##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission File Number: 000-30681
 DENDREON CORPORATION
 (Exact name of registrant as specified in its charter)
 DELAWARE
    
    22-3203193(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification No.)3005 FIRST AVENUE,SEATTLE, WASHINGTON
    
    98121(Address of registrants principal executive offices)
    
    (Zip Code)
 (206) 256-4545
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



DENDREON CORPORATION
 INDEX
  
 PAGE NO.PART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Balance Sheets as of September 30, 2008 (unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2008
and 2007 (unaudited)
    
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007 (unaudited)
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23PART II. OTHER INFORMATION
    
    
    23Item 1. Legal Proceedings
    
    
    23Item 6. Exhibits
    
    
    24SIGNATURES
    
    
    25EXHIBIT INDEX
    
    
    26EX-10.1EX-31.1EX-31.2EX-32
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 DENDREON CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 (In thousands, except share data)
 September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    61,839
    
    
    $
    75,721Short-term investments
    
    
    35,654
    
    
    
    27,115Restricted cash
    
    
    853
    
    
    
    1,553Prepaid and other current assets
    
    
    2,001
    
    
    
    2,508Total current assets
    
    
    100,347
    
    
    
    106,897Property and equipment, net
    
    
    27,728
    
    
    
    27,454Long-term investments
    
    
    9,077
    
    
    
    17,739Long-term restricted cash
    
    
    5,030
    
    
    
    6,288Debt issuance costs and other assets
    
    
    2,962
    
    
    
    3,284Total assets
    
    $
    145,144
    
    
    $
    161,662LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,276
    
    
    $
    2,221Accrued liabilities
    
    
    7,476
    
    
    
    11,545Accrued compensation
    
    
    3,626
    
    
    
    4,598Deferred revenue
    
    
    82
    
    
    
    82Warrant liability
    
    
    21,313
    
    
    
    Current portion of capital lease obligations
    
    
    200
    
    
    
    780Current portion of facility lease obligation
    
    
    207
    
    
    
    172Current portion of long-term debt
    
    
    3,580
    
    
    
    5,843Total current liabilities
    
    
    37,760
    
    
    
    25,241Deferred revenue, less current portion
    
    
    335
    
    
    
    397Capital lease obligations, less current portion
    
    
    
    
    
    
    73Long-term debt, less current portion
    
    
    138
    
    
    
    2,083Facility lease obligation, less current portion
    
    
    8,082
    
    
    
    8,241Convertible senior subordinated notes
    
    
    85,250
    
    
    
    85,250Commitments and contingencies (Note 8)Stockholders equity:Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued or outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 150,000,000 shares authorized, 91,776,175 and 83,258,210 shares
issued and outstanding at September 30, 2008 and December 31, 2007, respectively
    
    
    91
    
    
    
    83Additional paid-in capital
    
    
    568,283
    
    
    
    531,891Accumulated other comprehensive income (loss)
    
    
    (339
    )
    
    
    52Accumulated deficit
    
    
    (554,456
    )
    
    
    (491,649
    )Total stockholders equity
    
    
    13,579
    
    
    
    40,377Total liabilities and stockholders equity
    
    $
    145,144
    
    
    $
    161,662
  3




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##### Table of Contents



DENDREON CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)
 (unaudited)
 Three Months Ended
    
    
    Nine months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    26
    
    
    $
    112
    
    
    $
    83
    
    
    $
    715Operating expenses:Research and development
    
    
    12,660
    
    
    
    13,449
    
    
    
    39,331
    
    
    
    54,780General and administrative
    
    
    4,625
    
    
    
    6,364
    
    
    
    15,720
    
    
    
    20,458Total operating expenses
    
    
    17,285
    
    
    
    19,813
    
    
    
    55,051
    
    
    
    75,238Loss from operations
    
    
    (17,259
    )
    
    
    (19,701
    )
    
    
    (54,968
    )
    
    
    (74,523
    )Other income (expense):Interest income
    
    
    819
    
    
    
