Dendreon filed for bankruptcy last month. The following is a news article we might have seen if everything had gone the company's way. There are some investing lessons in this alternate reality; see if you can spot the changes.
The story of Dedreon came to a close today after BFG Pharma announced it was purchasing the prostate cancer specialist for $20 billion.
Dendreon's prostate cancer treatment Provenge continues to perform well, bringing in over $2.5 billion over the last year. The increased volume has decreased gross margins substantially, something the company struggled with early in the launch. Working close to full capacity has allowed Dendreon to reach profitability.
BFG Pharma will also get Dendreon's pipeline of treatments that use dendritic cells to treat other types of cancer. The technology is essentially the same as how Provenge works but uses different antigens to prime the immune system to attack tumors originating in other tissue.
The pipeline development has been slow as the company focused on Provenge, but Dendreon has been able to spend more money on the clinical-stage programs since reaching profitability.
Sales growth of Provenge has certainly slowed since the launch of Johnson & Johnson's (NYSE: JNJ) Zytiga and Xtandi, sold by Astellas and Medivation (NASDAQ: MDVN). But Provenge continues to be used before the oral drugs to treat many patients since doctors are comfortable using Provenge, which launched so much earlier than the other drugs.
Convincing the Food and Drug Administration to approve Provenge in 2007 with limited data was key to the company's success. If the FDA hadn't followed its advisory committee's recommendation, making Dendreon wait for the IMPACT trial that confirmed the initial findings, the drug wouldn't have been approved until 2010. The three-year delay would have made it harder for Dendreon to compete once the other drugs hit the market, especially since they're taken orally and don't have to be infused like Provenge.
Doctors continue to use Provenge's Infuse Now, Pay Later program that allows doctors to treat their patients now, but not have to pay Dendreon for the treatment until it's reimbursed by Medicare. The program is a detriment to the company's cash flow, but it's a necessary evil given the nature of the treatment. If Dendreon hadn't started the program when the drug launched, the uptake might have been slow as community doctors would have struggled with footing the $93,000 bill, especially before they were comfortable with Medicare's reimbursement policy for the treatment.
Developing manufacturing capacity for Provenge hasn't been cheap, and investors have paid for it through secondary offerings that diluted existing shareholders. The $25 billion takeout would have resulted in a higher share price if there were fewer shares outstanding.
The alternative -- taking out loans to raise capital -- might have been a better choice given the success, but if the launch hadn't gone as well as it did, the strategy could have caused the company to be unable to pay off the loan, requiring the company to declare bankruptcy.
