Dendreon, done in by expensive, complex manufacturing, files for bankruptcy

A couple of years ago, Dendreon sold off a manufacturing plant to Novartis ($NVS) for $40 million-plus to raise some quick cash. Now, someone can pick up its two remaining manufacturing facilities, a logistics center and headquarters in Seattle and its one-time promising drug, Provenge, for as little as $275 million.

Dendreon's ($DNDN) promising future has been done in in large part by the very complex and expensive manufacturing costs of producing and delivering the personalized immune stimulator for prostate cancer. Its cost of goods at one point was 77%. The drugmaker said on Monday it had filed for Chapter 11 bankruptcy and will auction off the company, with minimum bids of $275 million. In the meantime, it continues to manufacture Provenge.

Dendreon has two plants, a 180,000-square-foot facility in Seal Beach, CA, near Los Angeles, and a 160,000-square-foot operation in Union City, GA, near Atlanta. The company has said its facilities were strategically located because Provenge is made with live cells and needed a turnaround time of three days between when white blood cells were drawn, sent to one of the plants to identify the specific immune cells for use and processing and returned and infused into an appropriate patient with castration-resistant prostate cancer. The logistics of that were tracked by a team in Seattle. The process, which cost patients or payers $93,000, had to be done three times and competed against drugs like Xtandi from Astellas and Medivation, and Zytiga from Johnson & Johnson ($JNJ), which can be taken orally.

Dendreon invested last year in "automating" its processes further in an effort to try to save about $125 million a year. Taking out some of the manual steps would allow it to cut some staff. The cost of sales by the first quarter of this year was 53%, and it has been trying to cut that to the mid-30% range; that compares with about 10% for most biotechs. Last year when the company put itself up for sale, Credit Suisse analyst Lee Kalowski told Bloomberg anyone that would take Provenge on would face the same cost issues. "The bottom line is, I don't think any other company could make Provenge more cheaply," he said.

Whether anyone would want to pay $275 million just for the manufacturing assets has yet to be seen. In December 2012, Dendreon sold a manufacturing plant in Morris Plains, NJ, to Novartis for $43 million, but that was for its own drugs. Novartis also took on 100 Dendreon employees, a third of the 300 who had worked there before the sale.

The company said on Monday it has about $100 million in liquid assets on hand to keep operating and manufacturing Provenge during the transition. "Whether the restructuring takes the form of a standalone recapitalization or a sale of the company or its assets, we are confident that this process will allow Provenge to remain commercially available to the patients and providers who have come to rely on this revolutionary personalized cancer immunotherapy," CEO W. Thomas Amick said in a press release.

- read Dendreon's release