Dendreon said today it signed off on a $40 million securities class-action settlement to address claims filed against the troubled company two years ago by investors who alleged that it misled them about its finances, business operations, and prospects for its prostate cancer drug Provenge.
In a statement, Dendreon and three current and former executive officers named as co-defendants in the suit said they “continue to deny that any statements they made were false or misleading.” Dendreon also noted that $38 million of the settlement payment will come from its insurers. That payout is nearly equal to the size of the company’s most recent quarterly loss—$38.7 million during the fourth quarter of 2012, on total revenues of about $85.5 million.
“Upon final approval of this settlement, Dendreon will have eliminated the potential distraction from ongoing class action litigation that began in 2011,” Christine Mikail, Dendreon’s executive vp, corporate development, general counsel and secretary said in the statement. “We are pleased to put this matter behind us.”
The lawsuit at issue is In re Dendreon Corporation Class Action Litigation, Master Docket No. C 11-1291 JLR, filed Feb. 24, 2012, in U.S. District Court for the Western District of Washington. The class-action filing was a consolidated amended complaint that followed the filing of several individual lawsuits filed the previous summer by lawyers for various investors that purchased Dendreon common stock between April 29, 2010 and August 3, 2011. San Mateo County Employees Retirement Association served as lead plaintiff in the class-action suit, which sought unspecified damages from Dendreon.
The litigation against Dendreon was touched off by the company halting trading in its stock August 3, 2011, after announcing only $49.6 million in company sales due to lower-than-expected demand for Provenge. At the time, the company said it would abandon previous revenue guidance of $350 million to $400 million for 2011, and added that it now expected only “modest quarter-over-quarter revenue growth for the remainder of the year.” Dendreon also announced reductions in its workforce and other expenses.
The following day, Dendreon’s stock price plunged about two-thirds, from $35.84 to close at just $11.69. The 67% drop wiped out more than $3.5 billion in market capitalization.
Citing interviews with 12 Dendreon employees and internal company documents, the class-action plaintiffs alleged that Dendreon and its officers:
- Repeatedly inflated the level of demand for Provenge, using phrases in investor conferences, press releases, U.S. Securities and Exchange Commission filings, and TV interviews such as “very strong demand,” “very high demand”, “incredibly high demand,” and “no shortage of end-patient demand” that was “exceeding our ability to supply the market,” resulting in “completely sold-out capacity” and “substantial waiting lists” at all or most Dendreon treatment sites.
- Falsely claimed that they saw no hurdles to reimbursement and that the up-front cost was not affecting doctors’ uptake of Provenge, in response to analyst questions about the cost being high. Doctors were required to advance the treatment cost of $93,000 per patient, while awaiting reimbursement from insurers.
- Issued false forecasts for Dendreon’s expected sales and revenues.
Even worse, the plaintiffs alleged, the co-defendants and other company insiders collectively sold nearly $86 million of stock while it was still priced high—including $35 million by one co-defendant, former chairman and CEO Mitchell H. Gold, and another $5.7 million by co-defendant Gregory T. Schiffman, the former CFO.
Dendreon had promised to fight the allegations. In its 10-Q filing with the SEC, Dendreon declared: “The company believes the claims lack merit and intends to defend the claims vigorously.”
Today Dendreon said it expects the settlement will receive the needed approval, but cautioned that the process normally takes several months, as settlement terms must be formally documented and are subject to approval by the district court following notice to all class members.