DENDREON CORP - FORM 10-Q - August 11, 2014

DENDREON CORP - FORM 10-Q - August 11, 2014

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014

¨	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: 001-35546

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.)

1301 2ND AVENUE SEATTLE, WASHINGTON		98101
(Address of registrant’s principal executive offices)		(Zip Code)

(206) 256-4545

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of August 4, 2014 was 160,314,362.

DENDREON CORPORATION

INDEX


	PAGE NO.
PART I. FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
Consolidated Balance Sheets at June 30, 2014 (unaudited) and December 31, 2013		3
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)		4
Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)		5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (unaudited)		6
Notes to Consolidated Financial Statements (unaudited)		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3. Quantitative and Qualitative Disclosures About Market Risk		35
Item 4. Controls and Procedures		35
PART II. OTHER INFORMATION		36
Item 1. Legal Proceedings		36
Item 1A. Risk Factors		37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		59
Item 3. Defaults Upon Senior Securities		60
Item 4. Mine Safety Disclosures		60
Item 5. Other Information		60
Item 6. Exhibits		60
SIGNATURES		61

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DENDREON CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)


	June 30,	December 31,
	2014	2013
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$66,921	$92,530
Short-term investments	60,376	87,092
Trade accounts receivable	30,306	34,560
Inventory	70,031	54,346
Prepaid expenses and other current assets	8,893	15,220

Total current assets	236,527	283,748
Property and equipment, net	113,456	125,168
Long-term investments	9,425	19,819
Other assets	5,221	5,666

Total assets	$364,629	$434,401

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$13,939	$10,459
Accrued liabilities	35,930	33,619
Accrued compensation	15,705	20,144
Restructuring, contract termination and advisory liabilities	4,997	8,793
Current portion of convertible debt	—	27,685
Current portion of capital lease obligations	2,436	2,429
Current portion of facility lease obligations	657	632

Total current liabilities	73,664	103,761
Long-term accrued liabilities	5,630	5,471
Capital lease obligations, less current portion	2,255	3,575
Facility lease obligations, less current portion	9,754	10,123
Convertible senior notes due 2016, net of discount	573,135	559,122
Commitments and contingencies (Note 13)
Stockholders’ deficit:
Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued or outstanding	—	—
Common stock, $0.001 par value; 250,000,000 shares authorized, 160,098,163 and 157,274,622 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively	154	153
Additional paid-in capital	2,002,805	2,003,271
Accumulated other comprehensive income	39	79
Accumulated deficit	(2,302,807)	(2,251,154)

Total stockholders’ deficit	(299,809)	(247,651)

Total liabilities and stockholders’ deficit	$364,629	$434,401

See accompanying notes

DENDREON CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Product revenue, net	$	82,163		$	73,286		$	150,943		$	140,866
Royalty and other revenue		48			29			48			43

Total revenue		82,211			73,315			150,991			140,909
Operating expenses:
Cost of product revenue		37,871			43,798			74,500			87,173
Inventory insurance recovery		(15,566	)		—			(15,566	)		—
Research and development		13,577			18,163			27,572			36,611
Selling, general and administrative		44,939			66,831			84,328			129,277
Restructuring, contract termination and advisory costs		3,059			(304	)		4,905			1,656

Total operating expenses		83,880			128,488			175,739			254,717

Loss from operations		(1,669	)		(55,173	)		(24,748	)		(113,808	)
Other income (expense):
Interest income		52			177			136			395
Interest expense		(13,647	)		(13,886	)		(27,073	)		(27,515	)
Other income (expense)		(5	)		40			32			81

Net loss	$	(15,269	)	$	(68,842	)	$	(51,653	)	$	(140,847	)

Basic and diluted net loss per share	$	(0.10	)	$	(0.45	)	$	(0.34	)	$	(0.93	)

Shares used in computation of basic and diluted net loss per share		154,038			151,812			153,830			151,647

See accompanying notes

DENDREON CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Net loss	$	(15,269	)	$	(68,842	)	$	(51,653	)	$	(140,847	)
Other comprehensive loss:
Net unrealized loss on securities		(14	)		(106	)		(40	)		(162	)

Comprehensive loss	$	(15,283	)	$	(68,948	)	$	(51,693	)	$	(141,009	)

See accompanying notes

DENDREON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2014			2013
Operating Activities:
Net loss	$	(51,653	)	$	(140,847	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		12,535			15,721
Non-cash stock-based compensation expense (contra expense)		(377	)		5,494
Amortization of securities discount and premium		622			1,435
Amortization of convertible notes discount and debt issuance costs		15,119			13,987
Other		157			268
Changes in operating assets and liabilities:
Trade accounts receivable		4,254			2,332
Inventory		(9,570	)		(13,700	)
Prepaid expenses and other assets		(454	)		(5,354	)
Accounts payable		3,480			(5,224	)
Accrued liabilities and compensation		(2,128	)		(4,815	)
Restructuring, contract termination and advisory liabilities		(3,796	)		(8,606	)

Net cash used in operating activities		(31,811	)		(139,309	)
Investing Activities:
Maturities and sales of investments		44,481			110,110
Purchases of investments		(8,029	)		(58,886	)
Purchases of property and equipment		(820	)		(5,121	)

Net cash provided by investing activities		35,632			46,103
Financing Activities:
Payment of convertible senior subordinated notes		(27,685	)		—
Payments on facility lease obligations		(344	)		(335	)
Payments on capital lease obligations		(1,313	)		(3,179	)
Proceeds from deposits		—			87
Issuance of common stock under the Employee Stock Purchase Plan		397			1,006
Net proceeds from the exercise of stock options		—			41
Other		(485	)		(810	)

Net cash used in financing activities		(29,430	)		(3,190	)

Net decrease in cash and cash equivalents		(25,609	)		(96,396	)
Cash and cash equivalents at beginning of period		92,530			188,408

Cash and cash equivalents at end of period	$	66,921		$	92,012

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest	$	11,811		$	13,745

Inventory insurance cash received	$	15,566		$	—

See accompanying notes

DENDREON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BUSINESS, PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

Business

Dendreon Corporation (referred to as “Dendreon,” the “Company,” “we,” “us,” or “our”), a Delaware corporation, is a biotechnology company focused on the discovery, development and commercialization of novel therapeutics that may significantly improve cancer treatment options for patients. Our product portfolio includes active cellular immunotherapies and a small molecule product candidate that could be applicable to treating multiple types of cancers.

PROVENGE^® (sipuleucel-T), is our first commercialized product approved by the United States Food and Drug Administration, and is a first-in-class autologous cellular immunotherapy for the treatment of asymptomatic or minimally symptomatic, metastatic, castrate-resistant (hormone-refractory) prostate cancer. Commercial sale of PROVENGE began in May 2010. Prostate cancer is the most common non-skin cancer among men in the United States, with over one million men currently diagnosed with the disease, and the second leading cause of cancer deaths in men in the United States. We own worldwide rights for PROVENGE.

Principles of Consolidation

The consolidated financial statements include the accounts of Dendreon and its direct and indirect wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited financial statements reflect, in the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of financial position, results of operations and cash flows for each period presented in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from the accompanying statements. These interim financial statements should be read in conjunction with the audited financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”). The accompanying financial information as of December 31, 2013 has been derived from the audited 2013 consolidated financial statements included in the 2013 Form 10-K. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of results that may be expected for the year ending December 31, 2014, or any other future period.

Liquidity Risks and Uncertainties

Our 2016 Notes, as discussed in Note 10 below, have an aggregate principal amount of $620 million and mature on January 15, 2016. Our stock price is well below the $51.24 effective conversion price for the 2016 Notes, making it unlikely that the holders of the 2016 Notes will exercise their conversion right. As a result, we assume that, absent the execution of a transaction of the type described below, we will be required under the terms of the 2016 Notes to repay the full $620 million principal amount at maturity. Based on our currently anticipated operating results, however, and even assuming the realization of future expense reductions that we plan to make and product revenues that we forecast, there is a significant risk that, while we believe we have sufficient cash to meet our ordinary course obligations for at least the next twelve months, we will not be able to repay or refinance the 2016 Notes. Accordingly, we are currently considering alternatives to the repayment of the 2016 Notes in cash, including alternatives that could result in leaving our current stockholders with little or no financial ownership of Dendreon. Our Board of Directors will consider any strategic alternatives that might be presented by third parties, though there can be no guarantee that any such alternative will provide value for the Company’s stockholders.

In addition, our business and operations are subject to various risks relating to our financial condition, some of which could result from concerns our stakeholders may have about our financial situation and others that could result if we were to pursue alternatives to the repayment of the 2016 Notes in cash. These risks include, but are not limited to, the following:

•

certain of our suppliers may attempt to cancel our contracts or restrict ordinary credit terms, require financial assurances of performance or refrain entirely from providing goods or services to us;

•

our employees may become distracted from performance of their duties;

•

physicians could cease to purchase and prescribe PROVENGE;

•

we may have difficulty continuing to obtain and maintain contracts necessary to continue our operations and at affordable rates with competitive terms;

•

we may have difficulty maintaining existing and building new relationships; and

•

we may be unable to retain and motivate key executives and employees and we may have difficulty attracting new employees.

As of June 30, 2014, our accumulated deficit was $2.3 billion and our net loss for six months ended June 30, 2014 was $51.7 million. We have incurred net losses as a result of research and development expenses, clinical trial expenses, contract manufacturing and facility expenses, costs associated with our commercial efforts on behalf of PROVENGE and general and administrative expenses in support of our operations and research efforts. The majority of our resources continue to be used in support of the commercialization of PROVENGE, including outside the United States. Even if we are able to successfully realize our current operating projections, we will likely be unable to repay or refinance the 2016 Notes when they mature. And in any event, we are unable to predict when our core business will break-even or become profitable, if at all. Even if we do produce revenues and achieve profitability, we may not be able to maintain or increase profitability, and our current stockholders may be left with little or no financial interest at such time. We believe we have sufficient cash to meet our ordinary course obligations for at least the next twelve months.

Use of Estimates

Our financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, inventory, investments, fair values of assets, incurred but not reported medical insurance claims, income taxes, financing activities, accruals and other contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

We recognize revenue primarily from the sale of PROVENGE. Revenue from the sale of PROVENGE is recorded net of product returns and estimated price discounts, including rebates and chargebacks offered pursuant to mandatory federal and state government programs and to members of Group Purchasing Organizations (“GPOs”) with which we have contracts. Revenue from sales of PROVENGE is recognized upon confirmed product delivery to and issuance of a product release form to the physician. Product returns are limited to those instances in which the physician receives the product but does not infuse the product prior to expiry, either due to timing or the failure of the product to meet specifications and pass site inspection. Due to the limited usable life of PROVENGE of approximately 18 hours from the completion of the manufacturing process to patient infusion, actual return information is known and credited against sales in the month incurred.

PROVENGE sales are direct to physician; however, we have entered into distribution agreements with several credit-worthy third-party wholesalers (the “Wholesalers”) whereby we manufacture and ship the product direct to the physician and transfer the sale of PROVENGE to the Wholesalers. Under the distribution agreements, the Wholesalers assume all bad debt risk from the physician or institution; therefore no allowance for bad debt is recorded. Under the terms of the distribution agreements, our return policy allows for the return of product that has expired or has a defect prior to delivery, product that is damaged during delivery and product that cannot be infused because it does not otherwise meet specified requirements.

Our product is subject to certain required pricing discounts via rebates and/or chargebacks pursuant to mandatory federal and state government programs and, accordingly, revenue recognition requires estimates of rebates and chargebacks.

We have agreements with the Centers for Medicare and Medicaid Services (“CMS”) providing for a rebate on sales to eligible Medicaid patients. The physician purchases our product at full price, and then receives reimbursement from the applicable state. The state, in turn, invoices us for the amount of the Medicaid rebate. Estimated rebates payable under Medicaid are recognized in the same period that the related revenue is recognized, resulting in a reduction in product revenue, and are classified as other accrued liabilities until paid. Our estimate of rebates payable is based on historical claim information. Medicaid rebates were not material for each period presented.

We also have agreements with the Public Health Service (“PHS”) and Federal Supply Schedule (“FSS”) customers, including the Department of Veteran Affairs and the Department of Defense, providing for a chargeback on sales to eligible providers. Chargebacks occur when a contracted physician purchases our product at fixed contract prices that are lower than the price we charge the Wholesalers. Each Wholesaler, in turn, charges us back for the difference between the price initially paid by the Wholesaler and the contract price paid to the Wholesaler by the physician. These chargebacks are estimated and recorded in the period that the related revenue is recognized, resulting in a reduction in product revenue and trade accounts receivable. The following is a roll forward of the chargebacks reserve associated with the PHS and FSS programs:


	Six Months Ended June 30,
	2014			2013
	(In thousands)
Beginning balance, January 1	$	3,540		$	3,107
Current provision related to sales made in current period		9,469			6,588
Adjustments		(1,064	)		(1,575	)
Payments/credits		(7,544	)		(5,425	)

Balance at June 30	$	4,401		$	2,695


	Six Months Ended June 30,
	2014			2013
	(In thousands)
Beginning balance, January 1	$	1,590		$	182
Current provision related to sales made in current period		8,932			2,835
Current provision related to sales made in prior periods		7			—
Payments/credits		(9,200	)		(2,659	)

Balance at June 30	$	1,329		$	358

Eligible members of the GPOs may also be entitled to receive a rebate on eligible purchases of PROVENGE at the end of each quarter. Estimated rebates and administrative fees payable to GPOs are recognized in the same period that the related revenue is recognized, resulting in a reduction in product revenue, and are classified as other accrued liabilities until paid. Our estimate of rebates payable is based upon information we gather related to sales to eligible GPO members. The following is a roll forward of the accrued GPO rebates and administrative fees balance:


	Six Months Ended June 30,
	2014			2013
	(In thousands)
Beginning balance, January 1	$	1,788		$	1,950
Current provision related to sales made in current period		4,139			3,098
Payments/credits		(3,518	)		(3,435	)

Balance at June 30	$	2,409		$	1,613

Inventory

Inventories are determined at the lower of cost or market value with cost determined under the specific identification method.

We periodically evaluate our inventory for impairment by considering factors such as expiry, obsolescence and net realizable value. We review inventory for expiry risk by evaluating current and future product demand relative to inventory life. We expect to realize the carrying value of our inventory.

In addition, we evaluate our inventory for impairment when events and circumstances indicate that our inventory may not meet the quality specifications required to be used in commercial production. If we determine it is likely that inventory does not meet quality specifications, we record an impairment of this inventory.

Restructuring Expenses

We record a liability for costs associated with an exit or disposal activity at fair value in the period in which the liability is incurred. Employee termination benefits are accrued when the obligation is probable and estimable. Employee termination benefits are expensed at the date the employee is notified unless the employee must provide future service in excess of 60 days, in which case such benefits are expensed ratably over the future service period. For contract termination costs, we record a liability upon the later of the contract termination date or the date we cease using the rights conveyed by the contract.

Impairment of Long-Lived Assets

We periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances indicate that the carrying amount of an asset may not be recovered. When evaluating long-lived assets for impairment, we compare the carrying value of the asset to the asset’s estimated undiscounted future cash flows. Impairment is recorded if the estimated future cash flows are less than the carrying value of the asset. The impairment loss recognized, if any, is the excess of the asset’s carrying value over the fair value of the long-lived asset. The determination of fair value of the assets evaluated for impairment requires the use of judgmental assumptions surrounding the amount and timing of future cash flows and the highest and best use of the assets.

Accounting for Stock-Based Compensation

Stock-based compensation cost is estimated at the grant date based on the award’s fair value and is recognized on the accelerated method as expense over the requisite service period. The fair value of stock options granted and stock issued under the Employee Stock Purchase Plan is calculated using the Black-Scholes-Merton (“BSM”) option pricing model. The BSM model requires various judgmental assumptions regarding volatility and expected option life. If any of the assumptions used in the BSM model change significantly, stock-based compensation expense for new awards may differ materially from that recorded for existing awards.

Restricted stock awards generally vest and are expensed over two- to four-year periods. We have granted restricted stock awards and options with certain performance conditions to certain executive officers and key employees. At each reporting date, we evaluate whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon our assessment of accomplishing each performance provision or the occurrence of other events which may have caused the awards or options to accelerate and vest.

Stock-based compensation accounting also requires the estimate of forfeiture rates. In the first and second quarters of 2014 and 2013, we increased our estimated forfeiture rates based on historical data, resulting in cumulative catch-up adjustments to decrease stock-based compensation expense and net loss by $3.6 million and $5.8 million for the six months ended June 30, 2014 and 2013, respectively. These adjustments decreased basic and diluted net loss per share by $0.02 and $0.04 for the six months ended June 30, 2014 and 2013, respectively.

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding. The calculation of diluted net loss per share excludes all outstanding stock options, unvested restricted stock and shares issuable upon potential conversion of the 2.875% Convertible Senior Notes due 2016 (the “2016 Notes”) in the three and six months ended June 30, 2014 and 2013 and the 4.75% Convertible Senior Subordinated Notes due 2014 (the “2014 Notes”) in the three and six months ended June 30, 2013 because all such securities are anti-dilutive: accordingly, diluted net loss per shares is the same as basic net loss per share. For the three and six months ended June 30, 2014 and 2013, the computation of diluted net loss per share excluded 19.1 million shares and 23.3 million shares, respectively.

Comprehensive Loss

Comprehensive loss includes charges and credits to stockholders’ deficit that are not the result of transactions with stockholders. Comprehensive loss consisted of net loss plus changes in unrealized gain or loss on investments for the three and six months ended June 30, 2014 and 2013.

Loss Contingencies

A loss contingency is recorded if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. We evaluate, among other factors, the probability of an unfavorable outcome and our ability to reasonably estimate the amount of the ultimate loss. Loss contingencies that we determine to be reasonably possible, but not probable, are disclosed but not recorded. Changes in these estimates could materially affect our financial position and results of operations.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2013-11 (“ASU 2013-11”), “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” This standard requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit be presented as a reduction of a deferred tax asset for an NOL carryforward, a similar tax loss, or a tax credit carryforward with certain exceptions to this rule. If certain exception conditions exist, an entity should present an unrecognized tax benefit in the financial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset. The adoption of ASU 2013-11 on January 1, 2014 did not have a material impact on our financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which supersedes the guidance in “Revenue Recognition (Topic 605)” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. We are evaluating the new standard, but do not at this time expect this standard to have a material impact on our consolidated financial statements.

For a more detailed listing of our significant accounting policies, see Note 2 of the consolidated financial statements included in the 2013 Form 10-K.

3. INVESTMENTS

Securities available-for-sale at cost or amortized cost and fair market value by contractual maturity were as follows:


	Cost or Amortized Cost		Fair Market Value
	(In thousands)
June 30, 2014
Due in one year or less	$	60,343	$	60,376
Due after one year through two years		9,419		9,425

	$	69,762	$	69,801

December 31, 2013
Due in one year or less	$	87,027	$	87,092
Due after one year through two years		19,805		19,819

	$	106,832	$	106,911

Gross realized gains and losses on sales of available-for-sale securities were not material for the three and six months ended June 30, 2014 and 2013.

Securities available-for-sale, short-term and long-term, consisted of the following:


	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	(In thousands)
June 30, 2014
Demand deposit	$	5,404	$	—	$	—		$	5,404
Corporate debt securities		45,947		34		(1	)		45,980
Government-sponsored enterprises		14,911		3		—			14,914
U.S. Treasury notes		3,500		3		—			3,503

	$	69,762	$	40	$	(1	)	$	69,801

December 31, 2013
Demand deposit	$	5,404	$	—	$	—		$	5,404
Corporate debt securities		64,867		59		(4	)		64,922
Government-sponsored enterprises		13,064		12		—			13,076
U.S. Treasury notes		23,497		12		—			23,509

	$	106,832	$	83	$	(4	)	$	106,911

None of the securities have been in a continuous unrealized loss position for more than 12 months as of June 30, 2014.

Market values were determined for each individual security in the investment portfolio. We utilize third-party pricing services for all security valuations. We review the pricing methodology, including the collection of market information, used by the third-party pricing services. On a periodic basis, we also review and validate the pricing information received from the third-party providers.

The declines in value of these investments are primarily related to changes in interest rates and are considered to be temporary in nature. We evaluate, among other things, the duration and extent to which the fair value of a security is less than its cost, the financial condition of the issuer, and our intent to sell, or whether it is more likely than not that we will be required to sell the security before recovery of the amortized cost basis. We have the ability and intent to hold these securities to maturity; therefore we do not consider these investments to be other-than-temporarily impaired as of June 30, 2014. Refer to Note 4 – Fair Value Measurements for further discussion.

Investments securing letters of credit in the aggregate amount of $5.4 million as of June 30, 2014 and December 31, 2013 are classified as long-term investments.

4. FAIR VALUE MEASUREMENTS

We measure and report at fair value cash equivalents and investment securities (financial assets). Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy of fair value measurements is described below:

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, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs), and

Level 3 —

Unobservable inputs in which little or no market data exists, therefore determined using estimates and assumptions developed by us, which reflect those that a market participant would use.

The following summarizes financial assets measured at fair value on a recurring basis:


Description	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
*Assets:*	(In thousands)
June 30, 2014
Money market	$	61,901	$	61,901	$	—
Corporate debt securities		45,980		—		45,980
Government-sponsored enterprises		14,914		—		14,914
U.S. Treasury notes		3,503		—		3,503

Total financial assets		126,298	$	61,901	$	64,397

Add: Cash		10,424

Total cash, cash equivalents and investments	$	136,722

December 31, 2013
Money market	$	68,534	$	68,534	$	—
Commercial paper		6,000		—		6,000
Corporate debt securities		64,922		—		64,922
Government-sponsored enterprises		13,076		—		13,076
U.S. Treasury notes		23,509		—		23,509

Total financial assets		176,041	$	68,534	$	107,507

Add: Cash		23,400

Total cash, cash equivalents and investments	$	199,441

Fixed income investment securities are valued using the market approach. We had no Level 3 financial assets for either period presented.

The fair value of the 2016 Notes as of June 30, 2014 and December 31, 2013 was approximately $427.8 million and $393.8 million, respectively, based on the last trading prices as of the respective period end. The fair value estimate for the 2016 Notes is based on Level 2 inputs.

The carrying amounts reflected in the consolidated balance sheets for cash, prepaid expenses, other current assets, accounts payable, accrued expenses and other liabilities approximate fair value due to their short-term nature. In addition, our capital lease obligations approximate fair value based on current interest rates, which contain an element of default risk.

5. INVENTORY

Inventories, stated at the lower of cost or market, consisted of raw materials of $70.0 million as of June 30, 2014 and $54.3 million as of December 31, 2013. Raw materials inventory is expected to be used over approximately 2.6 years as of June 30, 2014.

During the year ended December 31, 2013, we recorded a charge of $46.2 million related to antigen inventory which no longer met quality specification and was not usable for commercial production, or which was determined to be likely to fail such quality specification. We have insurance coverage for up to $30.0 million for antigen losses of the type we believe we have sustained. We have filed an insurance claim to seek recovery for these losses. As of June 30, 2014, we have received $15.6 million in insurance proceeds related to this inventory claim and are pursuing the remaining reimbursement from our insurance carrier. The $15.6 million recovery is included in “Inventory insurance recovery” on our consolidated statement of operations. Reimbursement of the remaining $14.4 million cannot be assured with certainty at this time. We believe no other antigen inventory was at risk of being out of quality specification at June 30, 2014.

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

As of December 31, 2013, there was $5.9 million included in “Prepaid expenses and other current assets” on the consolidated balance sheet related to costs associated with agreements to develop second source suppliers for materials used in the manufacture of PROVENGE, and to qualify a contract manufacturer for production. As of June 30, 2014, there were no costs remaining in prepaid expenses and other current assets associated with these agreements.

7. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:


	June 30, 2014			December 31, 2013
	(In thousands)
Furniture and office equipment	$	2,823		$	2,823
Laboratory and manufacturing equipment		29,495			29,493
Computer equipment and software		71,802			70,976
Leasehold improvements		117,149			117,233
Buildings		17,872			17,872
Construction in progress		424			368

	$	239,565		$	238,765
Less accumulated depreciation		(126,109	)		(113,597	)

	$	113,456		$	125,168

The buildings under our manufacturing facility leases must be restored to original condition upon lease termination. Accordingly, we have accrued the estimated costs of dismantlement and restoration associated with these obligations. The asset retirement obligations related to manufacturing facilities in Orange County, California (the “Orange County Facility”) and in Atlanta, Georgia (the “Atlanta Facility”) are included in “Long-term accrued liabilities” on the consolidated balance sheets.

For further description of the facility leases refer to Note 9 – Financing Obligations and Note 13 – Commitments and Contingencies.

Depreciation expense, including depreciation of assets acquired through capital leases, for the three and six months ended June 30, 2014 was $6.0 million and $12.5 million, respectively and for the three and six months ended June 30, 2013 was $7.9 million and $15.7 million, respectively.

8. ACCRUED LIABILITIES

Accrued liabilities consisted of the following:


	June 30, 2014		December 31, 2013
	(In thousands)
Deferred rent	$	6,499	$	6,886
Inventory receipts		1,447		1,551
Accrued consulting and other services		6,542		7,313
Accrued clinical trials expense		2,827		3,157
Accrued interest		8,170		8,225
Accrued service fees and rebates		3,932		2,899
Other accrued liabilities		6,513		3,588

	$	35,930	$	33,619

9. FINANCING OBLIGATIONS

We lease the Orange County Facility and the Atlanta Facility, but were deemed owner of each of these manufacturing facilities during their construction periods under build-to-suit lease accounting. Upon completion of the facilities, we continued to be the deemed owner, and were required to capitalize building costs related to each facility. We therefore capitalized building costs of $6.7 million related to the Orange County Facility and $6.4 million related to the Atlanta Facility, and recorded corresponding financial obligations. We allocated the lease payments between the building and the land of each facility based upon estimated relative fair values. The portion of the lease payments associated with the building reduces the facility lease obligation, while the portion associated with the land is treated as payment of an operating lease obligation.

The Orange County Facility lease obligation has an extended term of 15.5 years with an effective interest rate of 1.46%. The estimated term is based on an initial 10.5-year term and a 5-year renewal. The Orange County Facility lease may be renewed for up to an additional 20 years beyond the estimated 15.5-year term. The remaining facility lease obligation, based upon the estimated 15.5-year term, was $5.1 million as of June 30, 2014.

The Atlanta Facility lease obligation has an extended term of 15.5 years with an effective interest rate of 3.37%. The estimated term is based on an initial 10.5-year term and a 5-year renewal. The Atlanta Facility lease may be renewed for up to an additional 20 years beyond the estimated 15.5-year term. The remaining facility lease obligation, based upon the estimated 15.5-year term, was $5.3 million as of June 30, 2014.

10. CONVERTIBLE NOTES

2016 Notes

On January 14, 2011, we entered into an underwriting agreement with J.P. Morgan Securities LLC (the “Underwriter”) relating to the offer and sale of $540 million aggregate principal amount of 2016 Notes. Under the terms of the underwriting agreement, we granted the Underwriter an option, exercisable within 30 days of the date of the agreement, to purchase up to an additional $80 million aggregate principal amount of 2016 Notes to cover overallotments. We issued $540 million in aggregate principal amount of 2016 Notes upon the closing of the offering on January 20, 2011. Net proceeds, after payment of underwriting fees and expenses, were $528.8 million. On January 31, 2011, the Underwriter exercised the overallotment option in full, and we closed on the sale of the additional $80 million in principal amount of 2016 Notes on February 3, 2011. Net proceeds from the exercise of the overallotment option, after payment of underwriting fees and expenses, were $78.3 million.

On January 20, 2011, we entered into the First Supplemental Indenture with The Bank of New York Mellon Trust Company, N.A., as trustee, to our existing Base Indenture (together with the First Supplemental Indenture, the “2016 Indenture”), dated March 16, 2007. The 2016 Indenture sets forth the rights and provisions governing the 2016 Notes. Interest at 2.875% per annum is payable on the 2016 Notes semi-annually in arrears on January 15 and July 15 of each year. Record dates for payment of interest on the 2016 Notes are each January 1 and July 1. The maturity date of the 2016 Notes is January 15, 2016, unless earlier converted.

The 2016 Notes are convertible at the option of the holder, and we may choose to satisfy conversions, if any, in cash, shares of our common stock, or a combination of cash and shares of our common stock, based on a conversion rate initially equal to 19.5160 shares of common stock per $1,000 principal amount of 2016 Notes, which is equivalent to an initial conversion price of $51.24 per share. The conversion rate will be increased under certain circumstances described in the 2016 Indenture; however, the number of shares of common stock issued upon conversion of a 2016 Note will not exceed 27.3224 per $1,000 principal amount of 2016 Notes, subject to adjustment in accordance with the 2016 Indenture. Should a holder exercise the conversion option during the next twelve-month period, it is our intention to satisfy the conversion with shares of common stock. Consequently, the 2016 Notes are classified as a long-term liability as of June 30, 2014 and December 31, 2013.

The conversion rate will be adjusted upon the occurrence of certain events, including stock dividends or share splits, the issuance of rights, options or warrants, spin-offs or other distribution of property, cash dividends or distributions, or tender offers or exchange offers. We will not make an adjustment to the conversion rate for any transaction described above (other than share splits or share combinations) if each holder of 2016 Notes has the right to participate in such transaction at the same time and upon the same terms as holders of common stock, and solely as a result of holding 2016 Notes, without having to convert 2016 Notes, as if a number of shares of common stock were held equal to the applicable conversion rate multiplied by the principal amount of 2016 Notes held.

If a “fundamental change,” as defined in the 2016 Indenture, occurs, holders of 2016 Notes may require us to repurchase all or a portion of their 2016 Notes for cash at a repurchase price equal to 100% of the principal amount of 2016 Notes to be repurchased, plus any accrued and unpaid interest and other amounts due thereon. However, if a fundamental change occurs and a holder elects to convert 2016 Notes, we will, under certain circumstances, increase the applicable conversion rate for 2016 Notes surrendered for conversion by a number of additional shares of common stock, based on the date on which the fundamental change occurs or becomes effective and the price paid per share of common stock in the fundamental change as specified in the 2016 Indenture. At our option, we will satisfy our conversion obligation with cash, shares of common stock or a combination of cash and shares, unless the consideration for common stock in any fundamental change is comprised entirely of cash, in which case the conversion obligation will be paid in cash. The number of additional shares of common stock was determined such that the fair value of the additional shares would be expected to approximate the fair value of the convertible option at the date of the fundamental change.

In addition, we may from time to time increase the conversion rate, to the extent permitted by law, by any amount for any period of time if the period is at least 20 business days and we provide 15 business days prior written notice of such increase. We may increase the conversion rate if our Board of Directors determines that such increase would avoid or diminish United States federal income tax to holders of common stock in connection with a dividend or distribution. The 2016 Indenture contains customary covenants.

The 2016 Notes are accounted for in accordance with FASB Accounting Standards Codification 470-20 (“ASC 470-20”), Debt with Conversion and Other Options, under which issuers of certain convertible debt instruments that may be settled entirely or partially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The liability component of the 2016 Notes, as of the issuance date, was calculated by estimating the fair value of a similar liability issued at an 8.1% effective interest rate, which was determined by considering the rate of return investors would require in the Company’s debt structure. The amount of the equity component was calculated by deducting the fair value of the liability component from the principal amount of the 2016 Notes and resulted in a corresponding debt discount. The debt discount is being amortized as interest expense through the earlier of the maturity date of the 2016 Notes or the date of conversions, if any.

The application of ASC 470-20 resulted in the initial recognition of $132.9 million as the debt discount recorded in additional paid-in capital for the 2016 Notes. The net carrying amount of the liability component, which is recorded as a long-term liability in the consolidated balance sheets, and the remaining unamortized debt discount were as follows:


	June 30, 2014			December 31, 2013
	(In thousands)
Aggregate principal amount of 2016 Notes	$	620,000		$	620,000
Unamortized discount of the liability component		(46,865	)		(60,878	)

Carrying amount of the liability component	$	573,135		$	559,122

We incurred debt issuance costs of $12.9 million related to the 2016 Notes. In accordance with ASC 470-20, we allocated $10.1 million of debt issuance costs to the liability component of the 2016 Notes, and are amortizing these costs to interest expense through the earlier of the maturity date of the 2016 Notes or the date of conversions, if any. The remaining debt issuance costs of $2.8 million were allocated to the equity component of the 2016 Notes and recorded as an offset to additional paid-in capital.

Amortization of the debt discount and debt issuance costs resulted in non-cash interest expense of $7.6 million and $15.1 million for the three and six months ended June 30, 2014, respectively, and $7.0 million and $13.9 million for the three and six months ended June 30, 2013, respectively. In addition, interest expense recognized on the 2.875% stated coupon rate was $4.5 million for each of the three months ended June 30, 2014 and 2013, and $8.9 million for each of the six months ended June 30, 2014 and 2013.

We have identified other embedded derivatives associated with the 2016 Notes. These embedded derivatives meet certain criteria and are therefore not required to be accounted for separately from the 2016 Notes.

2014 Notes

In 2007, an aggregate of $85.3 million of 2014 Notes was sold in a private placement to qualified institutional buyers. Proceeds from the offering, after deducting placement fees and expenses of $3.0 million, were $82.3 million. The 2014 Notes were issued at face principal amount and paid interest at 4.75% per annum on a semi-annual basis in arrears on June 15 and December 15 of each year. The maturity date of the 2014 Notes was June 15, 2014, at which time the 2014 Notes were repaid in full.

As of December 31, 2013, the $27.7 million aggregate principal amount of 2014 Notes outstanding was classified as a current liability. We recorded interest expense, including the amortization of debt issuance costs, related to the 2014 Notes of $0.3 million during the three months ended June 30, 2014, $0.4 million during the three months ended June 30, 2013, and $0.7 million during each of the six months ended June 30, 2014 and 2013.

11. STOCK-BASED COMPENSATION

Our equity-based employee incentive plans are described more fully in Note 12 in the 2013 Form 10-K, and in the Definitive Proxy Statement for the 2014 Annual Meeting of Stockholders. Our stock-based awards include non-qualified stock options, incentive stock options, restricted stock, restricted stock units and stock appreciation rights.

We recorded stock-based compensation expense (contra expense) in the consolidated statements of operations as follows:


	Three Months Ended June 30,					Six Months Ended June 30,
	2014			2013		2014			2013
	(In thousands)					(In thousands)
Cost of revenue	$	114		$	106	$	(57	)	$	187
Research and development		(658	)		1,363		(377	)		2,262
Selling, general and administrative		1,846			2,094		(75	)		3,196
Restructuring		—			1		—			9

	$	1,302		$	3,564	$	(509	)	$	5,654

We have granted restricted stock awards and stock options with certain performance conditions to certain executive officers and key employees. At each reporting date, we evaluate whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon our assessment of accomplishing each performance provision or the occurrence of other events which may cause the awards or options to accelerate and vest. For the three and six months ended June 30, 2014 compensation expense related to awards and options with performance conditions was not material. For the three and six months ended June 30, 2013, we recognized $0.3 million and $0.5 million, respectively, of compensation expense related to awards and options with performance conditions.

In the second quarter of 2013, we granted cash-settled stock appreciation rights with a two-year vest period to certain employees. These awards are classified as liabilities and are measured at fair value at each reporting date, with fair value being determined using the BSM model. For the three and six months ended June 30, 2014, we recognized $0.1 million stock-based compensation contra expense related to cash-settled stock appreciation rights. For the three and six months ended June 30, 2013, we recognized $0.2 million of compensation expense related to cash-settled stock appreciation rights. As of June 30, 2014, unrecognized compensation expense related to unvested cash-settled stock appreciation rights was not material. We expect to recognize the remaining compensation expense over a period of 0.9 years.

In the first and second quarters of 2014 and 2013, we increased our estimated forfeiture rates based on historical data, resulting in cumulative catch-up adjustments to decrease stock-based compensation expense and net loss by $3.6 million and $5.8 million for the six months ended June 30, 2014 and 2013, respectively. These adjustments decreased basic and diluted net loss per share by $0.02 and $0.04 for the six months ended June 30, 2014 and 2013, respectively.

The fair value of stock options was estimated at the date of grant using the BSM model with the following weighted average assumptions:


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Weighted average estimated fair value per share	$	1.52		$	2.75		$	2.01		$	3.17
Weighted Average Assumptions
Dividend yield (a)		0.0	%		0.0	%		0.0	%		0.0	%
Expected volatility (b)		82	%		85	%		84	%		85	%
Risk-free interest rate (c)		1.55	%		0.84	%		1.53	%		0.86	%
Expected term (d)		5.0 years			5.0 years			5.0 years			5.0 years

(a)	We have not paid dividends in the past and do not plan to pay dividends in the near future.

(b)	The expected stock price volatility is based on the weighted average historical volatility of our stock.

(c)	The risk-free interest rate is based on the implied yield available on United States Treasury zero-coupon issues with a term equal to the expected life of the award on the date of grant.

(d)

The expected term of options granted represents the estimated period of time until exercise and is based on the historical weighted average term of similar awards, giving consideration to the contractual terms, vesting schedules, expectations of future employee behavior and the terms of certain peer companies.

The following summarizes stock option activity:


	Number of Shares			Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Life (in years)
Outstanding at January 1, 2014		3,008,893		$	15.10
Granted		481,995			4.42
Exercised		—			—
Forfeited and expired		(1,160,793	)		12.90

Outstanding at June 30, 2014		2,330,095			14.15		6.90

Options exercisable at June 30, 2014		1,448,383			17.00		6.20

As of June 30, 2014 we had $1.1 million of unrecognized compensation expense related to unvested stock options, which we expect to recognize over a weighted-average period of 1.0 years. The aggregate intrinsic value of options outstanding and options exercisable as of June 30, 2014 was not material.

The following summarizes restricted stock award activity:


	Number of Shares			Weighted-Average Grant Date Fair Value
Outstanding at January 1, 2014		3,919,972		$	6.94
Granted		3,400,431			2.97
Vested		(1,374,601	)		8.41
Forfeited and expired		(1,278,096	)		4.46

Outstanding at June 30, 2014		4,667,706			3.76

As of June 30, 2014, we had $8.6 million of unrecognized compensation expense related to restricted stock awards, which we expect to recognize over a weighted-average period of 1.3 years.

12. RESTRUCTURING, CONTRACT TERMINATION AND ADVISORY COSTS

Advisory Costs

In 2014, we worked with advisors on alternatives for a possible restructuring of our balance sheet. During the three and six months ended June 30, 2014, we recorded advisory charges of $3.1 million and $3.7 million, respectively, related to fees associated with seeking alternatives.

Restructuring – 2013

On November 12, 2013, we announced a restructuring of the Company and implemented additional cost reduction measures. As a result, during the six months ended June 30, 2014, we recorded restructuring charges of $1.0 million related to fees associated with implementing the restructuring plan. During the six months ended June 30, 2014, we recorded $0.2 million related to severance and other employee termination benefits, net of adjustments for termination benefits not used by employees and severance and termination benefits that will not be paid. Restructuring initiatives were substantially complete as of June 30, 2014.

Restructuring – 2012

On July 30 2012, we announced that our Board of Directors had approved a strategic restructuring plan that included re-configuring our manufacturing model with the closure of our manufacturing facility in Morris Plains, New Jersey (the “New Jersey Facility”), restructuring administrative functions and strengthening commercial functions, which lowered our overall cost structure. The restructuring initiatives included a reduction in workforce of approximately 600 full-time and contractor positions. The employees affected by the workforce reduction were notified the week of September 17, 2012.

On December 20, 2012, we announced the sale of the New Jersey Facility to Novartis Pharmaceuticals Corporation (“Novartis”) for $43.0 million. As part of the agreement with Novartis, approximately 100 employees at the facility who were previously included in the workforce reduction were offered jobs with Novartis.

During the three and six months ended June 30, 2013, we recorded charges of $0.2 million and $1.4 million, respectively, related to severance and other termination benefits. These charges were offset by adjustments to reduce the restructuring liability by $0.9 million and $1.2 million for the three and six months ended June 30, 2013, respectively, related to termination benefits not used by employees and to severance and termination benefits that were not paid. In addition, we recorded restructuring charges of $0.6 million and $1.6 million during the three and six months ended June 30, 2013, respectively, related to relocation benefits offered to employees, expenses associated with the closure of the New Jersey Facility, contract termination expenses and other related expenses. We do not expect to incur additional restructuring charges related to the 2012 restructuring as the implementation of these initiatives is complete.

Contract Termination – 2011

On September 1, 2011 we provided written notice to GlaxoSmithKline LLC (“GSK”) of termination of a Development and Supply Agreement (the “GSK Agreement”) effective on October 31, 2011. We entered into the GSK Agreement for the commercial production and supply of the antigen used in the manufacture of PROVENGE. We exercised our right to terminate the GSK Agreement when, after unforeseen delays, GSK failed to complete the process implementation phase on or before September 1, 2011 pursuant to the terms of the GSK Agreement.

Refer to Note 13 – Commitments and Contingencies, for discussion of a lawsuit filed in the Durham County Superior Court of North Carolina against the Company by GSK. We have accrued approximately $4.0 million in fees in connection with the termination of the GSK Agreement. This amount is included in “Restructuring, contract termination and advisory liabilities” on the consolidated balance sheets as of June 30, 2014 and December 31, 2013. The ultimate financial impact of the lawsuit is not yet determinable. Therefore, no additional provision for loss has been recorded in the financial statements.

The following is a rollforward of restructuring, contract termination and advisory liabilities:


	Restructuring, Contract Termination and Advisory Liabilities as of December 31, 2013		Charges, Net of Adjustments		Payments			Restructuring, Contract Termination and Advisory Liabilities as of June 30, 2014
	(In thousands)
*Advisory costs:*
Advisory costs		—		3,738		(3,117	)		621
*2013 Restructuring:*
Severance and other termination benefits	$	4,362	$	217	$	(4,431	)	$	148
Other associated costs		289		950		(1,153	)		86
*2012 Restructuring:*
Other associated costs		142		—		—			142
*2011 Restructuring:*
Contract termination costs		4,000		—		—			4,000

Total	$	8,793	$	4,905	$	(8,701	)	$	4,997

Total restructuring, contract termination and advisory charges of $4.9 million are included in “Restructuring, contract termination and advisory costs” on the consolidated statement of operations for the six months ended June 30, 2014.

13. COMMITMENTS AND CONTINGENCIES

As previously disclosed, our 2016 Notes in an aggregate principal amount of $620 million mature on January 15, 2016. Our stock price is well below the $51.24 effective conversion price for the 2016 Notes, making it unlikely that the holders of the 2016 Notes will exercise their conversion right. As a result, we assume that, absent the execution of a transaction of the type described below, we will be required under the terms of the 2016 Notes to repay the full $620 million principal amount at maturity. Based on our currently anticipated operating results, however, and even assuming the realization of future expense reductions that we plan to make and product revenues that we forecast, there is a significant risk that, while we believe we have sufficient cash to meet our ordinary course obligations for at least the next twelve months, we will not be able to repay or refinance the 2016 Notes. Accordingly, we are currently considering alternatives to the repayment of the 2016 Notes in cash, including alternatives that could result in leaving our current stockholders with little or no financial ownership of Dendreon. Our Board of Directors will consider any strategic alternatives that might be presented by third parties, though there can be no guarantee that any such alternative will provide value for the Company’s stockholders.

We have a supply agreement with Fujifilm Diosynth Biotechnologies (“Fujifilm”) covering the commercial production of the recombinant antigen used in the manufacture of PROVENGE. The second amendment to the supply agreement extended the term of the agreement through December 31, 2018. Unless terminated, the agreement will renew automatically thereafter for additional 5-year terms. The agreement may be terminated upon written notice by us or Fujifilm at least 24 months before the end of a renewal term or by either party in the event of an uncured material breach or default by the other party.

As of June 30, 2014, we had remaining commitments with Fujifilm to purchase antigen not to exceed and most likely less than $6.7 million. We expect that payments on this commitment will continue through 2014.

We have been self-insured since January 1, 2014 with regard to health and welfare claims up to $250,000 per person per year, above which third party insurance applies. A reserve of $1.4 million representing estimated reported losses, estimated unreported losses based on past experience modified for current trends, and estimated expenses for settling claims is included in accrued liabilities at June 30, 2014. Actual losses may vary from the recorded reserves. While we use what we believe are pertinent information and factors in determining the amount of reserves, future additions to the reserves may be necessary due to changes in the information and factors used.

We have operating lease obligations related to two leases in Seattle, Washington which cover our principal corporate offices and research facility, a corporate office lease in Bridgewater, New Jersey, and the land portions of the Orange County Facility and the Atlanta Facility.

In February 2011, we entered into a lease for office space of 179,656 square feet in Seattle, Washington with an initial lease term of five and a half years and one renewal term of two and a half years. In July 2012, we amended the lease to reduce the premises to 158,081 square feet. The related rent reduction took effect in November 2012. In April 2013, we amended the lease to further reduce the premises to 112,915 square feet. Rent payments related to the space relinquished in April 2013 cease effective October 2013 and August 2014. In addition, in April 2013 and November 2013, we subleased to two separate third parties 22,583 square feet each at these premises, commencing in May 2013 and December 2013, and continuing through the remaining lease term.

In February 2011, we entered into a sublease for laboratory and office space of 97,365 square feet in Seattle, Washington. The lease term is for eight years. In July 2012, we entered into a lease for office space of 39,937 square feet in Bridgewater, New Jersey. The initial lease term is for ten years, with one renewal term of five years.

In August 2009, we entered into an agreement to lease the Orange County Facility, comprising approximately 184,000 square feet, for use as a manufacturing facility following build-out. The initial lease term is ten and a half years, expiring in December 2019, with five renewal terms of five years each. In July 2009, we entered into an agreement to lease the Atlanta Facility, comprising approximately 156,000 square feet, for use as a manufacturing facility following build-out. The initial lease term is ten and a half years, with five renewal terms of five years each.

We account for the Orange County Facility and the Atlanta Facility as assets with related facility lease obligations due to our significant investment in the build-out of the facilities. The lease payments are allocated to the building and land based on their estimated relative fair values. The portion of the lease related to land is treated as an operating lease. The portion of the lease related to the building is treated as a facility lease obligation as further discussed in Note 9 – Financing Obligations.

As described in Note 5 – Inventory, for the year ended December 31, 2013, we recorded a charge of $46.2 million related to antigen inventory which no longer met quality specification and was not usable for commercial production, or which was determined to be likely to fail such quality specification. We have insurance coverage for up to $30.0 million for antigen losses of the type we believe we have sustained. We have filed an insurance claim to seek recovery for these losses. As of June 30, 2014, we have received $15.6 million in insurance proceeds related to this inventory claim and are pursing the remaining reimbursement from our insurance carrier. The $15.6 million recovery is included in “Inventory insurance recovery” on our consolidated statement of operations. Reimbursement of the remaining $14.4 million cannot be assured with certainty at this time. We believe no other antigen inventory was at risk of being out of quality specification at June 30, 2014.

The Company and three former officers are named defendants in a securities action pending in the United States District Court for the Western District of Washington (the “District Court”) and brought by a group of individual investors who elected to opt out of a securities class action lawsuit that was settled in August 2013. The pending action, filed May 16, 2013, is captioned Christoph Bolling, et al. v. Dendreon Corporation, et al., Case No. 2:13-cv-0872 JLR. Plaintiffs allege generally that the Company made various false or misleading statements between April 29, 2010 and August 3, 2011 concerning the Company, its finances, business operations and prospects with a focus on the market launch of PROVENGE and related forecasts concerning physician adoption, and revenue from sales of PROVENGE. Based on information provided informally by plaintiffs’ counsel, the plaintiff group, which totals approximately 30 persons, purports to have purchased approximately 250,000 shares of Dendreon common stock during the relevant period. The Bolling plaintiffs filed an amended complaint on July 16, 2013, alleging both violations of certain provisions of the federal Securities Exchange Act of 1934 and provisions of Washington state law and seeking unspecified damages. In response to a motion by defendants, the federal claims were dismissed with leave to amend in January 2014. On February 17, 2014, plaintiffs filed a Second Amended Complaint which defendants moved to dismiss on March 24, 2014. After briefing, the District Court, by order dated June 5, 2014, again dismissed the federal claims, but denied the motion as to the plaintiffs’ Washington state law claims for fraudulent and negligent misrepresentation. The case is now in the discovery phase. We cannot predict the outcome of the litigation; however, the Company intends to continue defending against claims vigorously.

various derivative actions reached a tentative settlement of the actions, the terms of which are set out in a Memorandum of Understanding dated as of July 18, 2014. The settlement is subject to final documentation and court approval. We cannot predict whether the process of full settlement documentation and court approval will be successful. In any event, the purported derivative lawsuits do not seek relief against the Company although the Company has certain indemnification obligations, including obligations to advance legal expense to the named defendants for defense of these lawsuits. Additionally, the Securities and Exchange Commission (“SEC”) is conducting a formal investigation, which we believe relates to some of the same issues raised in the securities and derivative actions. We are cooperating fully with the SEC investigation. The ultimate financial impact of these various proceedings, if any, is not yet determinable and therefore, no provision for loss, if any, has been recorded in the financial statements. With respect to all of the above-described proceedings, the Company has insurance that we believe affords coverage for much of the anticipated costs, subject to the policies’ terms and conditions.

On March 7, 2014, a stockholder derivative complaint was filed in United States District Court for the District of Delaware. The lawsuit, captioned Quintal v. Bayh, et al., No. 1:14-cv-00311-LPS, names as defendants both present and former members of the Company’s Board of Directors. Plaintiff’s purported derivative complaint alleges that members of the Company’s Board of Directors violated the terms of the Company’s 2009 Equity Incentive Plan by granting to non-employee directors shares of Company stock that vested immediately upon grant as part of the non-employee director’s annual compensation package. Defendants filed a motion to dismiss the complaint on April 14, 2014. The Court heard oral argument on Defendants’ motion on July 29, 2014, and the motion is now under submission. We cannot predict the outcome of the motion to dismiss or the timing of the action. While the Company has certain indemnification obligations, including obligations to advance legal expense to the named defendants for defense of this lawsuit, the lawsuit does not seek monetary relief against the Company.

The Company received notice in November 2011 of a lawsuit filed in the Durham County Superior Court of North Carolina (the “Court”) against the Company by GSK. The lawsuit purports claims for monies due and owing and breach of the Company’s obligations under the GSK Agreement terminated as of October 31, 2011. On April 9, 2013, GSK amended its complaint to add a claim for breach of North Carolina’s unfair and deceptive trade practices act. The Company does not believe the lawsuit has merit, filed a Counterclaim and Answer on January 6, 2012, and intends to defend its position vigorously. On March 11, 2014, the Court held oral argument on GSK’s motion for summary judgment on its breach of contract claim and the Company’s cross motion for summary judgment on GSK’s contract claim as well as its unfair and deceptive trade practices claim. The Court has not yet issued a ruling on the parties’ cross motions. On June 11 2014, GSK filed a separate motion for summary judgment on the Company’s counterclaims. The Company intends to oppose that motion, which will be fully briefed by mid-August. The Company has accrued approximately $4.0 million in fees in connection with the termination of the GSK Agreement. The ultimate financial impact of the lawsuit is not yet determinable. Therefore, no additional provision for loss has been recorded in the financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements concerning matters that involve risks and uncertainties. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended. These forward-looking statements concern matters that involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Words such as “believes,” “expects,” “likely,” “may” and “plans” are intended to identify forward-looking statements, although not all forward-looking statements contain these words.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We are under no duty to update any of the forward-looking statements after the date hereof to conform such statements to actual results or to changes in our expectations.

The following discussion should be read in conjunction with the financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q. In addition, readers are urged to carefully review and consider the various disclosures made by us regarding important factors that affect our business, including without limitation the disclosures set forth under the heading “Risk Factors” in this report, as well as the disclosures in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”), including the audited financial statements and the notes thereto and disclosures made under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

OVERVIEW

We are a biotechnology company focused on the discovery, development and commercialization of novel therapeutics that may significantly improve cancer treatment options for patients. Our product portfolio includes active cellular immunotherapies and a small molecule product candidate that could be applicable to treating multiple types of cancers.

PROVENGE^® (sipuleucel-T) is our first commercialized product approved by the United States Food and Drug Administration (“FDA”), and is a first-in-class autologous cellular immunotherapy for the treatment of asymptomatic or minimally symptomatic, metastatic, castrate-resistant (hormone-refractory) prostate cancer. Prostate cancer is the most common non-skin cancer among men in the United States, with over one million men currently diagnosed with the disease, and the second leading cause of cancer deaths in men in the United States. We own worldwide rights for PROVENGE.

Commercial sale of PROVENGE began in May 2010. Approximately 970 parent accounts, some of which have multiple sites, had infused our product as of June 30, 2014. Commercial sale of PROVENGE is currently supported by manufacturing facilities in Orange County, California (the “Orange County Facility”) and Atlanta, Georgia (the “Atlanta Facility”). We also manufactured PROVENGE at a manufacturing facility in Morris Plains, New Jersey (the “New Jersey Facility”) into December 2012, at which time we sold the New Jersey Facility to Novartis Pharmaceuticals Corporation (“Novartis”) for $43.0 million.

Prior to the sale of the New Jersey Facility, we announced on July 30, 2012 that we had initiated a strategic restructuring plan that included re-configuring our manufacturing model with the closure of the New Jersey Facility, restructuring administrative functions and strengthening commercial functions, which lowered our overall cost structure. The implementation of these restructuring initiatives has been completed.

On November 12, 2013, we announced the restructuring plan of the Company and implemented additional cost reduction measures. As a result of this restructuring plan, we recorded restructuring charges of $1.2 million related to severance, other employee termination benefits and fees associated with implementing the restructuring plan in the six months ended June 30, 2014. The restructuring initiatives were substantially complete as of June 30, 2014.

Additionally in 2014, we worked with advisors on alternatives for a possible restructuring of our balance sheet. During the three and six months ended June 30, 2014, we recorded advisory charges of $3.1 million and $3.7 million, respectively, related to fees associated with seeking alternatives.

On September 17, 2013, we announced that the European Commission has granted marketing authorization for PROVENGE (autologous peripheral blood mononuclear cells activated with PAP-GM-CSF or sipuleucel-T) dispersion for infusion in the European Union (the “E.U.”) for the treatment of asymptomatic or minimally symptomatic metastatic (non-visceral) castrate resistant prostate cancer in male adults in whom chemotherapy is not yet clinically indicated. The marketing authorization provides approval for the commercialization of PROVENGE in all 28 countries of the E.U. as well as Norway, Iceland and Liechtenstein. We plan to manufacture product through a contract manufacturing organization. In Germany and the United Kingdom, Dendreon will make PROVENGE commercially available to patients within the approved label through Centers of Excellence using its Contract Manufacturing Organization, PharmaCell. Centers of Excellence are institutions where a high volume of prostate cancer patients are treated by leading prostate cancer experts. These centers will be located in larger cities, which will allow for convenient patient access. In some cases, a Center of Excellence may be a co-op group of institutions. Following the implementation of automation, which will enable Dendreon to manufacture more cost effectively, the Company will explore opportunities to make PROVENGE more broadly available in Europe and other world markets.

As of June 30, 2014, we had approximately 710 employees. Our manufacturing operations consisted of approximately 385 employees as of such date, a decrease from 495 employees as of June 30, 2013 due to the 2013 restructuring, workforce reduction and employee turnover. Our commercial team included approximately 110 employees in sales, marketing, and market access support as of June 30, 2014, a decrease from 175 employees as of June 30, 2013.

As previously disclosed, our 2.875% Convertible Senior Notes due 2016 (the “2016 Notes”), in an aggregate principal amount of $620 million, mature on January 15, 2016. Our stock price is well below the $51.24 effective conversion price for the 2016 Notes, making it unlikely that the holders of the 2016 Notes will exercise their conversion right. As a result, we assume that, absent the execution of a transaction of the type described below, we will be required under the terms of the 2016 Notes to repay the full $620 million principal amount at maturity. Based on our currently anticipated operating results, however, and even assuming the realization of future expense reductions that we plan to make and product revenues that we forecast, there is a significant risk that, while we

believe we have sufficient cash to meet our ordinary course obligations for at least the next twelve months, we will not be able to repay or refinance the 2016 Notes. Accordingly, we are currently considering alternatives to the repayment of the 2016 Notes in cash, including alternatives that could result in leaving our current stockholders with little or no financial ownership of Dendreon. Our Board of Directors will consider any strategic alternatives that might be presented by third parties, though there can be no guarantee that any such alternative will provide value for the Company’s stockholders.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We make judgmental decisions and estimates with underlying assumptions when applying accounting principles to prepare our consolidated financial statements. Certain critical accounting policies requiring significant judgments, estimates, and assumptions are detailed below. We consider an accounting estimate to be critical if (1) it requires assumptions to be made that are uncertain at the time the estimate is made and (2) changes to the estimate or different estimates that could have reasonably been used would have materially changed our consolidated financial statements. The development and selection of these critical accounting policies have been reviewed with the Audit Committee of our Board of Directors.

We believe the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate. However, should our actual experience differ from these assumptions and other considerations used in estimating these amounts, the impact of these differences could have a material impact on our consolidated financial statements.

Revenue Recognition

We have agreements with the Centers for Medicare and Medicaid Services (the “CMS”) providing for a rebate on sales to eligible Medicaid patients. The physician purchases our product at full price, and then receives reimbursement from the applicable state. The state, in turn, invoices us for the amount of the Medicaid rebate. Estimated rebates payable under Medicaid are recognized in the same period that the related revenue is recognized, resulting in a reduction in product revenue, and are classified as other accrued liabilities until paid. Our estimate of rebates payable is based on historical claim information. Since there is often a delay between product sale and the processing and payment of Medicaid rebates, we evaluate our estimates regularly, and adjust them as necessary.

We also have agreements with the Public Health Service (“PHS”) and Federal Supply Schedule (“FSS”) customers, including the Department of Veteran Affairs and the Department of Defense (the “DoD”), providing for a chargeback on sales to eligible providers. Chargebacks occur when a contracted physician purchases our product at fixed contract prices that are lower than the price we charge the Wholesalers. Each Wholesaler, in turn, charges us back for the difference between the price initially paid by the Wholesaler and the contract price paid to the Wholesaler by the physician. These chargebacks are estimated and recorded in the period that the related revenue is recognized, resulting in a reduction in product revenue and trade accounts receivable. Our estimate of chargebacks is based on information we gather related to the physician site.

We have entered into agreements with certain GPOs that contract for the purchase of PROVENGE on behalf of their members and provide contract administration services. Eligible members of the GPOs purchase PROVENGE at contracted prices through a chargeback. These chargebacks are estimated and recorded in the period that the related revenue is recognized, resulting in a reduction in product revenue and trade accounts receivable. Eligible members of the GPOs may also be entitled to receive a rebate on eligible purchases of PROVENGE at the end of each quarter. Estimated rebates and administrative fees payable to GPOs are recognized in the same period that the related revenue is recognized, resulting in a reduction in product revenue, and are classified as other accrued liabilities until paid. Our estimate of rebates payable is based upon information we gather related to sales of our product to eligible GPO members.

Inventory

Inventories are determined at the lower of cost or market value with cost determined under the specific identification method.

We periodically evaluate inventory for impairment by considering factors such as expiry, obsolescence and net realizable value. We review inventory for expiry risk by evaluating current and future product demand relative to inventory life. The estimated remaining life of raw material inventory was approximately 2.6 years as of June 30, 2014. We expect to realize the carrying value of inventory.

In addition, we evaluate inventory for impairment when events and circumstances indicate that inventory may not meet the quality specifications required to be used in commercial production. If we determine it is likely that inventory does not meet quality specifications, we record an impairment of this inventory.

Restructuring Expenses

Impairment of Long-Lived Assets

Convertible Senior Notes due 2016

The 2016 Notes are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 470-20 (“ASC 470-20”), Debt with Conversion and Other Options, under which issuers of certain convertible debt instruments that may be settled entirely or partially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The liability component of the 2016 Notes, as of the issuance date, was calculated by estimating the fair value of a similar liability issued at an 8.1% effective interest rate, which was determined by considering the rate of return investors would require in the Company’s debt structure. The amount of the equity component was calculated by deducting the fair value of the liability component from the principal amount of the 2016 Notes and resulted in a corresponding debt discount. The debt discount is being amortized as interest expense through the earlier of the maturity date of the 2016 Notes or the date of conversions, if any.

Fair Value

Assets and liabilities typically recorded at fair value on a non-recurring basis include long-lived assets measured at fair value due to an impairment assessment under ASC 360-10, Property, Plant and Equipment, and asset retirement obligations initially measured under ASC 410-20, Asset Retirement and Environmental Obligations.

Accounting for Stock-Based Compensation

Loss Contingencies

Recent Accounting Pronouncements

In July 2013, the FASB issued Accounting Standards Update 2013-11, (“ASU 2013-11”), “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” This standard requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit be presented as a reduction of a deferred tax asset for an NOL carryforward, a similar tax loss, or a tax credit carryforward with certain exceptions to this rule. If certain exception conditions exist, an entity should present an unrecognized tax benefit in the financial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset. The adoption of ASU 2013-11 on January 1, 2014 did not have a material impact on our financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” which supersedes the guidance in “Revenue Recognition (Topic 605)” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. We are evaluating the new standard, but do not at this time expect this standard to have a material impact on our consolidated financial statements.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2014 AND 2013

Revenue


	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(In thousands)				(In thousands)
Product revenue, net	$	82,163	$	73,286	$	150,943	$	140,866
Royalty and other revenue		48		29		48		43

Total revenue	$	82,211	$	73,315	$	150,991	$	140,909

Net product revenue from the commercial sale of PROVENGE was $82.2 million and $150.9 million for the three and six months ended June 30, 2014, respectively, and $73.3 million and $140.9 million for the three and six month ended June 30, 2013, respectively. Of this increase in net product revenue for the six months ended June 30, 2014, approximately $6.5 million resulted from price increases and approximately $3.6 million resulted from volume increases. Approximately 970 parent accounts, some of which have multiple sites, had infused our product as of June 30, 2014.

Revenue from the sale of PROVENGE is recorded net of product returns and estimated pricing discounts via rebates and/or chargebacks offered pursuant to mandatory federal and state government programs and to members of GPOs. Revenue recognition requires estimates of rebates and chargebacks each period. We recorded estimated rebates, chargebacks and GPO administrative fees of $11.4 million and $21.7 million for the three and six months ended June 30, 2014, respectively, and $5.8 million and $11.2 million for the three and six months ended June 30, 2013, respectively.

The following is a roll forward of our chargebacks reserve associated with the PHS and FSS programs:


	Six Months Ended June 30,
	2014			2013
	(In thousands)
Beginning balance, January 1	$	3,540		$	3,107
Current provision related to sales made in current period		9,469			6,588
Adjustments		(1,064	)		(1,575	)
Payments/credits		(7,544	)		(5,425	)

Balance at June 30	$	4,401		$	2,695

The following is a roll forward of our chargebacks reserve associated with the GPO programs:


	Six Months Ended June 30,
	2014			2013
	(In thousands)
Beginning balance, January 1	$	1,590		$	182
Current provision related to sales made in current period		8,932			2,835
Current provision related to sales made in prior periods		7			—
Payments/credits		(9,200	)		(2,659	)

Balance at June 30	$	1,329		$	358

The following is a roll forward of our accrued GPO rebates and administrative fees balance:


	Six Months Ended June 30,
	2014			2013
	(In thousands)
Beginning balance, January 1	$	1,788		$	1,950
Current provision related to sales made in current period		4,139			3,098
Payments/credits		(3,518	)		(3,435	)

Balance at June 30	$	2,409		$	1,613

Cost of Product Revenue


	Three Months Ended June 30,					Six Months Ended June 30,
	2014			2013		2014			2013
	(In thousands)					(In thousands)
Cost of product revenue	$	37,871		$	43,798	$	74,500		$	87,173
Inventory insurance recovery		(15,566	)		—		(15,566	)		—
Gross profit (1)		59,858			29,488		92,009			53,693

(1)	Gross profit is calculated by subtracting cost of product revenue from net product revenue and adjusting for inventory insurance recovery.

Cost of product revenue includes the costs of manufacturing and distributing PROVENGE. Costs related to the manufacture of PROVENGE for clinical patients are classified as research and development expense. The decrease in cost of product revenue for the three and six months ended June 30, 2014 compared to 2013 was primarily due to reduced headcount and other cost saving restructuring activities.

During the year ended December 31, 2013, we recorded a charge of $46.2 million related to antigen inventory which no longer met quality specification and was not usable for commercial production, or which was determined to be likely to fail such quality specification. We have insurance coverage for up to $30.0 million for antigen losses of the type we believe we have sustained, although reimbursement cannot be assured with certainty at this time. We have filed an insurance claim to seek recovery for these losses. As of June 30, 2014, we have received $15.6 million in insurance proceeds related to this inventory claim and are waiting for the remaining reimbursement from our insurance carrier. This recovery is included in “Inventory insurance recovery” on our consolidated statement of operations. We believe no other antigen inventory was at risk of being out of quality specification at June 30, 2014.

Gross margins on new product introductions generally increase over the life of the product as utilization of capacity increases and manufacturing efforts on product cost reduction are successful.

We anticipate that year to date cost of product revenue as a percentage of revenue for the remainder of 2014 will remain relatively consistent with the current quarter results.

Research and Development Expenses

Research and development expenses were $13.6 million and $27.6 million for the three and six months ended June 30, 2014, respectively, and $18.2 million and $36.6 million for the three and six months ended June 30, 2013, respectively. Expenses related to our research and development activities are categorized as costs associated with clinical programs, supplier development and research programs. Research and development expenses were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(In millions)				(In millions)
Clinical programs	$	7.8	$	9.7	$	15.6	$	19.5
Supplier development expenses		0.4		2.1		2.0		4.1
Research programs		5.4		6.4		10.0		13.0

Total research and development expense	$	13.6	$	18.2	$	27.6	$	36.6

The decrease in total research and development expenses for the three and six months ended June 30, 2014 as compared to the respective periods in 2013 was primarily a result of the restructuring plan announced on November 12, 2013. Research and development costs associated with clinical programs include clinical trial site costs, clinical manufacturing costs, costs incurred for consultants and other outside services, such as data management and statistical analysis support, materials and supplies used in support of clinical programs and employee-related expenses of departments supporting clinical programs. Costs attributable to supplier development expenses include technology transfer and process development costs related to developing second source suppliers. Costs attributable to research programs represent efforts to develop and expand our product pipeline and other research efforts. The costs in each category may change in the future and new categories may be added.

The significant majority of historical research and development expense has been in connection with PROVENGE in the United States. In 2011, we commenced work in connection with our intention to seek approval of PROVENGE for marketing in the E.U. In September 2013, we announced the approval of PROVENGE in the E.U. Research and development costs associated with PROVENGE in the United States and in the E.U. for each period presented were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(In millions)				(In millions)
PROVENGE- United States	$	11.8	$	12.7	$	22.3	$	27.1
PROVENGE- European Union		1.3		3.7		3.6		6.9

	$	13.1	$	16.4	$	25.9	$	34.0

Current product candidates and potential targets for the focus of new product candidates in research and development include:

•

DN24-02, our investigational active cellular immunotherapy which potentially may be used for the treatment of patients with bladder, breast, ovarian and other solid tumors expressing HER2/neu. In December 2010, we filed an Investigational New Drug (“IND”) application with the FDA for DN24-02 for the treatment of HER2+ urothelial carcinoma, including bladder cancer, following surgical resection. The trial will randomize patients to DN24-02 or standard of care, with a primary endpoint of overall survival. We enrolled our first patient in this trial in September 2011.

•

Active cellular immunotherapies directed at CA-9, an antigen highly expressed in renal cell carcinoma, and CEA, an antigen expressed in colorectal and other cancers, are in our portfolio. We currently do not have active clinical programs related to the use of active cellular immunotherapy product candidates targeted at CA-9 or CEA.

•

TRPM8 (Transient Receptor Potential, sub-family M), a target for manipulation by small molecule drug therapy. We have developed an orally-available, small molecule targeting TRPM8 that could be applicable to treating multiple types of cancer. We completed our Phase 1 clinical trial in April 2012. We currently do not have active clinical programs related to the small molecule targeting TRPM8

Research and development costs incurred related to these product candidates and potential targets were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
	(In millions)				(In millions)
DN24-02	$	0.5	$	1.7	$	1.6	$	2.4
Other pipeline development		—		0.1		0.1		0.2

	$	0.5	$	1.8	$	1.7	$	2.6

Research and development costs associated with CEA for each period presented were not material.

The nature and efforts required to complete a prospective research and development project are typically indeterminable at very early stages when research is primarily conceptual and may have multiple applications. Once a focus towards developing a specific product candidate has been developed, we obtain more visibility into the efforts that may be required to reach conclusion of the development phase. However, there are inherent risks and uncertainties in developing novel biologics in a rapidly-changing industry environment. To obtain approval of a product candidate from the FDA, we must, among other requirements, submit data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product candidate. In most cases, this entails extensive laboratory tests and preclinical and clinical trials. The collection of this data, as well as the preparation of applications for review by the FDA and other regulatory agencies outside the United States, is costly in time and effort, and may require significant capital investment.

We may encounter significant difficulties or costs in our efforts to obtain FDA approvals or approvals to market products in foreign markets. For example, the FDA or the equivalent in jurisdictions outside the United States may determine that our data is not sufficiently compelling to warrant marketing approval and may require that we engage in additional clinical trials or provide further analysis which may be costly and time-consuming. In addition, the market access environment is continuously evolving and limitations on reimbursement or market access could limit a product’s potential. Further, individual countries or jurisdictions could require additional data, such as patient registries, to determine pricing and market access and the cost and time associated with these requirements could be extensive. Regardless of the nature of our efforts to complete development of our products, receive marketing approval, and receive appropriate market access, we may encounter delays that render our product candidates uncompetitive or otherwise preclude us from marketing products.

We may require additional funding to complete development of product candidates or in order to commercialize approved products. In the event we were unable to obtain necessary funding, we might be required to halt or temporarily delay ongoing development projects.

We anticipate that research and development expenses will decrease compared to 2013.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $44.9 million and $84.3 million for the three and six months ended June 30, 2014, respectively, and $66.8 million and $129.3 million for the three and six months ended June 30, 2013, respectively. Selling, general and administrative expenses primarily consisted of salaries and wages, consulting fees, sales and marketing fees and administrative costs to support operations.

The decrease in selling, general and administrative expenses for the three and six months ended June 30, 2014 compared to the respective periods in 2013 was primarily due to headcount reductions related to the strategic restructuring plans announced on July 30, 2012 and November 12, 2013 and a reduction in non-cash stock-based compensation due to increases to estimated forfeiture rates based on historical forfeiture data.

We anticipate that selling, general and administrative expenses during the remainder of 2014 will decrease compared to 2013.

Restructuring, Contract Termination and Advisory Expenses

Advisory Costs

Restructuring – 2013

On November 12, 2013, we announced a restructuring of the Company and implemented additional cost reduction measures. As a result, during the six months ended June 30, 2014, we recorded restructuring charges of $1.0 million related to fees associated with implementing the restructuring plan. During the six months ended June 30 2014, we recorded $0.2 million related to severance and other employee termination benefits, net of adjustments for termination benefits not used by employees and severance and termination benefits that will not be paid. Restructuring initiatives were substantially complete as of June 30, 2014.

Restructuring – 2012

On July 30, 2012, we announced that our Board of Directors had approved a strategic restructuring plan that included re-configuring our manufacturing model with the closure of the New Jersey Facility, restructuring administrative functions and strengthening commercial functions, which lowered our overall cost structure. The restructuring initiatives included a reduction in workforce of approximately 600 full-time and contractor positions. The employees affected by the workforce reduction were notified the week of September 17, 2012.

On December 20, 2012, we announced the sale of the New Jersey Facility to Novartis for $43.0 million. As part of the agreement with Novartis, approximately 100 employees at the facility who were previously included in the workforce reduction were offered jobs with Novartis.

Interest Income

We receive interest income primarily from holdings of cash and investments. Interest income was $0.1 million for the three and six months ended June 30, 2014, and $0.2 million and $0.4 million for the three and six months ended June 30, 2013, respectively. The decrease in interest income was due to lower investment balances.

Interest Expense

Interest expense was $13.6 million and $27.1 million for the three and six months ended June 30, 2014, respectively, and $13.9 million and $27.5 million for the three and six months ended June 30, 2013, respectively. Interest expense includes amortization of the debt discount and debt issuance costs for the 2016 Notes, which resulted in non-cash interest expense of $7.6 million and $15.1 million for the three and six months ended June 30, 2014, respectively, and $7.0 million and $13.9 million for the three and six months ended June 30, 2013, respectively. Interest expense recognized on the 2.875% stated coupon rate was $4.5 million and $8.9 million for each of the three and six months, respectively, ended June 30, 2014 and 2013. Refer to Liquidity and Capital Resources: Financings from the Issuance of Convertible Notes for further discussion of the accounting for the 2016 Notes.

We also recorded interest expense, including the amortization of debt issuance costs, related to the 4.75% Convertible Senior Subordinated Notes due 2014 (the “2014 Notes”) of $0.3 million during the three months ended June 30, 2014, $0.4 million during the three months ended June 30, 2013, and $0.7 million during each of the six months ended June 30, 2014 and 2013. The 2014 Notes were repaid in full as of June 30, 2014.

LIQUIDITY AND CAPITAL RESOURCES

Cash Uses and Proceeds

At June 30, 2014 and December 31, 2013, we had cash, cash equivalents and short-term and long-term investments of $136.7 million and $199.4 million, respectively. The decrease in these balances in 2014 was primarily attributable to cash used in operating activities, including costs associated with the commercialization of PROVENGE, research and development expenses, and selling, general and administrative expenses in support of operations, and to the $27.7 million payment on the 2014 Notes. To date, we have financed operations primarily through proceeds from the sale of equity and convertible debt securities, commercial sale of PROVENGE, sale of a royalty for boceprevir for the treatment of chronic hepatitis C for $125 million in 2011, cash receipts from collaborative agreements and interest income.

Net cash used in operating activities for the six months ended June 30, 2014 and 2013 was $31.8 million and $139.3 million, respectively. The decrease in net cash used in operating activities primarily resulted from decreased net loss, decreased inventory purchases and receipt of inventory insurance recovery.

Net cash provided by investing activities for the six months ended June 30, 2014 and 2013 was $35.6 million and $46.1 million, respectively. Expenditures related to investing activities for the six months ended June 30, 2014 consisted primarily of purchases of investments of $8.0 million and purchases of property and equipment, primarily software expenditures, of $0.8 million, offset by maturities and sales of investments of $44.5 million. The decrease in net cash provided by investing activities for the six months ended June 30, 2014, compared to the six months ended June 30, 2013, was primarily related to a decrease in investment maturities and sales, offset by a decrease in investment purchases and equipment purchases.

Net cash used in financing activities for the six months ended June 30, 2014 and 2013 was $29.4 million and $3.2 million, respectively. In June 2014, the 2014 Notes, totaling $27.7 million, were repaid in full. Net cash used in financing activities for the six months ended June 30, 2013 primarily related to payments on capital lease obligations.

We have incurred significant losses and negative cash flows from operations since our inception. As of June 30, 2014, our accumulated deficit was $2.3 billion. We have incurred net losses as a result of research and development expenses, clinical trial expenses, contract manufacturing and facility expenses, costs associated with the commercial launch of PROVENGE and general and administrative expenses in support of operations and research efforts.

We believe that our cash, cash equivalents, and short-term and long-term investments as of June 30, 2014, together with revenue generated from commercial sales of PROVENGE and the implementation of cost saving measures, as announced on November 12, 2013, together with additional cost savings measures we are currently working to identify, will be sufficient to meet our obligations and anticipated expenditures for at least the next 12 months as we continue to invest in commercial operations, continue clinical trials, potentially invest in commercial infrastructure outside the United States and invest in research and product development. If we are unable to achieve our internally forecasted revenue levels or realize the cost savings expected from our recent restructuring and our anticipated cost cutting measures, we may not be able to achieve these results. The majority of our resources continue to be used in support of the commercialization of PROVENGE in the United States. Even if we are able to successfully realize our commercialization goals for PROVENGE, because of the numerous risks and uncertainties associated with commercialization of a biologic, we are unable to predict when we will become profitable, if at all. Even if we achieve profitability, we may not be able to maintain or increase profitability. As further discussed below, it is also very unlikely that we will become profitable before the maturity of our 2016 Notes. We expect that continued revenue from PROVENGE product sales will be a significant source of cash. However, we may need to raise additional funds to meet potential liquidity needs including:

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continued investment in marketing, manufacturing, information technology and other infrastructure and activities related to the commercialization of PROVENGE in the United States,

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continuing internal research and development programs,

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engaging in clinical trials outside of the United States, potential commercial infrastructure development and other investment in order to support the commercialization of PROVENGE in territories outside the United States,

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working capital needs, and

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satisfying debt obligations.

As previously disclosed, our 2016 Notes, in an aggregate principal amount of $620 million mature on January 15, 2016. Our stock price is well below the $51.24 effective conversion price for the 2016 Notes, making it unlikely that the holders of the 2016 Notes will exercise their conversion right. As a result, we assume that, absent the execution of a transaction of the type described below, we will be required under the terms of the 2016 Notes to repay the full $620 million principal amount at maturity. Based on our currently anticipated operating results, however, and even assuming the realization of future expense reductions that we plan to make and product revenues that we forecast, there is a significant risk that, while we believe we have sufficient cash to meet our ordinary course obligations for at least the next twelve months, we will not be able to repay or refinance the 2016 Notes. Accordingly, we are currently considering alternatives to the repayment of the 2016 Notes in cash, including alternatives that could result in leaving our current stockholders with little or no financial ownership of Dendreon. Our Board of Directors will consider any strategic alternatives that might be presented by third parties, though there can be no guarantee that any such alternative will provide value for the Company’s stockholders.

Leases and Other Commitments

Office Leases

In February 2011, we entered into a lease for office space of 179,656 square feet in Seattle, Washington with an initial term of five and a half years and one renewal term of two and a half years. In July 2012, we amended the lease to reduce the premises to 158,081 square feet. The related rent reduction took effect in November 2012. In April 2013, we amended the lease to further reduce the premises to 112,915 square feet. Rent payments related to the space relinquished in April 2013 cease effective October 2013 and August 2014. In addition, in April 2013 and November 2013, we subleased to two separate third parties 22,583 square feet each at these premises, commencing in May 2013 and December 2013, and continuing through the remaining term.

In February 2011, we entered into a sublease for laboratory and office space of 97,365 square feet in Seattle, Washington. The term is for eight years. In July 2012, we entered into a lease for office space of 39,937 square feet in Bridgewater, New Jersey. The initial term is for ten years, with one renewal term of five years.

Manufacturing Facilities Leases

In August 2009, we entered into an agreement to lease the Orange County Facility, consisting of approximately 184,000 square feet, for use as a manufacturing facility following build-out. The initial term is ten and a half years, expiring in December 2019, with five renewal terms of five years each. In July 2009, we entered into an agreement to lease the Atlanta Facility, consisting of approximately 156,000 square feet, for use as a manufacturing facility following build-out. The initial term is ten and a half years, with five renewal terms of five years each.

The manufacturing facility leases have provisions requiring that we restore the buildings to original condition upon lease termination. Accordingly, we have accrued the estimated costs of dismantlement and restoration associated with these obligations.

Production and Supply Expenses

Software and Equipment Financing

We have entered into various agreements for the lease of software licenses and equipment, which have been treated as capital leases. The capital leases, with an aggregate remaining obligation at June 30, 2014 of $4.7 million, bear interest at rates ranging from 4.4% to 11.7% per year.

Financings from the Issuance of Convertible Notes

2016 Notes

The 2016 Notes are accounted for in accordance with ASC 470-20 under which issuers of certain convertible debt instruments that may be settled entirely or partially in cash upon conversion are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The liability component of the 2016 Notes, as of the issuance date, was calculated

by estimating the fair value of a similar liability issued at an 8.1% effective interest rate, which was determined by considering the rate of return investors would require in the Company’s debt structure. The amount of the equity component was calculated by deducting the fair value of the liability component from the principal amount of the 2016 Notes and resulted in a corresponding debt discount. The debt discount is being amortized as interest expense through the earlier of the maturity date of the 2016 Notes or the date of conversions, if any.

The application of ASC 470-20 resulted in the initial recognition of $132.9 million as the debt discount recorded in additional paid-in capital for the 2016 Notes. As of June 30, 2014, the net carrying amount of the liability component, which is recorded as a long-term liability in the consolidated balance sheet, was $573.1 million, and the remaining unamortized debt discount was $46.9 million. Amortization of the debt discount and debt issuance costs resulted in non-cash interest expense of $7.6 million and $15.1 million for the three and six months ended June 30, 2014, respectively, and $7.0 million and $13.9 million for the three and six months ended June 30, 2013, respectively. In addition, interest expense recognized on the 2.875% stated coupon rate was $4.5 million for each of the three months ended June 30, 2014 and 2013, and $8.9 million for each of the six months ended June 30, 2014 and 2013.

2014 Notes

As of December 31, 2013, the $27.7 million aggregate principal amount of 2014 Notes outstanding was classified as a current liability. We recorded interest expense, including the amortization of debt issuance costs, related to the 2014 Notes of $0.3 million during the three months ended June 30, 2014, $0.4 million during the three months ended June 31, 2013, and $0.7 million during each of the six months ended June 30, 2014 and 2013.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our investment portfolio is maintained in accordance with our investment policy, which specifies credit quality standards, limits credit exposure to any single issuer or security issuance and defines allowable investments. Pursuant to our policy, auction rate or asset-backed securities without a guarantee by the United States government are not permitted to be purchased. The fair value of cash equivalents and marketable securities is subject to change as a result of changes in market interest rates and investment risk related to the issuers’ credit worthiness.

As of June 30, 2014 and December 31, 2013, we had short-term investments of $60.4 million and $87.1 million, respectively, and long-term investments of $9.4 million and $19.8 million, respectively. Our short-term and long-term investments are subject to interest rate risk and will decline in value if market interest rates increase. The estimated fair value of short-term and long-term investments as of June 30, 2014, assuming a 100 basis point increase in market interest rates, would decrease by $0.3 million, which would not materially impact results of operations, cash flows or financial position. While changes in interest rates may affect the fair value of our investment portfolio, gains or losses, if any, will not be recognized in the statement of operations until the investment is sold or if the reduction in fair value is determined to be an other-than-temporary impairment.

We actively monitor and manage our portfolio. If necessary, we believe that we are able to liquidate investments within the next year without significant loss. We currently believe that these securities are not impaired; however, it could take until the final maturity of the underlying notes to realize our investments’ recorded values. Based on expected operating cash flows and other sources of cash, we do not anticipate the potential lack of liquidity on these investments to affect our ability to execute our current business plan.

ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure controls and procedures.

Our chief executive officer and our interim chief financial officer, based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2014, have concluded that our disclosure controls and procedures are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b) Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company and three former officers are named defendants in a securities action pending in the United States District Court for the Western District of Washington (the “District Court”) and brought by a group of individual investors who elected to opt out of a securities class action lawsuit that was settled in August 2013. The pending action, filed May 16, 2013, is captioned Christoph Bolling, et al. v. Dendreon Corporation, et al., Case No. 2:13-cv-0872 JLR. Plaintiffs allege generally that the Company made various false or misleading statements between April 29, 2010 and August 3, 2011 concerning the Company, its finances, business operations and prospects with a focus on the market launch of PROVENGE and related forecasts concerning physician adoption, and revenue from sales of PROVENGE. Based on information provided informally by plaintiffs’ counsel, the plaintiff group, which totals approximately 30 persons, purports to have purchased approximately 250,000 shares of Dendreon common stock during the relevant period. The Bolling plaintiffs filed an amended complaint on July 16, 2013, alleging both violations of certain provisions of the federal Securities Exchange Act of 1934 and provisions of Washington state law and seeking unspecified damages. In response to a motion by defendants, the federal claims were dismissed with leave to amend in January 2014. On February 17, 2014, plaintiffs filed a Second Amended Complaint which defendants moved to dismiss on March 24, 2014. After briefing, the District Court, by order dated June 5, 2014, again dismissed the federal claims, but denied the motion as to the plaintiffs’ Washington state law claims for fraudulent and negligent misrepresentation. The case is now in the discovery phase. We cannot predict the outcome of the litigation; however, the Company intends to continue defending against claims vigorously.

The Company also is the subject of stockholder derivative complaints first filed in August 2011 generally arising out of the facts and circumstances that are alleged to underlie the previously settled securities action. Derivative suits filed in the District Court were consolidated into a proceeding captioned In re Dendreon Corp. Derivative Litigation, Master Docket No. C 11-1345 JLR; others were filed in the Superior Court of Washington for King County and were consolidated into a proceeding captioned In re Dendreon Corporation Shareholder Derivative Litigation, Lead Case No. 11-2-29626-1 SEA. In addition, on June 22, 2012, another derivative action was filed in the Court of Chancery of the State of Delaware, captioned Herbert Silverberg, derivatively on behalf of Dendreon Corporation v. Mitchell H. Gold, et al., Case No. 7646-VCP. The various derivative complaints name as defendants various current and former officers and directors of the Company. While the complaints assert various legal theories of liability, the lawsuits generally allege that the defendants breached fiduciary duties owed to the Company in connection with the launch of PROVENGE and by purportedly subjecting the Company to potential liability for securities fraud. The complaints also include claims against certain defendants for supposed misappropriation of Company information and insider trading; the Silverberg complaint, asserts only this latter claim. After a formal mediation and further post-mediation negotiations, the parties to the various derivative actions reached a tentative settlement of the actions, the terms of which are set out in a Memorandum of Understanding dated as of July 18, 2014. The settlement is subject to final documentation and court approval. We cannot predict whether the process of full settlement documentation and court approval will be successful. In any event, the purported derivative lawsuits do not seek relief against the Company although the Company has certain indemnification obligations, including obligations to advance legal expense to the named defendants for defense of these lawsuits. Additionally, the Securities and Exchange Commission (“SEC”) is conducting a formal investigation, which we believe relates to some of the same issues raised in the securities and derivative actions. We are cooperating fully with the SEC investigation. The ultimate financial impact of these various proceedings, if any, is not yet determinable and therefore, no provision for loss, if any, has been recorded in the financial statements. With respect to all of the above-described proceedings, the Company has insurance that we believe affords coverage for much of the anticipated costs, subject to the policies’ terms and conditions.

The Company received notice in November 2011 of a lawsuit filed in the Durham County Superior Court of North Carolina (the “Court”) against the Company by GlaxoSmithKline LLC (“GSK”). The lawsuit purports claims for monies due and owing and breach of the Company’s obligations under the Development and Supply Agreement (the “GSK Agreement”) terminated as of October 31, 2011. On April 9, 2013, GSK amended its complaint to add a claim for breach of North Carolina’s unfair and deceptive trade practices act. The Company does not believe the lawsuit has merit, filed a Counterclaim and Answer on January 6, 2012, and intends to defend its position vigorously. On March 11, 2014, the Court held oral argument on GSK’s motion for summary judgment on its breach of contract claim and the Company’s cross motion for summary judgment on GSK’s contract claim as well as its unfair and deceptive trade practices claim. The Court has not yet issued a ruling on the parties’ cross motions. On June 11, 2014, GSK filed a separate motion for summary judgment on the Company’s counterclaims. The Company intends to oppose that motion, which will be fully briefed by mid-August. The Company has accrued approximately $4.0 million in fees in connection with the termination of the Development and Supply Agreement. The ultimate financial impact of the lawsuit is not yet determinable. Therefore, no additional provision for loss has been recorded in the financial statements.

ITEM 1A. RISK FACTORS

The risks described below may not be the only ones relating to our company. Additional risks that we currently believe are immaterial may also impair our business operations. Our business, financial condition and future prospects and the trading price of our common stock could be harmed as a result of any of these risks. These risks and uncertainties may be interrelated or co-related, and as a result, the occurrence of one risk might directly affect other risks described below, make them more likely to occur or magnify their impact. Investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q for the period ended June 30, 2014, including the consolidated financial statements and related notes, and information contained in our 2013 Form 10-K, and in our other filings from time to time with the SEC. The risks set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing changes from the risk factors previously disclosed in our Quarterly Report on Form 10-Q for the three months ended March 31, 2014.

Risks Relating to Our Financial Position and Operations

*There is a significant risk that we will not be able to repay or refinance the 2016 Notes when they mature. As a result, we are considering transactions that could leave our current stockholders with little or no financial ownership of Dendreon.

*Our business and operations are subject to certain risks relating to our financial condition.

Our business and operations are subject to various risks relating to our financial condition, some of which could result from concerns our stakeholders may have about our financial situation and others that could result if we were to pursue alternatives to the repayment of the 2016 Notes in cash. These risks include, but are not limited to, the following:

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certain of our suppliers may attempt to cancel our contracts or restrict ordinary credit terms, require financial assurances of performance or refrain entirely from providing goods or services to us;

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our employees may become distracted from performance of their duties;

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physicians could cease to purchase and prescribe PROVENGE;

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we may have difficulty continuing to obtain and maintain contracts necessary to continue our operations and at affordable rates with competitive terms;

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we may have difficulty maintaining existing and building new relationships; and

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we may be unable to retain and motivate key executives and employees and we may have difficulty attracting new employees.

*We have a history of operating losses. We expect to continue to incur losses for the foreseeable future, and we may never become profitable.

The accounting method for convertible debt securities that may be settled in cash, such as the 2016 Notes, could have a material effect on our net loss, net working capital or other financial results.

Under the FASB ASC Section 470-20, Debt with Conversion and other Options (“ASC 470-20”), an entity must separately account for the liability and equity components of the convertible debt instruments (such as the 2016 Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for our 2016 Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on the consolidated balance sheets and the value of the equity component is treated as original issue discount for purposes of accounting for the debt component of the notes. As a result, we are required to record non-cash interest expense as a result of the amortization of the discounted carrying value of the 2016 Notes to their face amount over the term of the 2016 Notes. We report higher interest expense in our financial results because ASC 470-20 requires interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the 2016 Notes.

*Our stockholders may be diluted by the conversion of our outstanding convertible notes.

The holders of the 2016 Notes may choose at any time to convert their notes prior to maturity in January 2016, and upon conversion we may issue cash, stock, or a combination thereof at our option. Should a holder of the 2016 Notes exercise their conversion option during the next twelve month period, it is our intention to satisfy the conversion with shares of our common stock.

The 2016 Notes are convertible into our common stock initially at the conversion rate of 19.5160 shares per $1,000 principal amount, or $51.24 per share, subject to adjustment. The number of shares of common stock issuable upon conversion of the 2016 Notes, and therefore the dilution of existing common stockholders, could increase under certain circumstances described in the indentures under which the 2016 Notes were issued. The conversion of the 2016 Notes would result in the issuance of additional shares of common stock, diluting existing common stockholders. Our stock price is well below the $51.24 effective conversion price for the 2016 Notes, making it unlikely that the holders of the 2016 Notes will exercise their conversion right. As a result, we assume that we will be required under the terms of the 2016 Notes to repay the full $620 million principal amount at maturity.

*Our operating results may be harmed if our restructuring plans do not achieve the anticipated results or cause undesirable consequences.

On November 12, 2013, we announced a restructuring plan that resulted in a reduction in headcount of approximately 150 full-time positions. In addition, on July 30, 2012, we announced a restructuring plan which resulted in a reduction in headcount of approximately 600 full-time and contractor positions, and the closing of the New Jersey Facility. Restructuring plans may yield unintended consequences, such as attrition beyond our intended reduction in workforce and reduced employee morale, which may cause our employees who were not affected by the reduction in workforce to seek alternate employment. Additional attrition could impede our ability to meet our operational goals, which could have a material adverse effect on our financial performance. In addition, as a result of the reductions in our workforce, we may face an increased risk of employment litigation. Furthermore, employees whose positions will be eliminated in connection with these restructuring plans may seek future employment with our competitors. Although all our employees are required to sign a confidentiality agreement with us at the time of hire, we cannot assure you that the confidential nature of our proprietary information will be maintained in the course of such future employment. We expect to undertake

additional restructuring activities, and we cannot assure you that any of our restructuring efforts will be successful, or that we will be able to realize the cost savings and other anticipated benefits from our previous or any future restructuring plans. In addition, if we continue to reduce our workforce, it may adversely impact our ability to respond rapidly to any new growth or revenue opportunities. Any restructuring activities we undertake may take longer than expected and may require changes to our business that we are unable to implement. If we are unsuccessful in implementing our cost saving initiatives and restructuring plans or if we do not achieve our expected results, our results of operations and cash flows could be adversely affected.

*Because of reductions in our workforce related to our prior restructuring activities, we have reallocated certain employment responsibilities and have increased our dependence on third parties to perform certain corporate functions.

We restructured our operations in 2011, 2012 and 2013, which included reductions in our workforce. The reductions resulted in the loss of numerous long-term employees, the loss of institutional knowledge and expertise and the reallocation of certain employment responsibilities, all of which could adversely affect operational efficiencies, employee performance and retention. Such workforce reductions have also placed a significant burden on our current employees, who continue to operate with limited resources. In addition, because of these reductions, we are outsourcing certain corporate functions, which make us more dependent on third parties for the performance of these functions in connection with our business and product candidates. To the extent that we are unable to effectively reallocate employee responsibilities, retain key employees, establish and maintain agreements with competent third-party contractors on terms that are acceptable to us, or effectively manage the work performed by any retained third-party contractors, our ability to advance our business or product candidates may be significantly impaired and our stock price may be adversely affected. Further cost containment initiatives that we may implement in the future could result in additional employee turnover, causing additional stress on our operational capabilities and potentially harming our ability to operate our business.

Forecasting sales of PROVENGE may continue to be difficult. If our revenue projections are inaccurate and our business forecasting and planning decisions are not reflected in our actual results, our business may be harmed and our stock price may be adversely affected.

Our forecasting model for PROVENGE revenue may be inaccurate because of any number of factors. These factors may include competition for PROVENGE and slower than anticipated physician adoption of PROVENGE because of cautionary prescribing behavior due to negative perceptions of reimbursement history for the product, difficulty in identifying appropriate patients for treatment with PROVENGE, the cost of the product, which is purchased by the physician on a buy and bill basis, and incurred over a short time period, and other aspects of physician education due to the novelty of the treatment process. The extent to which any of these or other factors individually or in the aggregate may impact future sales of PROVENGE is uncertain and difficult to predict. Our management must make forecasting decisions regarding future revenue in the course of business planning despite this uncertainty, and actual results of operations may deviate materially from projected results. This may lead to inefficiencies and increased difficulties in operational planning. Our general and administrative expenses are relatively fixed in the short term. If our revenues from PROVENGE sales are lower than we anticipate, we will incur costs in the short term that will result in losses that are unavoidable. A shortfall in our revenue has a direct impact on our cash flow and on our business generally. In addition, as reflected in our recent stock price, fluctuations in our quarterly results can adversely and significantly affect the market price of our common stock.

Risks Relating to our Product Commercialization Pursuits

If we fail to achieve and sustain commercial success for PROVENGE, our business will suffer, our future prospects may be harmed and our stock price would likely decline.

Prior to the launch of PROVENGE in May 2010, we had never sold or marketed a pharmaceutical product. Unless we can successfully commercialize another product candidate or acquire the right to market other approved products, we will continue to rely on PROVENGE to generate substantially all of our revenue and fund our operations from product sales. Our ability to maintain or increase our revenues for PROVENGE will depend on, and may be limited by, a number of factors, including the following:

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acceptance of and ongoing satisfaction with PROVENGE as the first in a new class of therapy by the medical community, patients receiving therapy and third-party payers in the United States, in the E.U., and eventually in other foreign markets if we receive necessary marketing approvals and decide to sell PROVENGE in those markets;

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our ability to develop and expand market share, both in the United States, the E.U. and potentially in the rest of the world if we receive necessary marketing approvals outside the United States and the E.U. and decide to sell PROVENGE in those markets, in the midst of numerous competing products for late-stage prostate cancer, many of which are commercially available or in late-stage clinical development;

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whether data from clinical trials for PROVENGE, including clinical trials for additional indications or clinical trials to identify biomarkers or clinical trials in connection with competing products such as sequencing studies, are positive and whether such data, if positive, will be sufficient to achieve approval from the FDA and its foreign counterparts to market and sell PROVENGE for such additional indications;

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whether competing therapies are prescribed in place of PROVENGE for certain patients or are perceived as superior to PROVENGE by physicians or patients;

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the safety and efficacy of PROVENGE, both actual and perceived;

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our ability to maintain prescribing information, also known as a label, that is substantially consistent with current prescribing information for PROVENGE;

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adequate coverage or reimbursement for PROVENGE by government healthcare programs and third-party payers, including private health coverage insurers and health maintenance organizations;

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the rate of growth or contraction, if any, of the overall market into which PROVENGE is sold;

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our ability to sell PROVENGE in the U.S. despite significant turnover in our sales force; and

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the ability of patients to afford any required co-payments for PROVENGE.

If for any reason we become unable to continue selling or manufacturing PROVENGE, our business would be seriously harmed and could fail.

If PROVENGE were to become the subject of problems related to its efficacy, safety, or otherwise, our revenues from PROVENGE could decrease.

PROVENGE, in addition to any other of our drug candidates that may be approved by the FDA, will be subject to continual review by the FDA, and we cannot assure you that newly discovered efficacy or safety issues will not arise. With the use of any newly marketed drug by a wider patient population, serious adverse events may occur from time to time that initially do not appear to relate to the drug itself. Any efficacy or safety issues could cause us to suspend or cease marketing of our approved products, cause us to modify how we market our approved products, subject us to substantial liabilities, and adversely affect our revenues and financial condition. In the event of a withdrawal of PROVENGE from the market, our revenues would decline significantly and our business would be seriously harmed and could fail.

We may not be able to successfully achieve the full global market potential of PROVENGE.

PROVENGE is presently approved for the treatment of metastatic asymptomatic or minimally symptomatic castrate-resistant prostate cancer in the United States and the E.U. Earlier diagnosis of metastatic prostate cancer will be increasingly important, and screening, diagnostic and treatment practices can vary significantly by geographic region. To achieve global success for PROVENGE as a treatment, we will need to obtain approvals by foreign regulatory authorities. Data from our completed clinical trials of PROVENGE may not be sufficient to support approval for commercialization by regulatory agencies governing the sale of drugs outside the United States and the E.U. This could require us to spend substantial sums to develop sufficient clinical data for licensure by foreign authorities. Submissions for approval by foreign regulatory authorities may not result in marketing approval by these authorities for the requested indication. In addition, certain countries require pricing to be established before reimbursement for the specific indication may be obtained. We may not receive or maintain marketing approvals at favorable pricing or reimbursement levels or at all, which could harm our ability to market PROVENGE globally. Prostate cancer is common in many regions where the healthcare support systems are limited and reimbursement for PROVENGE may be limited or unavailable, which will likely limit or slow adoption in these regions. If we are unable to successfully achieve the full global market potential of PROVENGE due to diagnosis practices or regulatory hurdles, our future prospects would be harmed and our stock price could decline.

PROVENGE and other products we may potentially commercialize and market may be subject to promotional limitations.

The FDA and other regulatory authorities have the authority to impose significant restrictions on an approved product through the product label and allowed advertising, promotional and distribution activities. The FDA also may require us to undertake post-marketing clinical trials. If the results of such post-marketing studies are not satisfactory, the FDA may withdraw marketing authorization or may condition continued marketing on commitments from us that may be expensive and/or time consuming to fulfill. Even after we receive FDA and other regulatory approvals, if we or others identify adverse side effects after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be suspended or withdrawn and reformulation of our products, additional clinical trials, changes in labeling of our products and additional marketing applications may be required, any of which could harm our business and cause our stock price to decline.

Adoption of PROVENGE for the treatment of patients with advanced prostate cancer may be slow or limited for a variety of reasons including competing therapies and perceived difficulties in the treatment process or delays in obtaining reimbursement.

If PROVENGE is not successful in achieving broad acceptance as a treatment option for advanced prostate cancer, our business would be harmed.

The continued rate of adoption of PROVENGE for advanced prostate cancer and the ultimate market size will be dependent on several factors, including competing therapies and the education of treating physicians on the patient treatment process with PROVENGE and immunotherapies generally. As a first-in-class therapy, PROVENGE utilizes a unique treatment approach, which can have associated challenges in practice for treating physicians. A significant portion of the prospective patient base for treatment with PROVENGE may be under the care of urologists who may be less experienced with infusion treatments than oncologists. Acceptance by urologists of PROVENGE as a treatment option may be measurably slower than adoption by oncologists of PROVENGE as a therapy and may require more educational effort by us. In addition, the tight manufacturing and infusion timelines required for treatment with PROVENGE require educating physicians to adjust practice mechanics, which may result in delay in market adoption of PROVENGE as a preferred therapy.

Risks Relating to Manufacturing Activities

We sold one of our manufacturing facilities and we may close or sell more of our manufacturing facilities, which could limit our ability to supply the market and may limit our product sales.

In 2012, we sold the New Jersey Facility to Novartis. We may decide to close or sell more of our manufacturing facilities in the future. Manufacturing PROVENGE is very complex and time-sensitive. With fewer manufacturing facilities, it may be difficult for us to meet the commercial demand for PROVENGE, especially in certain parts of the country. In addition, having fewer manufacturing facilities exposes us to greater risk that problems with any individual facility, or regional issues such as natural disasters or terrorist attacks, could have a greater effect on our overall ability to supply the market. If we cannot meet demand, we could lose product sales and our revenue and reputation with physicians would suffer. In addition, our business could be materially harmed and our results of operations would be adversely impacted.

We and our contract manufacturers are subject to significant regulation with respect to manufacturing of our products.

All of those involved in the preparation of a therapeutic drug for clinical trials or commercial sale, including our existing (and any future) supply contract manufacturers and clinical trial investigators, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with the FDA’s current Good Manufacturing Practices, or equivalent cGMP regulations developed by authorities in other countries. These regulations govern manufacturing processes and procedures and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors must be inspected and audited routinely for compliance with applicable United States and other country regulations. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulation occurs independent of such an inspection or audit, we, the FDA, or governmental authorities in other countries may require remedial measures that may be costly and/or time consuming for us or a third party to implement and that may include the temporary or permanent suspension or change of a clinical trial or commercial sales, recalls, market withdrawals, seizures or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.

Manufacturing difficulties, disruptions or delays could limit supply of our products and limit our product sales.

Manufacturing biologic human therapeutic products is difficult, complex and highly regulated. We currently manufacture PROVENGE in the United States with the support of third party manufacturers for certain processes and plan to manufacture any other product candidates ourselves. We have contracted with a third-party manufacturer in order to supply clinical trials and potential future commercial production in the E.U., and we are presently reliant on the ability of the third party to adequately support our clinical trials and future commercial production in the E.U. Our ability to adequately and in a timely manner manufacture and supply our products is dependent on the uninterrupted and efficient operation of our facilities and those of our third-party contract manufacturers, which may be impacted by:

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availability or contamination of raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier;

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the ongoing capacity of our facilities and those of our contract manufacturers;

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the performance of our information technology systems;

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compliance with regulatory requirements;

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inclement weather and natural disasters;

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changes in forecasts of future demand for product components;

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patient access to leukapheresis, and other logistical support requirements;

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potential facility contamination by microorganisms or viruses;

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updating of manufacturing specifications; and

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product quality success rates and yields.

If the efficient manufacture and supply of our products is interrupted, we may experience delayed shipments or supply constraints. If we are at any time unable to provide an uninterrupted supply of our products to patients, we may have to notify the FDA, we may lose patients, and physicians may elect to prescribe competing therapeutics, all of which could materially and adversely affect our product sales and results of operations.

Our manufacturing processes and those of our third-party contract manufacturers must undergo a potentially lengthy FDA or other country regulatory approval process and are subject to continued review by the FDA and other country regulatory authorities.

If regulatory authorities determine that we or our third-party contract manufacturers or certain of our third-party service providers have violated regulations or if they restrict, suspend or revoke our prior approvals, they could prohibit us from manufacturing our products or conducting clinical trials or selling our marketed products until we or the affected third-party contract manufacturers or third-party service providers comply, or indefinitely. Because our third-party contract manufacturers and certain of our third-party service providers are subject to FDA and foreign regulatory authorities, alternative qualified third-party contract manufacturers and third-party service providers may not be available on a timely basis or at all. If we or our third-party contract manufacturers or third-party service providers cease or interrupt production or if our third-party contract manufacturers and third-party service providers fail to supply materials, products or services to us, we may experience delayed shipments, and supply constraints for our products.

We rely on complex information technology systems for various critical purposes, including timely delivery of product and maintaining patient confidentiality.

We have developed a comprehensive, integrated information technology (“IT”) system for the intake of physician orders for PROVENGE, to track product delivery, and to store patient-related data we obtain for purposes of manufacturing PROVENGE. We rely on this system to maintain the chain of identity for each patient-specific dose of PROVENGE, and to ensure timely delivery of product prior to expiration. PROVENGE has a limited usable life of approximately 18 hours from the completion of the manufacturing process to patient infusion and accordingly maintaining accurate scheduling logistics is critical. In addition, this IT system stores and protects the privacy of the required patient information for the manufacture of PROVENGE. If our systems were to fail or be disrupted for an extended period of time we could lose product sales and our revenue and reputation would suffer. In the event our systems were to be breached by an unauthorized third party, they could potentially access confidential patient information we obtain in manufacturing PROVENGE, which could cause us to suffer reputational damage and loss of customer confidence. Any one of these events could cause our business to be materially harmed and our results of operations would be adversely impacted.

Risks Related to Future Ability to Utilize Net Operating Loss Carryforwards

Our ability to realize potential value from our net operating loss carryforwards is highly speculative and subject to numerous material uncertainties.

Our net operating loss carryforwards permit us to offset net operating losses from prior years to taxable income in future years in order to reduce our tax liability. As we have incurred losses since our inception and do not currently expect to turn a profit in the near future, we are currently unable to realize value from our net operating loss carryforwards unless we generate future taxable income, either through the acquisition of a profitable company or otherwise. There can be no assurance that we will have sufficient taxable income, if any, in future years to use the net operating loss carryforwards before they expire. The Internal Revenue Service could challenge the amount of our net operating loss carryforwards.

In order to preserve our net operating loss carryforwards, we must ensure that there has not been a “change of control” of our company. A “change of control” includes a more than 50 percentage point increase in the ownership of our company by certain equity holders who are defined in Section 382 of the Internal Revenue Code as “5 percent shareholders.” Calculating whether an ownership change has occurred is subject to uncertainty, both because of the complexity of Section 382 of the Code and because of limitations on a publicly-traded company’s knowledge as to the ownership of, and transactions in, its securities. Therefore, the calculation of the amount of our net operating loss carryforwards may be changed as a result of a challenge by a governmental authority or our learning of new information about the ownership of, and transactions in, our securities. Our ability to fully utilize our net operating losses could be limited if there have been past ownership changes or if there are future ownership changes resulting in a change of control for Section 382. Additionally, future changes in tax legislation could negatively affect our ability to use the tax benefits associated with our net operating losses.

Risks from Competitive Factors

Delays to our expansion outside the United States may result in increased competitive challenges.

In September 2013, we announced the approval of PROVENGE in the E.U. In Germany and the United Kingdom, we plan to make PROVENGE commercially available to patients within the approved label through Centers of Excellence using our Contract Manufacturing Organization, PharmaCell. Delays to the commercialization of PROVENGE in the E.U. and throughout the rest of the world could result in increased competitive challenges in the future if competing products and therapies gain market acceptance in the interim. These competitive challenges could impede adoption of PROVENGE as a preferred therapy, which could adversely affect our future product sales and results of operations.

Our competitors may develop and market products that are less expensive, more effective, or safer, or that reach the market sooner, which may diminish or eliminate the commercial success of PROVENGE or any other products we may commercialize.

We operate in a highly competitive environment. PROVENGE competes with other products or treatments for diseases in its indication. If PROVENGE is unable to compete or be combined successfully with existing approaches or if new therapies are developed for asymptomatic or minimally symptomatic, metastatic, castrate-resistant (hormone-refractory) prostate cancer, our business would be harmed.

Competition in the cancer therapeutics field is intense and is accentuated by the rapid pace of advancements in product development. In addition, we compete with other clinical-stage companies and institutions for clinical trial participants, which could reduce our ability to recruit participants for our clinical trials. Delay in recruiting clinical trial participants could adversely affect our ability to bring a product to market prior to our competitors. Further, research and discoveries by others may result in breakthroughs that render PROVENGE or our other product candidates obsolete.

Products such as chemotherapeutics, androgen metabolism or androgen receptor antagonists, endothelin A receptor antagonists, antisense compounds, angiogenesis inhibitors and gene therapies for cancer are also under development by a number of companies and could potentially compete with PROVENGE and our other product candidates. In addition, many universities and private and public research institutions have become active in cancer research, which may be in direct competition with us.

Furthermore, in 2011, ZYTIGA^® (abiraterone acetate) was approved for use in men with prostate cancer with progression following treatment with a chemotherapeutic regime. In 2012, ZYTIGA was approved, in combination with prednisone, to treat men with metastatic castrate-resistant prostate cancer prior to receiving chemotherapy, and Xtandi (Enzalutamide), an androgen receptor inhibitor, was approved to treat men with metastatic castrate-resistant prostate cancer who previously received docetaxel chemotherapy. In 2013, Xofigo (radium RA 223 dichloride) injection was approved for the treatment of patients with castration-resistant prostate cancer (CRPC), symptomatic bone metastases and no known visceral metastatic disease. Other therapies such as Bavarian Nordic’s PROSTVAC^® are the subject of ongoing clinical trials in men with metastatic castrate-resistant prostate cancer. PROSTVAC^®, currently in Phase 3 clinical development, is a therapeutic cancer vaccine being studied in men with asymptomatic or minimally symptomatic metastatic castrate-resistant prostate cancer.

Some of our competitors in the cancer therapeutics field have substantially greater research and development capabilities and manufacturing, marketing, financial and managerial resources than we do. Acquisitions of competing companies by large pharmaceutical and biotechnology companies could enhance our competitors’ resources. In addition, our competitors may obtain patent protection or regulatory approval and commercialize products more rapidly than we do, which may impact future sales of our products. We expect that competition among products approved for sale will be based, among other things, on product efficacy, price, safety, reliability, availability, patent protection, and sales, marketing and distribution capabilities. Our profitability and financial position will suffer if our products receive regulatory approval, but cannot compete effectively in the marketplace.

We could face competition for PROVENGE or other approved products from biosimilar products that could impact our profitability.

We may face competition in Europe from biosimilar products, and we expect we may face competition from biosimilars in the future in the United States as well. To the extent that governments adopt more permissive approval frameworks and competitors are able to obtain broader marketing approval for biosimilars, our products will become subject to increased competition. Expiration or successful challenge of applicable patent rights could trigger such competition, and we could face more litigation regarding the validity and/or scope of our patents. We cannot predict to what extent the entry of biosimilar products or other competing products could impact our future potential sale of PROVENGE in the E.U., where biosimilars to other innovator biological products are already available. Our inability to compete effectively in foreign territories would reduce global sales potential, which could have a material adverse effect on our results of operations.

The Patient Protection and Affordable Care Act (“PPACA”) authorizes FDA approval of biosimilar products. PPACA establishes a period of 12 years of data exclusivity for reference products and outlined statutory criteria for science-based biosimilar approval standards. Under this framework, data exclusivity protects the data in the innovator’s regulatory application by prohibiting, for a period of 12 years, others from gaining FDA approval based in part on reliance or reference to the innovator’s data. FDA has not yet announced implementation of the biosimilars regulatory approval pathway; however, PPACA does not require the agency to do so before it may approve biosimilars. The law does not change the duration of patents granted on biologic products. Because of this pathway for the approval of biosimilars in the U. S., we may in the future face greater competition from biosimilar products and downward pressure on our product prices, sales and revenues, subject to our ability to enforce our patents.

*Failure to retain key personnel could impede our ability to develop and commercialize our products and to obtain new collaborations or other sources of funding.

We depend, to a significant extent, on the efforts of our key employees, including senior management and senior scientific, clinical, regulatory, operational and other personnel. The development of new therapeutic products requires expertise from a number of different disciplines, some of which are not widely available.

We depend upon our scientific staff to discover new product candidates and to develop and conduct preclinical studies of those new potential products. Our clinical and regulatory staff is responsible for the design and execution of clinical trials in accordance with FDA requirements and for the advancement of our product candidates toward FDA approval and submission of data supporting approval. The quality and reputation of our scientific, clinical and regulatory staff, especially the senior staff, and their success in performing their responsibilities, may directly influence the success of our product development programs. As we continue to pursue successful commercialization of PROVENGE, our sales and marketing, and operations executive management staff takes on increasing significance and influence upon our organizational success. In addition, our executive officers are involved in a broad range of critical activities, including providing strategic and operational guidance. The loss of these individuals, or our inability to retain or recruit other key management and scientific, clinical, regulatory, medical, operational and other personnel, may delay or prevent us from achieving our business objectives. We face intense competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations. Additionally, lack of certainty regarding our financial situation could result in our key employees seeking alternate employment.

Risks Relating to Collaboration Arrangements and Reliance on Third Parties

We must rely at present on relationships with third-party suppliers to supply necessary components used in our products, and such relationships are not easy to replace.

We rely upon contract manufacturers for components used in the manufacture and distribution of PROVENGE. Problems with any of our or our suppliers’ facilities or processes could result in failure to produce or a delay in production of adequate supplies of the antigen or other components we use in the manufacture of PROVENGE. This could delay or reduce commercial sales and materially harm our business. Any prolonged interruption in the operations of our suppliers’ facilities could result in cancellation of orders, loss of components in the process of being manufactured or a shortfall in availability of a necessary component. A number of factors could cause interruptions, including the inability of a supplier to provide raw materials, equipment malfunctions or failures, damage to a facility due to natural disasters, changes in FDA or equivalent other country authorities’ regulatory requirements or standards that require modifications to manufacturing processes, action by us to implement process changes, disputes with our suppliers or other similar factors. Because manufacturing processes are complex and are subject to a lengthy FDA or equivalent non-United States regulatory approval process, alternative qualified supply may not be available on a timely basis or at all. Difficulties or delays in our suppliers’ manufacturing and supply of components could delay our clinical trials, increase our costs, damage our reputation and, for PROVENGE, cause us to lose revenue or market share if we are unable to timely meet market demands.

We are dependent on our leukapheresis network for raw materials required for the manufacture of PROVENGE.

The manufacture of each patient-specific dose of PROVENGE first requires that we obtain immune cells from the relevant patient, which is done through a leukapheresis process at a cell collection center with which we have contracted. We have entered into agreements with third-party cell collection and blood centers, including the American Red Cross, to perform this process for us. However there are a finite number of centers with the requisite skill, training, staffing and equipment to perform the leukapheresis procedure for PROVENGE patients and we cannot be certain that the leukapheresis network presently available to us will be sufficient to service demand at full capacity. If our manufacturing capacity expands, we may need to expand the leukapheresis network available to us prospectively through additional partnerships or other endeavors. There can be no assurance that we will be able to secure sufficient appropriate leukapheresis capacity to manufacture PROVENGE when and as desired. If we are unable to expand our access to these services as necessary, our revenues will suffer and our business would be harmed.

We rely on single source vendors for some key components for PROVENGE and our active immunotherapy product candidates, which could impair our ability to manufacture and supply our products.

We currently depend on single source vendors for components used in PROVENGE and other active immunotherapy candidates. For example, we have a long-term contract with Fujifilm for the production of the antigen used in the manufacturing of PROVENGE. Any production shortfall or other delay on the part of Fujifilm that impairs the supply of the antigen to us could have a material adverse effect on our business, financial condition and results of operations. If we are unable to obtain a sufficient quantity of antigen, there could be a substantial delay in successfully developing a second source supplier. In addition, we rely on single-source unaffiliated third-party suppliers for certain other raw materials, medical devices and components necessary for the formulation, fill and finish of our products. Certain of these raw materials, medical devices and components are the proprietary products of these unaffiliated third-party suppliers and are specifically cited in the drug application with regulatory agencies so that they must be obtained from that specific sole source and could not be obtained from another supplier unless and until the regulatory agency approved such supplier. An inability to continue to source product from any of these suppliers, which could be due to regulatory actions or requirements affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor disputes or shortages, unexpected demands or quality issues, could adversely affect our ability to satisfy demand for PROVENGE or other products, which could adversely and materially affect our product sales and operating results or our ability to conduct clinical trials, either of which could significantly harm our business.

If we fail to enter into any needed collaboration agreements for our product candidates, we may be unable to commercialize them effectively or at all.

Product collaborations are complex and any potential discussions may not result in a definitive agreement for many reasons. For example, whether we reach a definitive agreement for a collaboration would depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration, and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product candidate to patients, the potential of competing products or other products approved in our indication, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. If we were to determine that a collaboration for a particular product is necessary to commercialize it and we were unable to enter into such a collaboration on acceptable terms, we might elect to delay or scale back the commercialization of a product in order to preserve our financial resources or to allow us adequate time to develop the required physical resources and systems and expertise ourselves.

If we enter into a collaboration agreement we consider acceptable, the collaboration may not proceed as quickly, smoothly or successfully as we plan. The risks in a collaboration agreement generally include:

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the collaborator may not apply the expected financial resources or required expertise in developing the physical resources and systems necessary to successfully commercialize a product;

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the collaborator may not invest in the development of a sales and marketing force and the related infrastructure at levels that ensure that sales of a product reach their full potential;

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disputes may arise between us and a collaborator that delay the commercialization of the product or adversely affect its sales or profitability; or

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the collaborator may independently develop, or develop with third parties, products that could compete with the product.

With respect to a collaboration for any of our products or product candidates, we are dependent on the success of our collaborators in performing their respective responsibilities and the continued cooperation of our collaborators. Our collaborators may not cooperate with us to perform their obligations under our agreements with them. We cannot control the amount and timing of our collaborators’ resources that will be devoted to activities related to our collaboration agreements with them. Our collaborators may choose to pursue existing or alternative technologies in preference to those being developed in collaboration with us. A collaborator may have the right to terminate the collaboration at its discretion. Any termination may require us to seek a new collaborator, which we may not be able to do on a timely basis, if at all, or require us to delay or scale back the commercialization efforts. The occurrence of any of these events could adversely affect the commercialization of product candidates we may commercialize and materially harm our business and stock price by slowing the pace of growth of such sales, by reducing the profitability of the product or by adversely affecting the reputation of the product in the market.

Risks Relating to Our Clinical Trial and Product Development Initiatives

Our clinical and preclinical candidates in the pipeline for other potential cancer immunotherapies and small molecule products may never reach the commercial market for a number of reasons.

To sustain our business, we focus substantial resources on the search for new pharmaceutical products. These activities include engaging in discovery research and product development, conducting preclinical and clinical studies, and seeking regulatory approval in the United States for product candidates and in other countries for PROVENGE and other products we may market in the future. Our long-term success depends on the discovery and development of new drugs that we can commercialize. Our cancer immunotherapy and small molecule program pipeline candidates are still at a relatively early stage in the development process. There can be no assurance that these product candidates or any other potential therapies we may pursue will become a marketed drug. In addition, we may find that certain products cannot be manufactured on a commercial scale and, therefore, they may not be economical to produce, or may be precluded from commercialization by proprietary rights of third parties.

A significant portion of the research that we are conducting involves new and unproven technologies. Research programs to identify disease targets and product candidates require substantial technical, financial and human resources, whether or not we ultimately identify any candidates. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield candidates for clinical development for a number of reasons, including difficulties in formulation which cannot be overcome, timing and competitive concerns.

An IND application must become effective before human clinical trials may commence. The IND application is automatically effective 30 days after receipt by the FDA unless before that time, the FDA raises concerns or questions about the product’s safety profile or the design of the trials as described in the application. In the latter case, any outstanding concerns must be resolved with the FDA before clinical trials can proceed. Thus, the submission of an IND may not result in FDA authorization to commence clinical trials in any given case, or the FDA may insist on changes to the clinical study resulting in significant delays. After authorization is received, the FDA retains the authority to place the IND, and clinical trials under that IND, on clinical hold. If we are unable to commence clinical trials or clinical trials are delayed indefinitely, we would be unable to develop additional product candidates and our business could be materially harmed. Clinical trials, both in the United States and in other countries, can be delayed for a variety of reasons, including:

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delays or failures in obtaining regulatory authorization to commence a trial because of safety concerns of regulators relating to our product candidates or similar product candidates of our competitors or failure to follow regulatory guidelines;

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delays or failures in obtaining clinical materials and manufacturing sufficient quantities of the product candidate for use in trials;

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delays or failures in reaching agreement on acceptable terms with prospective study sites;

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delays or failures in obtaining approval of our clinical trial protocol from an institutional review board (“IRB”) or ethics committee (“EC”) to conduct a clinical trial at a prospective study site;

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delays in recruiting patients to participate in a clinical trial;

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failure of our clinical trials and clinical investigators to be in compliance with the FDA’s Good Clinical Practices or equivalent other country regulations and requirements;

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safety issues, including negative results from ongoing preclinical studies;

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inability to monitor patients adequately during or after treatment;

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adverse events occurring during the clinical trial;

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failure by third-party clinical trial managers to comply with regulations concerning protection of patient health data;

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difficulty monitoring multiple study sites;

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failure of our third-party clinical trial managers to satisfy their contractual duties, comply with regulations or meet expected deadlines; and

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determination by regulators that the clinical design of the trials is not adequate.

requirements, submit data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product candidate. In most cases, this entails extensive laboratory tests and preclinical and clinical trials. The collection of this data, as well as the preparation of applications for review by the FDA and other regulatory agencies outside the United States, is costly in time and effort, and may require significant capital investment.

We may be required to obtain additional funding to complete development of product candidates or in order to commercialize approved products. However such funding may not be available to us on terms we deem acceptable or at all. Our ability to access additional capital is dependent on the success of our business and the perception by the market of our future business prospects. In the event we were unable to obtain necessary funding, we might halt or temporarily delay ongoing development projects.

Preclinical testing and clinical trials for product candidates must satisfy stringent regulatory requirements or we may be unable to utilize the results.

The preclinical testing and clinical trials of any product candidates that we develop must comply with regulations by numerous federal, state and local government authorities in the United States, principally the FDA, and by similar governmental authorities in other countries. Clinical trials are subject to continuing oversight by governmental regulatory authorities and institutional review boards and must meet the requirements of these authorities in the United States and other countries, including those for informed consent and good clinical practices. We may not be able to comply with these requirements, which could disqualify completed or ongoing clinical trials. We may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization of our product candidates, including the following:

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safety and efficacy results from human clinical trials may show the product candidate to be less effective or safe than desired or earlier results may not be replicated in later clinical trials;

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the results of preclinical studies may be inconclusive or they may not be indicative of results that will be obtained in human clinical trials;

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after reviewing relevant information, including preclinical testing or human clinical trial results, we may abandon or substantially restructure programs that we might previously have believed to be promising;

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we, the FDA, an IRB, an EC, or similar regulatory authorities in other countries may suspend or terminate clinical trials if the participating patients are being exposed to unacceptable health risks or for other reasons; and

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the effects of our product candidates may not be the desired effects or may include undesirable side effects or other characteristics that interrupt, delay or cause us or the FDA, or equivalent governmental authorities in other countries, to halt clinical trials or cause the FDA or non-United States regulatory authorities to deny approval of the product candidate for any or all target indications.

Each phase of clinical testing is highly regulated, and during each phase there is risk that we will encounter serious obstacles or will not achieve our goals, and accordingly we may abandon a product in which we have invested substantial amounts of time and money. In addition, we must provide the FDA and foreign regulatory authorities with preclinical and clinical data that demonstrate that our product candidates are safe and effective for each target indication before they can be approved for commercial distribution. We cannot state with certainty when or whether any of our products now under development will be approved or launched, or whether any products, once approved and launched, will be commercially successful.

The FDA, other non-United States regulatory authorities, or an Advisory Committee may determine our clinical trials data regarding safety or efficacy are insufficient for regulatory approval.

Although we obtain guidance from regulatory authorities on certain aspects of our clinical development activities, these discussions are not binding obligations on regulatory authorities. Regulatory authorities may revise or retract previous guidance or may disqualify a clinical trial in whole or in part from consideration in support of approval of a potential product for commercial sale or otherwise deny approval of that product. Even if we obtain successful clinical safety and efficacy data, we may be required to conduct additional, expensive trials to obtain regulatory approval. The FDA, or equivalent other country authorities, may elect to obtain advice from outside experts regarding scientific issues and/or marketing applications under FDA or other country authority review through the FDA’s Advisory Committee process or other country procedures. Views of the Advisory Committee or other experts may differ from those of the FDA, or equivalent other country authority, and may impact our ability to commercialize a product candidate.

If we encounter difficulties enrolling patients in our clinical trials, our trials could be delayed or otherwise adversely affected.

Clinical trials for our product candidates may require that we identify and enroll a large number of patients with the disease under investigation. We may not be able to enroll a sufficient number of patients, or those with required or desired characteristics to achieve diversity in a study, to complete our clinical trials in a timely manner.

Patient enrollment is affected by factors including:

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design of the trial protocol;

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the size of the patient population;

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eligibility criteria for the study in question;

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perceived risks and benefits of the product candidate under study;

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availability of competing therapies and clinical trials;

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efforts to facilitate timely enrollment in clinical trials;

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patient referral practices of physicians;

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the ability to monitor patients adequately during and after treatment; and

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geographic proximity and availability of clinical trial sites for prospective patients.

Additionally, even if we are able to identify an appropriate patient population for a clinical trial, there can be no assurance that the patients will continue in the clinical trial through completion.

If we have difficulty enrolling or maintaining a sufficient number of patients with sufficient diversity to conduct our clinical trials as planned, we may need to delay or terminate ongoing or planned clinical trials, either of which would have a negative effect on our business.

Risks Related to Regulation of the Pharmaceutical Industry

PROVENGE and our other products in development cannot be sold if we do not maintain or gain required regulatory approvals.

Our business is subject to extensive regulation by numerous state and federal governmental authorities in the United States, including the FDA, and by foreign regulatory authorities, with regulations differing from country to country. In the United States, the FDA regulates, among other things, the preclinical testing, clinical trials, manufacturing, safety, efficacy, potency, labeling, storage, record keeping, quality systems, advertising, promotion, sale and distribution of therapeutic products. Other applicable non-United States regulatory authorities have equivalent powers. Failure to comply with applicable requirements could result in, among other things, one or more of the following actions: withdrawal of product approval, notices of violation, untitled letters, warning letters, fines and other monetary penalties, unanticipated expenditures, delays in approval or refusal to approve a product candidate; product recall or seizure; interruption of manufacturing or clinical trials; operating restrictions; injunctions; and criminal prosecution. We are required in the United States and in foreign countries to obtain approval from regulatory authorities before we can manufacture, market and sell our products.

Obtaining regulatory approval for marketing of a product candidate in one country does not assure we will be able to obtain regulatory approval in other countries. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries. Once approved, the FDA and other United States and non-United States regulatory authorities have substantial authority to limit the uses or indications for which a product may be marketed, restrict distribution of the product, require additional testing, change product labeling or mandate withdrawal of our products. The marketing of our approved products will be subject to extensive regulatory requirements administered by the FDA and other regulatory bodies, including: the manufacturing, testing, distribution, labeling, packaging, storage, reporting and record-keeping related to the product, advertising, promotion, and adverse event reporting requirements. In addition, incidents of adverse drug reactions, unintended side effects or misuse relating to our products could result in required post-marketing studies, additional regulatory controls or restrictions, or even lead to withdrawal of a product from the market.

In general, the FDA and equivalent other country authorities require labeling, advertising and promotional materials to be truthful and not misleading, and marketed only for the approved indications and in accordance with the provisions of the approved label. If the FDA or other regulatory authorities were to challenge our promotional materials or activities, they may bring enforcement action.

Our failure to obtain approval, significant delays in the approval process, or our failure to maintain approval in any jurisdiction will prevent us from selling a product in that jurisdiction. Any product and its manufacturer will continue to be subject to strict regulations after approval, including but not limited to, manufacturing, quality control, labeling, packaging, adverse event reporting, advertising, promotion and record-keeping requirements. Any problems with an approved product, including the later exhibition of adverse effects or any violation of regulations could result in restrictions on the product, including its withdrawal from the market, which could materially harm our business. The process of obtaining approvals in foreign countries is subject to delay and failure for many of the same reasons.

Regulatory authorities could also add new regulations or change existing regulations at any time, which could affect our ability to obtain or maintain approval of our products. PROVENGE and our investigational cellular immunotherapies are novel. As a result, regulatory agencies lack experience with them, which may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of PROVENGE outside the United States and with respect to our active immunotherapy products under development. We are unable to predict when and whether any changes to regulatory policy affecting our business could occur, and such changes could have a material adverse impact on our business. If regulatory authorities determine that we have not complied with regulations in the research and development of a product candidate, a new indication for an existing product or information to support a current indication, they may not approve the product candidate or new indication or maintain approval of the current indication in its current form or at all, and we would not be able to market and sell it. If we were unable to market and sell our products or product candidates, our business and results of operations would be materially and adversely affected.

Failure to comply with foreign regulatory requirements governing human clinical trials and failure to obtain marketing approval for product candidates could prevent us from selling our products in foreign markets, which may adversely affect our operating results and financial condition.

The requirements governing the conduct of clinical trials, manufacturing, testing, product approvals, pricing and reimbursement outside the United States vary greatly from country to country. In addition, the time required to obtain approvals outside the United States may differ significantly from that required to obtain FDA approval. We may not obtain foreign regulatory approvals on the timeframe we may desire, if at all. Approval by the FDA does not assure approval by regulatory authorities in other countries, and foreign regulatory authorities could require additional testing. Failure to comply with these regulatory requirements or obtain required approvals could impair our ability to develop foreign markets for our products and may have a material adverse effect on our business and future prospects.

Our product sales depend on adequate coverage and reimbursement from third-party payers.

The sale of PROVENGE is dependent on the availability and extent of coverage and reimbursement from third-party payers, including government healthcare programs and private insurance plans. We rely in large part on the reimbursement coverage by federal and state sponsored government programs such as Medicare and Medicaid in the United States and equivalent programs in other countries. In the event we seek approvals to market PROVENGE in foreign territories, we will need to work with the government-sponsored healthcare systems in Europe and other foreign countries that are the primary payers of healthcare costs in those regions. Governments and private payers may regulate prices, reimbursement levels and/or access to PROVENGE and any other products we may market to control costs or to affect levels of use of our products. We cannot predict the availability or level of coverage and reimbursement for PROVENGE or our product candidates. A reduction in coverage and/or reimbursement for our products could have a material adverse effect on our product sales and results of operations.

The availability and amount of reimbursement for PROVENGE and our product candidates and the manner in which government and private payers may reimburse for our potential products is uncertain.