    2,022
    
    
    
    2,907
    
    
    
    4,744Interest expense
    
    
    (1,218
    )
    
    
    (1,551
    )
    
    
    (3,995
    )
    
    
    (2,534
    )Loss from valuation of warrant liability
    
    
    (9,119
    )
    
    
    
    
    
    
    (6,751
    )
    
    
    Net loss
    
    $
    (26,777
    )
    
    $
    (19,230
    )
    
    $
    (62,807
    )
    
    $
    (72,313
    )Basic and diluted net loss per share
    
    $
    (0.29
    )
    
    $
    (0.23
    )
    
    $
    (0.71
    )
    
    $
    (0.88
    )Shares used in computation of basic and diluted net loss per share
    
    
    91,723
    
    
    
    82,965
    
    
    
    88,762
    
    
    
    82,356
  4




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##### Table of Contents



DENDREON CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (unaudited)
 Nine months EndedSeptember 30,2008
    
    
    2007Operating Activities:Net loss
    
    $
    (62,807
    )
    
    $
    (72,313
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization expense
    
    
    4,325
    
    
    
    4,719Non-cash stock-based compensation expense
    
    
    4,314
    
    
    
    4,149Amortization of securities discount and premium
    
    
    29
    
    
    
    224Loss (gain) on sale of fixed assets
    
    
    (5
    )
    
    
    42Loss on valuation of warrant liability
    
    
    6,751
    
    
    
    Changes in operating assets and liabilities:Restricted cash related to operating lease
    
    
    1,258
    
    
    
    Prepaid expenses and other assets
    
    
    829
    
    
    
    119Accounts payable
    
    
    (945
    )
    
    
    (1,069
    )Deferred revenue
    
    
    (62
    )
    
    
    (74
    )Accrued liabilities and compensation
    
    
    (5,041
    )
    
    
    (716
    )Net cash used in operating activities
    
    
    (51,354
    )
    
    
    (64,919
    )Investing Activities:Sales and Maturities of investments
    
    
    41,704
    
    
    
    45,787Purchases of investments
    
    
    (42,001
    )
    
    
    (33,505
    )Purchases of property and equipment
    
    
    (4,594
    )
    
    
    (2,406
    )Net cash (used in) provided by investing activities
    
    
    (4,891
    )
    
    
    9,876Financing Activities:Proceeds from common stock offering, net of financing costs
    
    
    45,991
    
    
    
    Proceeds from release of security deposits associated with debt
    
    
    700
    
    
    
    648Proceeds from issuance of debt, net of debt financing costs
    
    
    
    
    
    
    82,257Payments on capital lease obligations
    
    
    (653
    )
    
    
    (851
    )Payments on long-term debt
    
    
    (4,208
    )
    
    
    (3,923
    )Payments on facility lease obligation
    
    
    (124
    )
    
    
    (95
    )Net proceeds from exercise of stock options, warrants and other
    
    
    212
    
    
    
    6,404Issuance of common stock under the Employee Stock Purchase Plan
    
    
    445
    
    
    
    589Net cash provided by financing activities
    
    
    42,363
    
    
    
    85,029Net (decrease) increase in cash and cash equivalents
    
    
    (13,882
    )
    
    
    29,986Cash and cash equivalents at beginning of year
    
    
    75,721
    
    
    
    60,964Cash and cash equivalents at end of period
    
    $
    61,839
    
    
    $
    90,950
  5




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##### Table of Contents



DENDREON CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. BUSINESS, PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
 Business
  Principles of Consolidation
  Basis of Presentation
  6




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##### Table of Contents



Net Loss Per Share
  Reclassifications
  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Research and Development Expenses
  Accounting for Stock-Based Compensation
    7




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##### Table of Contents



Employee Stock Options
    
    Employee Stock Purchase PlanFor the Three Months ended September 30,
    
    For the Three Months ended September 30,2008
    
    2007
    
    2008
    
    2007Weighted average estimated fair value (A)
    
