs $93,000 for a course of treatment, would be reimbursed by Medicare and health plans.

Dendreon told analysts and investors it was starting to see Provenge reimbursement occur within about 30 days and said in one case reimbursement came in as little as eight days.

It also cited a need to educate urologists on the appropriate patients for Provenge. "There's no doubt the patients are there," Gold said on the conference call.

Provenge, which works by stimulating a patient's own immune system to fight tumors, was approved last year to great fanfare as the first therapeutic vaccine for cancer after demonstrating it extended survival in patients with advanced disease.

But analysts have complained about management's lack of transparency and questioned its credibility after being blindsided by the pulled sales forecast. [ID:nN1E7870Z4]

"How can they continue to supply their market given the logistics ... with this reduction in head count?" Porges asked.

Dendreon shares rose 4.6 percent to $11.38 in after-hours trading after closing at $10.88 on Nasdaq, a decline of 6.3 percent. (Reporting by Bill Berkrot; additional reporting by Deena Beasley in Los Angeles; editing by Andre Grenon, Gary Hill)

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