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Originally published November 10, 2014 at 6:44 PM | Page modified November 12, 2014 at 11:38 AM

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Biotech’s pitfalls tripped up Dendreon, led it to bankruptcy

The complex logistics and individualized processing of its prostate-cancer therapy meant Seattle-based Dendreon had a hard time getting anywhere near profitability.


Seattle Times deputy business editor

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Like a white cross planted alongside a narrow mountain road, Dendreon’s bankruptcy will serve as a warning to those who follow.

The Seattle biotech company pioneered an approach to fighting cancer by training a patient’s own immune system to recognize and destroy malignant cells.

Immunotherapy is hot again, but the companies exploring similar methods are striving to avoid the pitfalls that Monday dragged Dendreon into Chapter 11 bankruptcy protection.

“I know the other companies in this space have taken a lesson from Dendreon,” said David Nierengarten, the Wedbush Securities analyst who 15 months ago predicted Dendreon shares would drop to virtually nothing.

After a long struggle, Dendreon in April 2010 won Food and Drug Administration approval for its process of extracting a patient’s white blood cells, revving them up at a centralized laboratory with antigens to recognize prostate-cancer cells, then reinfusing the blood cells into the patient.

The complex Provenge treatment, which could extend life by a few months, was priced at $93,000 per patient.

“They did a fantastic job of showing cells can be a product. It’s just that their cells weren’t that good” at delivering extended survival or remission, said Robert Nelsen, who invests in biotech companies for ARCH Venture Partners in Seattle.

Early projections called for Dendreon to quickly ramp up to revenues of $1 billion a year, and its market capitalization soared past $5.5 billion. To meet the expected demand, it borrowed $620 million using convertible notes that could be swapped for stock at $51.24 a share, and built three large, expensive processing facilities in New Jersey, Georgia and California.

Its nationwide workforce shot up to about 2,000, and it moved its headquarters into prominent space in downtown’s Russell Investment Center. Its stock, after a June 2000 initial public offering at $10 a share, climbed as high as $57 the month it won FDA approval.

But the complex logistics and individualized processing of the therapy meant Dendreon had a hard time getting anywhere near profitability. And soon after Provenge’s approval, new prostate-cancer therapies came along that were delivered as simple pills.

That combination had Dendreon racking up $2.3 billion in losses, according to its latest financial statement. And while several rounds of layoffs shrank its costs and yielded a loss of only $22 million in the quarter ended Sept. 30, its annual sales never topped $325 million — a far cry from the billions once expected.

Newer biotech startups like Seattle-based Juno Therapeutics and California-based Kite Pharma, as well as multibillion-dollar drug companies such as Novartis and Celgene, are now pursuing treatments that build on Dendreon’s legacy. Juno alone has attracted more than $300 million in startup capital for its efforts.

But the current generation of immunotherapy companies are “less operationally complex ... the technology has progressed a lot in 10 years,” said Nelsen, of ARCH Venture Partners.

And, the companies are aiming for results less ambiguous than the limited benefit Dendreon demonstrated to the FDA.

“One of the reasons you see so much excitement about immunotherapy in general is that it has extremely exciting clinical data, whereas Dendreon data was never that exciting, orders of magnitude less exciting,” Nelsen said.

This region could play an important role in the technology even if Dendreon’s assets are sold off in bankruptcy.

“There is more experience in cell therapy and immunotherapy in Seattle than anywhere else in the world — between the Hutch, Children’s, Dendreon and then the sons and daughters of that,” he said.

Dendreon, which has about 700 employees, said Monday that 84 percent of its noteholders approved its attempted restructuring under Chapter 11, and it set a minimum price of $275 million on its assets. If no buyers are found for the company’s intellectual property and facilities, ownership will be turned over to the investment firms that hold the convertible debt.

The company’s shares were trading for $2 in August when it warned that a restructuring was likely. Monday, after that warning came true, the shares fell from 94 cents to close at 18 cents.

Nierengarten, the analyst, remains skeptical that the assets will be attractive to any big pharmaceutical company even at the “fire sale price” it announced.

“Absent a real revolution in their manufacturing processes, it’s not attractive to a typical pharma buyer,” he said, “because it would be a negative to their profit margins.”

Rami Grunbaum: rgrunbaum@seattletimes.com



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