    
    N/A
    
    
    $
    5.61
    
    
    $
    1.22
    
    
    $
    2.14Weighted Average AssumptionsDividend yield (A,B)
    
    
    N/A
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility (A,C)
    
    
    N/A
    
    
    
    93
    %
    
    
    50
    %
    
    
    124
    %Risk-free interest rate (A,D)
    
    
    N/A
    
    
    
    4.7
    %
    
    
    1.6
    %
    
    
    5.0
    %Expected life (A,E)
    
    
    N/A
    
    
    4.8 years
    
    
    0.5 years
    
    
    0.5 years
 Employee Stock Options
    
    Employee Stock Purchase PlanFor the Nine months Ended September 30,
    
    For the Nine months Ended September 30,2008
    
    2007
    
    2008
    
    2007Weighted average estimated fair value
    
    $
    4.34
    
    
    $
    3.29
    
    
    $
    1.25
    
    
    $
    2.04Weighted Average AssumptionsDividend yield (B)
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility (C)
    
    
    91
    %
    
    
    80
    %
    
    
    49
    %
    
    
    124
    %Risk-free interest rate (D)
    
    
    2.5
    %
    
    
    4.7
    %
    
    
    2.0
    %
    
    
    5.0
    %Expected life (E)
    
    4.5 years
    
    
    4.6 years
    
    
    0.5 years
    
    
    0.5 years
 
 (A)
    
    During the quarter ended September 30, 2008, we did not grant stock options; therefore the
above-described assumptions and the weighted average estimated fair value are not applicable
during this period.(B)
    
    We have not paid dividends in the past and do not plan to pay dividends in the near future.(C)
    
    The expected stock price volatility is based on the historical volatility of our stock.(D)
    
    The risk-free interest rate is based on the implied yield available on U.S. Treasury
zero-coupon issues with a term equal to the expected life of the award on the date of grant.(E)
    
    The expected life of the options represents the estimated period of time until exercise and
is based on historical experience of similar awards, giving consideration to the contractual
terms, vesting schedules and expectations of future employee behavior. The expected life of
awards under the employee stock purchase plan represents the purchase period under the plan.  Shares
    
    Weighted-Average
    
    Weighted-AverageSubject to
    
    Exercise Price per
    
    Remaining
    
    Aggregate IntrinsicOptions
    
    Share
    
    Contractual Life
    
    ValueOutstanding, January 1, 2008
    
    
    5,223,439
    
    
    $
    7.10Granted
    
    
    376,564
    
    
    
    6.39Exercised
    
    
    (59,259
    )
    
    
    4.75Forfeited
    
    
    (462,745
    )
    
    
    8.15Outstanding, September 30,
2008
    
    
    5,077,999
    
    
    $
    6.98
    
    
    
    6.22
    
    
    $
    2,515,010Exercisable, September 30,
2008
    
    
    3,544,176
    
    
    $
    7.72
    
    
    
    5.20
    
    
    $
    1,508,847
  Restricted Stock Awards
  8




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##### Table of Contents



2008Weighted AverageGrant Date FairStock Awards
    
    ValueOutstanding at beginning of period
    
    
    1,449,687
    
    
    $
    5.96Granted
    
    
    545,838
    
    
    
    6.35Vested
    
    
    (343,974
    )
    
    
    5.78Forfeited or expired
    
    
    (135,820
    )
    
    
    6.30Outstanding at end of period
    
    
    1,515,731
    
    
    
    6.10
  Fair Value
  Warrant Liability
   9




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3. RECENT ACCOUNTING PRONOUNCEMENTS
   
    
    Long-lived assets measured at fair value due to an impairment assessment under SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets
    
    Asset retirement obligations initially measured under SFAS No. 143, Accounting for Asset
Retirement Obligations
  New Accounting Standard Not Yet Adopted
 
 4. FAIR VALUE MEASUREMENTS
  Level 1 
    
    Observable inputs for identical assets or liabilities such as quoted prices in active markets,Level 2 
    
