Dendreon's restructuring plan faces tough audience

Dendreon ($DNDN) is inviting everyone to hear about its restructuring plan this afternoon after the market closes. We'll presumably hear more details about the cost cutting that's necessary now that Provenge isn't selling as quickly as planned. The company yanked its sales forecast last month and predicted that growth of the prostate cancer vaccine would be weak in the near term.

At the time, Dendreon warned the cuts would include layoffs, but didn't mention any numbers. Analysts are now saying the company needs to cut enough jobs to help push expenses down by $90 million-plus annually.

"We believe Dendreon needs to make layoffs primarily in manufacturing headcount to lower SG&A from current $390 [million]-$400 million run rate down to $300 million annually," RBC Capital Markets analyst Michael Yee wrote to investors (as quoted by TheStreet). Together with sales growth to $500 million to $700 million, such cuts would put Dendreon at break-even, Yee said.

The company had forecasted Provenge sales of $350 million to $400 million for 2011. So far, it has posted sales of somewhat more than $100 million through August. For more hard numbers, and "a structural and business update on the company," you can check out the webcast on Dendreon's website at 4:30 p.m. EDT today. But don't expect market-watchers to immediately jump on the bandwagon, even if Dendreon delivers the kind of cuts folks think it needs.

"It's not good enough for management to just tell investors that they think that can do X, Y or Z," Cowen & Co.'s Eric Schmidt told Reuters. "If Dendreon wants to convince us they can improve their margins to levels more in line with the industry, they are going to have to make actual progress before many of us buy in."

In the meantime, Sanford C. Bernstein started covering the company--with an "underperform" rating and a price target of $8. To put that in perspective, the company's stock was trading at around $11 at press time--and on Aug. 3, before the sales update, closed above $35. What's even more striking is the peak-sales prediction from Bernstein's Geoffrey Porges. As Forbes notes, Porges tags Provenge at $450 million--by 2021. That's a long ramp-up. And for a drug that some had believed would top $2 billion.

- get the announcement from Dendreon
- read the Forbes article
- see the story at TheStreet
- check out the Reuters coverage

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