Dendreon shares plunge as new CEO brings out the ax (again)

As sales of Provenge continued to disappoint in the first half of the year, Dendreon's new CEO opted to trigger another big restructuring at the Seattle-based biotech, with plans to cut 600 jobs and shutter one of its three manufacturing sites in an effort to slash his way to profitability. The cuts come 10 months after Dendreon's ($DNDN) first big downsizing, when 500 jobs were eliminated as its prostate cancer therapy failed to live up to the company's heady estimates.

Left to ponder the implications of another big downsizing, investors bailed. Dendreon shares plunged almost 22% in overnight trading.

CEO John Johnson continued to blame reimbursement fears among doctors as a chief obstacle, adding that turnover on the sales side has further complicated marketing. And he downplayed the competition the company has been seeing from Johnson & Johnson's ($JNJ) Zytiga. 

"We don't see Zytiga as an either/or [treatment]. We see the product as complementary," Johnson confidently asserted in a call with analysts, according to a report from The Wall Street Journal. "Our market research on it today in the second quarter don't show that Zytiga has moved significantly in this quarter."

Analysts, though, have detected a widespread resistance to the treatment--an impressive scientific breakthrough which marshals the body's immune system to fight the cancer. With Zytiga offering a much simpler alternative to Dendreon's, along with promising data, doctors have questioned the $93,000 cost of the far more complicated Provenge as well as the marginal survival benefits seen among patients with an advanced case of prostate cancer. And perhaps an even bigger threat lies ahead, as the FDA considers an approval for enzalutamide (MDV3100) from Medivation ($MDVN).

"It's telling that they're losing sales personnel," Wedbush's David Nierengarten tells Bloomberg, "and that infusion cancelations coincidentally occurred after J&J released the pre-chemo data for Zytiga."

Dendreon had built up its manufacturing base in advance of the final approval, confident that it could win over a sizeable number of patients after the FDA offered its approval. By scattering facilities across the U.S., Dendreon felt that it could address demand regionally. Now Johnson says that automation can be used to ramp up production at the two remaining manufacturing centers as the company targets blockbuster revenue.

In addition to the cuts in New Jersey, a state that has been hit repeatedly over the past year as Roche ($RHHBY) and others have downsized, Dendreon also says it will reduce its administrative costs by 35% over the next 12 months, to keep it in line with the industry norm.

- here's the release on the restructuring
- read the release on the second quarter
- here's the Wall Street Journal story
- get the Bloomberg report