    Inputs other than quoted prices in active markets that are either directly or indirectly observable, andLevel 3 
    
    Unobservable inputs in which little or no market data exists, therefore developed using estimates and
assumptions developed by us, which reflect those that a market participant would use.
  10




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Quoted Prices in
    
    
    
    
    
    
    SignificantBalance as of
    
    
    Active Markets for
    
    
    Significant Other
    
    
    UnobservableSeptember 30,
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    InputsDescription
    
    2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Money Market
    
    $
    11,866
    
    
    $
    11,866
    
    
    $
    
    
    
    $
    Commercial paper
    
    
    47,470
    
    
    
    
    
    
    
    47,470
    
    
    
    Corporate debt securities
    
    
    27,610
    
    
    
    
    
    
    
    27,610
    
    
    
    Government-sponsored enterprises
    
    
    12,654
    
    
    
    
    
    
    
    12,654
    
    
    
    U.S. Treasury Note
    
    
    4,467
    
    
    
    
    
    
    
    4,467
    
    
    
    Total financial assets
    
    $
    104,067
    
    
    $
    11,866
    
    
    $
    92,201
    
    
    $
    Liabilities:Warrants (Footnote 9 - Equity)
    
    $
    21,313
    
    
    $
    
    
    
    $
    
    
    
    $
    21,313
   Three Months
    
    
    Nine monthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,Description
    
    2008
    
    
    2008Beginning balance
    
    $
    12,194
    
    
    $
    Purchases, issuances, and settlements
    
    
    
    
    
    
    14,562Total loss included in net loss (1)
    
    
    9,119
    
    
    
    6,751Ending balance
    
    $
    21,313
    
    
    $
    21,313
 
 (1)
    
    The loss for the nine months ended September 30, 2008 relates to the revaluation of the
warrant liability from the date of issuance of the Warrants, April 3, 2008, through September
30, 2008. The loss is reflected in our consolidated statements of operations as a component of
other income (expense).   11




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5. PROPERTY AND EQUIPMENT
  September 30,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Furniture and office equipment
    
    $
    1,306
    
    
    $
    1,263Laboratory and manufacturing equipment
    
    
    10,959
    
    
    
    10,905Computer equipment and software
    
    
    9,986
    
    
    
    9,794Leasehold improvements
    
    
    15,686
    
    
    
    15,681Buildings
    
    
    1,730
    
    
    
    1,730Construction in progress
    
    
    13,940
    
    
    
    9,96653,607
    
    
    
    49,339Less accumulated depreciation and amortization
    
    
    (25,879
    )
    
    
    (21,885
    )$
    27,728
    
    
    $
    27,454
  6. ACCRUED LIABILITIES
  September 30,
    
    
    December 31,(in thousands)
    
    2008
    
    
    2007Antigen manufacturing costs
    
    $
    
    
    
    $
    5,987Clinical trial costs
    
    
    1,898
    
    
    
    1,949Accrued interest expense
    
    
    1,181
    
    
    
    169Deferred rent
    
    
    992
    
    
    
    697Construction in progress
    
    
    758
    
    
    
    104Accrued legal costs
    
    
    257
    
    
    
    640Other accrued liabilities
    
    
    2,390
    
    
    
    1,999$
    7,476
    
    
    $
    11,545
 7. CONVERTIBLE SENIOR SUBORDINATED NOTES
  12




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8. COMMITMENTS AND CONTINGENCIES
  McGuire v. Dendreon Corporation, et al. McGuire, et al. v. Dendreon Corporation, et al.,
 13




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Loh v. Gold,
et al. McGuire v. Dendreon Corporation.
    9. EQUITY
   10. COMPREHENSIVE LOSS
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,(in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (26,777
    )
    
    $
    (19,230
    )
    
    $
    (62,807
    )
    
    $
    (72,313
    )Net unrealized gain (loss) on securities
    
    
    (423
    )
    
    
    51
    
    
    
