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Dendreon to cut 500 jobs

Friday, September 9, 2011

Dendreon has reported it will cut 500 jobs as it seeks to trim expenses in light of diminished sales expectations for its high-priced Provenge prostate cancer vaccine, according to Reuters.

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.”

“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 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.

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,” said Mitchell Gold, chief executive of the biotechnology company.

Dendreon reported August Provenge sales of about $22 million — a 16%  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% of the company’s staff.

“Just bringing expenses down by 20% doesn’t mean they are going to generate a significant profit and investors want profits,” said Sanford Bernstein analyst Geoffrey Porges.

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.

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