(Refiling to fix typographical error in 15th paragraph)
* Dendreon to outline restructuring plan on Thursday
* Faces tough battle to win investor confidence
* Shares down 5.5 percent in afternoon trading
(Adds investor and analyst comment, updates share price)
By Toni Clarke and Bill Berkrot
BOSTON/NEW YORK, Sept 8 Dendreon Corp DNDN.O,
which makes the high-priced prostate cancer vaccine Provenge,
faces an uphill battle to win back investor confidence after
abruptly withdrawing its sales forecast for the drug last
The company will discuss its future on a conference call
with investors after the market closes on Thursday and lay out
a restructuring plan that is expected to focus on cutting
manufacturing costs and boosting profit margins.
Investors, who feel management has promised more than it
has delivered, are more interested in action than words.
Dendreon shares fell 5.5 percent ahead of the call, hurt in
part by European approval on Wednesday of a rival prostate
cancer drug, Johnson & Johnson's (JNJ.N) Zytiga.
"It's not good enough for management to just tell investors
that they think that can do X, Y or Z," said Eric Schmidt, an
analyst at Cowen and Co. "If Dendreon wants to convince us they
can improve their margins to levels more in line with the
industry, they are going to have to make actual progress before
many of us buy in."
Gross profit margins in the pharmaceuticals industry range
from 70 percent and 90 percent. Dendreon's was roughly 42
percent in the last quarter.
Analysts expect the company to achieve most of its savings
by shutting down a manufacturing facility or scaling back all
three of its plants.
"We see little room for them to lower their other
discretionary expenses," said Geoff Porges, an analyst at
Sanford Bernstein who initiated coverage of the company on
Thursday with an "underperform" rating and $8 price target.
Dendreon management lost credibility with investors last
month when it abandoned its 2011 sales forecast for Provenge on
the heels of disappointing second-quarter results. The move
cost the company two-thirds of its market value and sparked a
flood of lawsuits.
"They've done such a bad job of being transparent that
nobody knows what's going on there," said Brad Loncar, who
spearheaded a move by individual shareholders to shake up the
company's board but has since sold most of his shares.
"They have to get expenses in line with revenue
projections," said Loncar, who believes Provenge is a very good
drug that has not been properly promoted. "What would make me
happy is to know exactly what the situation is and to see them
have a tangible business plan."
At issue is whether sales of Provenge have been held back
by a fundamental lack of demand.
The company previously blamed slow sales growth on
manufacturing constraints, which have since been resolved. More
recently, it has blamed a steeper-than-expected learning curve
by physicians and uncertainty over whether the drug would be
Joseph Pantginis, an analyst at Roth Capital Partners LLC,
said it is not surprising that an altogether new type of drug
like Provenge would take time to settle in the market. But he
said management needs to prove it is creating demand for the
product, which costs $93,000 for a course of treatment.
"They definitely have taken a hit from a credibility
standpoint," he said. "Companies that blind-side investors like
this tend to be in the penalty box for a while."
Sanford Bernstein's Porges said the market may become too
crowded and too complex for immunotherapies such as Provenge to
achieve much "commercial traction."
Before abandoning its long-held forecast, the company
indicated 2011 Provenge sales would reach $350 million to $400
million, with about half of that coming in the fourth quarter.
Dendreon is expected to tell investors that one of the main
goals for its sales force will be to educate physicians.
The company said last month that only about 25 percent of
potential Provenge prescribers were aware of a June 30 decision
by Medicare to cover the drug's cost and the issuance of a
so-called Q code that can help speed reimbursement. It said
many doctors were waiting to prescribe Provenge until they were
sure they would get paid.
Cowen's Schmidt is skeptical that lack of physician
education is the cause of Dendreon's problems.
"I'm sure concern over reimbursement is a headwind but
nothing any other company hasn't experienced," he said. "I
think there is a real demand issue here."
Dendreon shares were off 5.5 percent at $10.97 in afternoon
trading on Nasdaq. They are down from a year high of $43.96 in
(Reporting by Toni Clarke in Boston and Bill Berkrot in New
York; editing by John Wallace)