Dendreon Sells Manufacturing Unit

Dendreon Corporation ( DNDN - Analyst Report ) recently sold its immunotherapy manufacturing facility (IMF) to Novartis Pharmaceuticals Corporation ( NVS - Snapshot Report ) for $43 million in cash. The manufacturing facility was based in Morris Plains, New Jersey.

Dendreon’s Morris Plains facility has the capability to manufacture Provenge, the first cellular immunotherapy approved in the US for the treatment of asymptomatic or minimally symptomatic metastatic castrate resistant prostate cancer.

In July this year, Dendreon announced a restructuring plan for 12 months. It was during that time the company decided to close down its Morris Plains unit. The company decided to operate through its Union City, GA and Seal Beach, CA facilities, which have a manufacturing capacity of approximately $1 billion of Provenge and can be doubled with the implementation of automation.

The company planned to reduce the number of employees by 600 (both full-time and contractual). The restructuring initiatives are expected to yield savings of approximately $150 million per year. The company expects to see the results of these initiatives from the first half of 2013 although the full benefit is expected in the third quarter of 2013.

Our Take

We believe Dendreon’s strategic restructuring plan may help the company to swing to profitability. Dendreon’s growth is dependent on its prostate cancer drug Provenge. Hence, the successful commercialization of Provenge is crucial for the financial performance of Dendreon.

However, Provenge sales have failed to live up to management as well as investor expectations. We remain concerned about Dendreon’s high dependence on Provenge for long-term growth.

We currently have a Neutral recommendation on Dendreon. The stock carries a Zacks #3 Rank (Hold). Other stocks in the pharma sector that carry a Zacks #1 (Strong Buy) Rank are Targacept ( TRGT - Snapshot Report ) and Repligen ( RGEN ) .