Dendreon Banks on Restructuring After Stock Craters

Before you go, we thought you'd like these...
Before you go close icon

Struggling to break out of Wall Street's dog house, Dendreon (NAS: DNDN)  is pursuing a corporate restructuring plan that many expect to result in big cost cuts and the potential elimination of jobs at the previously fast-growing biotech. The company is expected to roll out the details of the plan this afternoon, taking action after disappointing sales of its prostate cancer therapy Provenge reported in early August caused its stock price to drop about 70%.

The company had bulked up its work force and manufacturing capacity quickly in recent years in anticipation of Provenge being a hit with patients and doctors. With some physicians balking at prescribing the $93,000 treatment to patients this year, the company faces some difficult decisions about how many of its workers and other resources are needed to meet lower-than-expected demand for the drug. And analysts expect that manufacturing jobs at the firm will be hit the hardest in the restructuring.

"We believe Dendreon needs to make layoffs primarily in manufacturing headcount to lower SG&A [selling, general and administrative expenses] from current $390 [million]-$400 million run rate down to $300 million annually and eventually hit annual sales of $500 [million]-$700 million to become cash-flow break even," RBC Capital Markets biotech analyst Michael Yee said in a note to clients today, as quoted by TheStreet's Adam Feuerstein.

With Dendreon's production operations in Atlanta, Los Angeles and New Jersey, the prospect of manufacturing jobs being on the chopping block might lighten the impact of the restructuring on some workers at the company's home base in Seattle. Biotech Stock Research president David Miller told the Seattle Times he thinks only "modest layoffs from the back-office people" in the city are likely to come "because they need all those folks to solve their problems."

For one, the company needs to figure out how to get its Provenge business to carry its operations out of the red, where so many biotechs wallow while pursuing new drugs that can become cash cows. And competition is heating up in the prostate cancer market with Johnson & Johnson's (NYS: JNJ) recently approved Zytiga and other candidates making their way toward approvals.

This article originally published here. Get your free daily biotech briefing here.

Related Articles:

At the time this article was published The Motley Fool owns shares of Johnson & Johnson and Dendreon. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners