Cash is key motive in Dendreon deal

Like many biotech companies, Dendreon has needed a cash infusion to keep its experimental drugs on track. But instead of borrowing, Chief Executive Mitchell Gold bought a company and took its cash.

The Seattle biotech company ended up paying about $80 million in stock. For that, it gets its hands on $63 million in new cash, a cancer and cardiovascular-disease research center in San Diego, and about 25 more employees.

The deal to buy Corvas International took five months to complete — partly because some of Corvas' top shareholders called it unfair and tried to fight it. But yesterday, Gold ended up getting his way.

Shareholders of both companies approved the deal, giving Dendreon a shot of cash that will bring its bankroll up to $130 million after it pays $14 million in Corvas debt, executive severance packages and banking, legal and accounting fees.

Some observers have doubted whether the companies are a scientific match, but the money is critical for Dendreon.

The new cash is enough to keep Dendreon going at its current spending rate into 2006. By that time, Dendreon hopes to have on the market its first drug, Provenge, a treatment that triggers the immune system to attack prostate tumors.

Gold, a former urologist and deal maker who took the top Dendreon job in January, said his company is in line to fill the void left by Immunex, Seattle's former biotech anchor bought by biotech giant Amgen.

"Today is a major transformative event for the company," Gold said. "We're creating a new biotech powerhouse with a range of product candidates and a strong balance sheet."

Under the financial terms, Corvas shareholders will receive 0.45 shares of Dendreon stock for each Corvas share. The value of the all-stock deal is about $80 million, based on yesterday's closing stock prices of $6.38 for Dendreon and $2.87 for Corvas.

About 30 of the 55 Corvas employees in San Diego will lose their jobs, Gold said.

Part of Corvas' research and development was focused on cardiovascular disease, which Dendreon doesn't work on. The Seattle company will look into what to do with that work when results are in from a midstage clinical trial.

Gold said Dendreon will keep Corvas' research into technology that may someday activate high doses of chemotherapy and other drugs to kill tumors and spare healthy tissues, and its work on small molecules against tumors.

The additions will diversify Dendreon's focus into four scientific methods against cancer.

The company will have enough money to hire 25 clinical quality-control and manufacturing workers, people with skills that maturing drug companies need.

Not all shareholders were thrilled with the deal.

Mark Lampert of the Biotechnology Value Fund, which owned about one-fifth of Corvas in the spring, urged Corvas shareholders to reject the offer and liquidate.

Biotech Value Fund spent much of July selling $7 million worth of Corvas stock at $2.68 to $2.96 a share — much higher than the $1.42 it was worth before Dendreon made its offer in February, according to documents filed with the Securities and Exchange Commission.

Biotech Monthly President David Miller, who owns Dendreon shares, opposed the deal because issuing new shares waters down the value of existing shares.

Many shareholders agreed, and they drove Dendreon's stock down 23 percent when the takeover was announced in February.

But a biotech investing rally helped Dendreon gain back ground.

Its stock has quadrupled in the past year as clinical evidence mounted on Provenge's effectiveness in a test of more than 100 patients.

But Dendreon's cash balance had shriveled to $47 million by the end of March, raising questions about whether the company would survive.

Having the new cash answers that and gives Dendreon a stronger bargaining stance with drug-company partners that want a piece of Provenge, Miller said.

"Cash is always good," Miller said.

Luke Timmerman: 206-515-5644 or


Located: Seattle, San Diego

Founded: 1992

Employees: 175; 25 in San Diego

Chief executive: Mitchell Gold

Chairman: Christopher Henney

Cash: $130 million, enough to last into 2006

What it does: Develops cancer drugs; top experimental drug is for prostate cancer.

Source: Securities and Exchange Commission