Dendreon to restructure operations, close N.J. plant, cut 600 positions

Wednesday, August 1, 2012 01:24 PM

Biotechnology company Dendreon has announced a strategic restructuring plan designed to accelerate the company's profitability and future growth, which includes re-configuring Dendreon's manufacturing model with the closure of its Morris Plains, N.J. manufacturing facility, restructuring administrative functions and strengthening the company's commercial functions.

As a result of the restructuring, Dendreon expects to reduce costs by approximately $150 million annually, including a reduction in headcount of more than 600 full-time and contractor positions over the next 12 months. Full implementation of the restructuring is expected to take 12 months. Once implemented, Dendreon believes it will be positioned to be cash flow positive when net product revenue reaches approximately $100 million in a quarter.

The plan is designed to optimize resources and accelerate profitability through a three-pronged approach: restructure technical operations, restructure administrative functions and strengthen commercial operations.

Dendreon will reconfigure its network to operate at a significantly lower cost, while continuing to meet customer demand and expectations for future growth, without any disruptions in service. With efficiency gains in plant utilization recognized over the past six months, Dendreon has determined that the manufacturing of Provenge can be handled through the company's existing manufacturing facilities located in Union City, Ga., and Seal Beach, Calif. As a result, the company will close its Morris Plains, N.J. facility, which is expected to occur in the fourth quarter of 2012. Dendreon expects to have the ability to manufacture approximately $1 billion of product from the Union City and Seal Beach facilities. Over time, with the implementation of automation, Dendreon believes that its manufacturing capacity could at least double.

Dendreon will also restructure its other administrative functions to align its support costs with the biotechnology industry norm. The company expects to reduce these costs by more than 35% over the next 12 months.

In addition, Dendreon will continue to strengthen its commercial operations and refocus its investment to support sales growth, improve execution of its sales force and reorganize its market access team for better on-the-ground support at each touch point from sale to physician administration. The company has already begun to reorganize and has attracted a quality sales leadership team. Dendreon is also adopting a unique customer service model with enhanced technology to serve customers more efficiently.

With this restructuring, Dendreon expects to reduce its cost of goods sold (COGS) to less than 50% of net product revenue following the closure of the Morris Plains, N.J. facility, down from 77% for the quarter ended June 30, 2012. Dendreon expects it may be able to continue to reduce COGS through ongoing operational efficiencies, automation, systems improvements and increased sales over time. The company will begin to implement the restructuring immediately and expects net benefits associated with these restructuring initiatives to begin to appear in its financial results as early as the first half of 2013.

"Since we first launched Provenge, we have continued to look for ways to improve the methods of producing and distributing the first autologous cellular immunotherapy for cancer more efficiently,” said John H. Johnson, CEO, president and chairman of Dendreon. “With efficiency gains in plant utilization, we can now reconfigure our manufacturing network to lower costs across our organization, while continuing to deliver the same quality product and high levels of service our customers expect from us. With the planned improvement in operations, we believe the new network will have similar capacity as that of our three plants currently, and anticipate that it allows the company to meet expected future demand and growth. In addition, we will continue to capitalize on opportunities to become more efficient and reduce our administrative expenses.”

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