    (391
    )
    
    
    65Comprehensive loss
    
    $
    (27,200
    )
    
    $
    (19,179
    )
    
    $
    (63,198
    )
    
    $
    (72,248
    )
 11. RESTRUCTURING
 14




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BalancePaid
    
    
    
    
    
    
    As ofAt January 1,
    
    
    In
    
    
    
    
    
    
    September 30,Restructuring Charges
    
    2008
    
    
    2008
    
    
    Adjustments
    
    
    2008(In thousands)Severance and outplacement costs
    
    $
    334
    
    
    $
    (289
    )
    
    $
    (39
    )
    
    $
    6
 12. SUBSEQUENT EVENT
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    OVERVIEW
 ®
 15




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16




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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
    Fair Value
  Warrant Liability
   Recent Accounting Pronouncements
   17




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
    
    Long-lived assets measured at fair value due to an impairment assessment under SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets
    
    Asset retirement obligations initially measured under SFAS No. 143, Accounting for Asset
Retirement Obligations
  New Accounting Standard Not Yet Adopted
 
 RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
 Revenue
  Research and Development Expenses
      18




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Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Clinical programs:Direct costs
    
    $
    2.3
    
    
    $
    3.2
    
    
    $
    7.8
    
    
    $
    19.8Indirect costs
    
    
    9.4
    
    
    
    9.4
    
    
    
    28.6
    
    
    
    32.8Total clinical programs
    
    
    11.7
    
    
    
    12.6
    
    
    
    36.4
    
    
    
    52.6Discovery research
    
    
    1.0
    
    
    
    0.8
    
    
    
    2.9
    
    
    
    2.2Total research and development expense
    
    $
    12.7
    
    
    $
    13.4
    
    
    $
    39.3
    
    
    $
    54.8
   
    
    the timeframe over which our projects are likely to be completed,
    
    whether they will be completed,
    
    if they are completed, whether they will provide therapeutic benefit or be approved
for commercialization by the necessary regulatory agencies, or
    
    whether, if approved, they will be scalable to meet commercial demand.
 General and Administrative Expenses
  Interest Income
  Interest Expense
  19




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Warrant Liability
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Uses and Proceeds
     
    
    the development of marketing, manufacturing, information technology and other
infrastructure and activities related to the commercialization of Provenge,
    
    working capital needs,
    
    supporting additional clinical trials of Provenge and for our other products under
development,
    
    operating and expanding the Facility,
    
    increased personnel needs, and
    
    continuing our internal research and development programs.
  Leases and Credit Facility
  20




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Production and Supply Expenses
  Financings from the Sale of Securities and Issuance of Convertible Notes
 Equity Offering Proceeds
   21




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Convertible Notes
     Equity Line Arrangement
  22




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ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
     
 ITEM 4. CONTROLS AND PROCEDURES
     
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  23




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##### Table of Contents



McGuire v. Dendreon Corporation, et
al. McGuire, et al. v. Dendreon Corporation, et al.,
 Loh v. Gold,
et al. McGuire v. Dendreon Corporation.
    
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description10.1
    
    Settlement Agreement and Amendment to the Supply Agreement, dated as of October 24, 2008, by and
between Dendreon Corporation and Diosynth RTP, Inc.31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C § 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 24




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##### Table of Contents



SIGNATURES
   DENDREON CORPORATIONBy:
    
    /s/ MITCHELL H. GOLD, M.D.

Mitchell H. Gold, M.D.President and Chief Executive OfficerBy:
    
    /s/ GREGORY T. SCHIFFMAN

Gregory T. SchiffmanSenior Vice President,Chief Financial Officer and Treasurer(Principal Financial Officer)By:
    
    /s/ GREGORY R. COX

Gregory R. Cox(Principal Accounting Officer)
 25




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    Settlement Agreement and Amendment to the Supply Agreement, dated as of October 24, 2008, by and
between Dendreon Corporation and Diosynth RTP, Inc.31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C § 1350
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 26