In many international markets, the prices of pharmaceutical products are subject to direct price controls pursuant to applicable law or regulation and to drug reimbursement programs with varying price control mechanisms. Many of the patients in the United States who seek treatment with PROVENGE or any other of our products that are approved for marketing will be eligible for Medicare benefits. Other patients may be covered by private health plans. The Medicare program is administered by the CMS, and coverage and reimbursement for products and services under Medicare are determined pursuant to statute, regulations promulgated by CMS, and CMS’s subregulatory coverage and reimbursement determinations. CMS’s regulations and interpretive determinations are subject to change, as are the procedures and criteria by which CMS makes coverage and reimbursement determinations and the reimbursement amounts established by statute, particularly because of budgetary pressures facing the Medicare program. For example, Medicare reimbursement for drugs and biologicals administered in physician offices, including PROVENGE, is set at ASP plus six percent by statute. ASP is a price calculated by the manufacturer and reported to CMS on a quarterly basis. In addition, the statute establishes the payment rate for new drugs and biologicals administered in hospital outpatient departments that are granted “pass-

through status” at the rate applicable in physicians’ offices (i.e., ASP plus six percent) for two to three years after FDA approval. PROVENGE was granted pass-through status effective October 1, 2010, allowing reimbursement in hospital outpatient departments at ASP plus six percent, and this status expired on December 31, 2012. CMS establishes the payment rates for drugs and biologicals that do not have pass-through status by regulation. For 2013, these drugs, including PROVENGE, are reimbursed at ASP plus six percent if they have an average cost per day exceeding $80; drugs with an average cost per day of less than $80 are not separately reimbursed. In future years, CMS could change both the payment rate and the average cost threshold, and these changes could adversely affect payment for PROVENGE. In addition, Congress has considered amending the statute to reduce Medicare’s payment rates for drugs and biologicals, and if such legislation is enacted, it could adversely affect payment for PROVENGE.

Beginning April 1, 2013, Medicare payments for all items and services, including drugs and biologicals, were reduced by up to 2% under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011, Pub. L. No. 112-25 (“BCA”), as amended by the American Taxpayer Relief Act of 2012, Pub. L. 112-240 (“ATRA”). The BCA requires sequestration for most federal programs, excluding Medicaid, Social Security, and certain other programs, because Congress failed to enact legislation by January 15, 2012, to reduce federal deficits by $1.2 trillion over ten years. The BCA caps the cuts to Medicare payments or items and services at 2%, and requires the cuts to be implemented on the first day of the first month following the issuance of a sequestration order. The ATRA delayed implementation of sequestration from January 2, 2013, to March 1, 2013, and as a result, the Medicare cuts took effect April 1, 2013. These cuts may adversely impact payment for PROVENGE and related procedures.

PROVENGE also is made available to patients that are eligible for Medicaid benefits. A condition of federal funds being made available to cover our products under Medicaid and Medicare Part B is our participation in the Medicaid drug rebate program, established by the Omnibus Budget Reconciliation Act of 1990, Pub. L. 101-508, and as amended by subsequent legislation, including PPACA. Under the Medicaid rebate program, we pay a rebate to each state Medicaid program for each unit of our drug paid for by those programs. The rebate amount for a drug varies by quarter, and is based on pricing data reported by us on a monthly and quarterly basis to CMS. These data include the monthly and quarterly average manufacturer price (“AMP”) for the drug, and in the case of innovator products such as PROVENGE, the quarterly best price (“BP”), which is our lowest price in a quarter to any commercial or non-governmental customer. The formula for determining the rebate amount, using those data, is set by law, and for innovator products like PROVENGE is the greater of 23.1% of AMP or the difference between AMP and BP. The rebate amount for innovator products also must be adjusted upward for price increases that outpace inflation.

We cannot predict the availability or level of coverage and the amount of reimbursement for PROVENGE or our product candidates, or the manner in which government and private payers may reimburse for our potential products. A reduction in coverage and/or reimbursement for our products could have a material adverse effect on our product sales and results of operations.

Healthcare law and policy changes, including those based on recently enacted legislation, may impact our business in ways that we cannot currently predict and these changes could have a material adverse effect on our business and financial condition.

In March 2010, the President signed PPACA. This law substantially changes the way healthcare is financed by both governmental and private insurers in the U.S., and significantly impacts the pharmaceutical industry. PPACA contains a number of provisions that are expected to impact our business and operations, in some cases in ways we cannot currently predict. Changes that may affect our business include those governing enrollment in federal healthcare programs, reimbursement changes, rules regarding prescription drug benefits under the health insurance exchanges, and fraud and abuse and enforcement. These changes will impact existing government healthcare programs and will result in the development of new programs.

PPACA significantly changed the Medicaid rebate program. Rebates previously were due only on utilization under Medicaid fee-for-service plans, but PPACA expanded our rebate liability to include the utilization of Medicaid managed care organizations, effective upon enactment, March 23, 2010. PPACA also increased the minimum rebate due for innovator drugs such as PROVENGE, from 15.1% of AMP to 23.1% of AMP, effective the first quarter of 2010, and capped the total rebate amount for innovator drugs at 100% of AMP. PPACA and subsequent legislation also changed the definition of AMP, effective the fourth quarter of 2010. CMS has issued a proposed rule to implement PPACA’s changes to the Medicaid rebate program, but does not anticipate finalizing this rule until later in 2014. This rule may have the effect of increasing our rebates or other costs and charges associated with participating in the Medicaid rebate program.

PPACA is expected to impact the United States pharmaceutical industry substantially, including with regard to how health care is financed by both governmental and private insurers. Some of the other key PPACA provisions include:

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The establishment of an annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs and biologics, beginning 2011. Each individual pharmaceutical manufacturer will pay a prorated share of the branded prescription drug fee (set at a total of $2.8 billion for 2012 and 2013 and increasing thereafter) based on the dollar value of its branded prescription drug sales to certain federal programs identified in the law;

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An expansion of the eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals beginning April 2010 and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the Federal Poverty Level beginning 2014, thereby potentially increasing manufacturers’ Medicaid rebate liability. In 2012, the Supreme Court of the United States heard challenges to the constitutionality of the individual mandate and the viability of certain provisions of PPACA. The Supreme Court’s decision upheld most of PPACA and determined that requiring individuals to maintain “minimum essential” health insurance coverage or pay a penalty to the Internal Revenue Service was within Congress’s constitutional taxing authority. However, the Supreme Court struck down a provision in PPACA that penalized states that choose not to expand their Medicaid programs. As a result of the Supreme Court’s ruling, it is unclear whether states will expand their Medicaid programs by raising the income limit to 133% of the federal poverty level and whether there will be more uninsured patients in 2014 than anticipated when Congress passed PPACA; and

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The establishment of a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research.

Although the constitutionality of key provisions of PPACA was upheld by the Supreme Court, legislative changes to the PPACA remain possible. The issuance of additional regulations and the passage of additional or amended legislation may increase our costs and the complexity of compliance. Moreover, a number of state and federal legislative and regulatory proposals aimed at reforming the healthcare system in the United States continue to be proposed, the effect of which, if enacted, could adversely impact our product sales and results of operations.

If we fail to comply with our obligation to accurately track and report ASP, AMP and BP data to the relevant state and federal authorities, we may face fines or penalties and could be subject to additional reimbursement requirements, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

As a result of our participation in the Medicaid and Medicare programs, we are required to report ASP, AMP and BP data to state and federal authorities. The calculations for our reported pricing data, including AMP, BP, as well as ASP, are complex and the governing legal requirements may be subject to interpretation by us, governmental or regulatory agencies, and the courts. If we become aware that our reported AMP and BP figures for prior quarters are incorrect or should be changed to reflect late-arriving pricing data, we are obligated to submit the corrected data for a period not to exceed 12 quarters from the quarter in which the data originally were due. Such restatements and recalculations serve to increase our costs for complying with the laws and regulations governing the Medicaid rebate program. Any corrections to our pricing data could result in an overage or underage in our rebate liability for past quarters, depending on the nature of the correction.

Our failure to submit AMP, BP, ASP, and other required data on a timely basis could result in a civil monetary penalty of $10,000 per day for each day the submission is late beyond the due date. In addition, if we are found to have knowingly submitted false information to the government, we could be liable for civil monetary penalties not to exceed $100,000 per item of false information, in addition to other penalties the government may impose. As to ASP specifically, if a manufacturer is found to have made a misrepresentation in the reporting of ASP, the statute provides for civil monetary penalties of up to $10,000 for each misrepresentation for each day in which the misrepresentation was applied. In all cases, this conduct also could result in the termination of our Medicaid rebate agreement. In the event that CMS terminates our rebate agreement, no federal payments would be available under Medicaid or Medicare Part B for PROVENGE or any other of our products that are approved for marketing.

The availability of federal funds under Medicaid and Medicare Part B to pay for PROVENGE and any other products that are approved for marketing also is conditioned on our participation in the PHS 340B drug pricing program. The 340B drug pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. These covered entities include hospitals that serve a disproportionate share of poor Medicare beneficiaries, as well as a variety of community health clinics and other recipients of health services grant funding. PPACA expanded the 340B program to include additional entity types: certain free standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, each as defined by the Act. The 340B ceiling price for a drug is calculated using a statutory formula that is based on the AMP and Medicaid rebate amount for the drug. To the extent PPACA, as discussed above, changes the statutory and regulatory definitions of AMP and the Medicaid rebate amount, these changes will also affect our 340B ceiling price for PROVENGE or any other of our products that are approved for marketing. Any revisions to previously reported Medicaid pricing data also may require revisions to the 340B ceiling prices that were based on those data and could require the issuance of refunds.

We also make PROVENGE available for purchase by authorized users of the FSS, of the General Services Administration pursuant to an FSS contract with the VA that was awarded to the Company in mid-2012. Under the Veterans Health Care Act of 1992 (“VHCA”), we are required to offer deeply discounted FSS contract pricing to four federal agencies commonly referred to as the “Big Four” — the VA, the DoD, the Coast Guard and the PHS (including the Indian Health Service) — for federal funding to be made

available for reimbursement of any of our products under the Medicaid program, Medicare Part B and for our products to be eligible to be purchased by those four federal agencies and certain federal grantees. FSS pricing to those four federal agencies must be equal to or less than the federal ceiling price (“FCP”). The FCP is based on a weighted average wholesaler price known as the non-federal average manufacturer price (“Non-FAMP”). We are required to report Non-FAMP to the VA on a quarterly and annual basis. If we misstate Non-FAMP or FCP, we must restate these figures. In addition, if we are found to have knowingly submitted false information to the government, the VHCA provides for civil monetary penalties of $100,000 per item of false information in addition to other penalties the government may impose.

The FSS contract is a federal procurement contract that includes standard government terms and conditions and extensive disclosure and certification requirements. The FSS contract has a five-year base term and five (5) one-year option periods. All items on FSS contracts are subject to a standard FSS contract clause that requires FSS contract price reductions under certain circumstances where pricing is reduced to an agreed “tracking customer.” Further, in addition to the “Big Four” agencies, all other federal agencies and some non-federal entities are authorized to access FSS contracts. If we overcharge the government in connection with our FSS contract, whether due to a misstated FCP or otherwise, we are required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against us under the Federal False Claims Act and other laws and regulations. Unanticipated refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Pricing and rebate calculations vary among products, and programs and are complex. Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. We cannot assure you that our submissions will not be found by CMS or VA to be incomplete or incorrect.

The pharmaceutical industry is subject to significant regulation and oversight to prevent an inappropriate inducement and health care fraud pursuant to anti-kickback laws, false claims statutes, and anti-corruption laws, which may result in significant additional expense and limit our ability to commercialize our products. In addition, any failure to comply with these regulations could result in substantial fines or penalties.

In the United States, we are also subject to health care fraud and abuse regulation and enforcement by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:

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the Federal health care programs’ Anti-Kickback Law, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good or service for which payment may be made under federal health care programs such as the Medicare and Medicaid programs;

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federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other federal health care programs that are false or fraudulent. This false claims liability may attach in the event that a company is found to have knowingly submitted false AMP, BP, ASP or other pricing data to the government or to have unlawfully promoted its products;

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federal “sunshine” laws that require transparency regarding financial arrangements with health care providers, such as the reporting and disclosure requirements imposed by PPACA on drug manufacturers regarding any “payment or transfer of value” made or distributed to physicians and teaching hospitals; and

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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers.

The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Moreover, recent health care reform legislation has strengthened many of these laws. For example, PPACA, among other things, amends the intent requirement of the federal anti-kickback and criminal health care fraud statutes to clarify that a person or entity does not need to have actual knowledge of this statute or specific intent to violate it. In addition, PPACA provides that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes.

Our products are subject to rigorous regulation by the FDA. These requirements include, among other things, regulations regarding manufacturing practices, quality control, product labeling, packaging, safety surveillance, adverse event reporting, storage, and advertising and post-marketing reporting. Our facilities and procedures are subject to ongoing regulation, including periodic inspection by the FDA and other regulatory authorities. We must spend time and effort to ensure compliance with these complex regulations. Possible regulatory actions could include warning letters, fines, damages, injunctions, civil penalties, recalls, seizures of our products, and criminal prosecution. These actions could result in substantial modifications to our business practices and operations that could disrupt our business.

In addition, a number of states have laws that require pharmaceutical companies to track and report payments, gifts and other benefits provided to physicians and other health care professionals and entities. Similarly, the federal Physician Payments Sunshine Act within PPACA requires pharmaceutical companies to report to the federal government certain payments to physicians and teaching hospitals. The Physician Payments Sunshine Act provisions required manufacturers that participate in federal health care programs to begin collecting such information on August 1, 2013. Manufacturers were required to begin reporting such data to CMS by March 13, 2014. Other state laws require pharmaceutical companies to adopt and or disclose specific compliance policies to regulate the company’s interactions with healthcare professionals. Moreover, some states, such as Minnesota and Vermont, also impose an outright ban on certain gifts to physicians.

Violations of some of these laws may result in substantial fines. These laws affect our promotional activities by limiting the kinds of interactions we may have with hospitals, physicians or other potential purchasers or users of our products. Both the disclosure laws and gift bans impose additional administrative and compliance burdens on us. In addition to the federal and state disclosure and gift ban laws, certain countries outside of the United States have similarly enacted disclosure laws that the company in its activities may be subjected to from time to time. Although we seek to structure our interactions in compliance with all applicable requirements, these laws are broadly written, and it is often difficult to determine precisely how a law will be applied in specific circumstances. If an employee were to offer an inappropriate gift to a customer, we could be subject to a claim under an applicable state law. Similarly if we fail to comply with a reporting requirement, we could be subject to penalties under applicable federal or state laws or laws outside the United States.

The United States and other countries have adopted anti-corruption laws such as the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act, which generally prohibit directly or indirectly giving, offering or promising inducements to public officials to elicit an improper commercial advantage. Under the FCPA, this prohibition has been interpreted to apply to doctors and other medical professionals who work in state-run hospitals and state-run healthcare systems outside the United States. Some of these laws, including the U.K. Bribery Act, also prohibit directly or indirectly giving, offering or promising (and, in some cases, accepting or soliciting) inducements to (or from) private parties to elicit (or grant) an improper commercial advantage.

As we begin to commercialize our products outside the United States, there is an increased risk that we (or others acting on our behalf) will engage in transactions or activities that could be deemed to violate applicable anti-corruption laws. Although we believe that we have appropriate compliance policies and procedures in place to mitigate such risk, our personnel and others acting on our behalf could nevertheless engage in conduct that violates such laws, for which we could be held responsible. Under such circumstances, we could be subject to civil and/or criminal penalties, and the resulting negative publicity could adversely affect our brand, our reputation, and our commercial activities.

We expect there will continue to be U.S. and non-U.S. national and, in some cases, regional and local laws and/or regulations, proposed and implemented, that could impact our operations and business. The extent to which future legislation or regulations, if any, relating to health care fraud abuse laws and/or enforcement, may be enacted or what effect such legislation or regulation would have on our business remains uncertain. Because of the breadth of these laws and, in some cases, the lack of extensive legal guidance in the form of regulations or court decisions, it is possible that some of our business activities could be subject to challenge under one or more of these laws. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion of a company’s products from reimbursement under governmental health care programs, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results. Any challenge that we or our business partners have failed to comply with applicable laws and regulations could have a material adverse effect on our business, financial condition, results of operations and growth prospects. If we or the other parties with whom we work fail to comply with applicable regulatory requirements, we or they could be subject to a range of regulatory actions that could affect our ability to commercialize our products and could harm or prevent sales of the affected products, or could substantially increase the costs and expenses of commercializing and marketing our products. Any threatened or actual government enforcement action could also generate adverse publicity and require that we devote substantial resources that could otherwise be used in other aspects of our business.

We may be subject to or otherwise affected by laws relating to privacy and security of personal information, including personal health information and our failure to comply could result in fines and penalties and significant reputational damage.

There are numerous United States federal and state laws governing the privacy and security of personal health information that we obtain, maintain or have access to in connection with manufacture of our product. Some of the laws that may apply include state

security breach notification laws, state health information privacy laws and federal and state consumer protections laws which impose requirements for the collection, use, disclosure and transmission of personal information. Numerous other countries have, or are developing, laws governing the collection, use and transmission of personal information as well. Each of these laws may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us. If we fail to comply with applicable laws and regulations we could be subject to penalties or sanctions.

Although we are not a covered entity subject to the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), most healthcare providers who prescribe our product and from whom we obtain personal health information are subject to HIPAA. Accordingly, we could be subject to criminal penalties if we knowingly obtain individually identifiable health information from a covered entity in a manner that is not authorized or permitted by HIPAA or for aiding and abetting the violation of HIPAA. We are unable to predict whether our actions could be subject to prosecution in the event of an impermissible disclosure of health information to us.

The receipt of personal health information in connection with our clinical trial initiatives is subject to state and federal human subject protection laws. These laws could create liability for us if one of our research collaborators were to use or disclose research subject information without consent and in violation of applicable laws.

If we do not ensure the effectiveness of our information security controls over patient personal information, cyber-attacks against our computing infrastructure may result in that information being accessed by unauthorized external individuals, which could result in substantial reputational damage, increase company costs, and may subject the company to financial penalties.

We receive personal information from our patients and our business partners in connection with business operations and the product manufacturing process. We have implemented information security measures to protect patients’ personal information against the risk of inappropriate and unauthorized external use and disclosure. However, despite these measures, and due to the ever changing information cyber-threat landscape, we may be subject to data breaches through cyber-attacks perpetrated by individuals that attempt to compromise our security controls.

An attack that results in a breach of patient information may compromise our patients’ trust, resulting in devastating reputational damage, which could have major operational and financial impact on our business. Moreover, because we depend on information systems for our manufacturing process, a successful cyber-attack could limit the availability of our computing infrastructure thereby causing a disruption in our operations and negatively affecting our financial condition. Any such cyber-breach may subject the company to state and federal penalties. Finally, an information breach through cyber-attacks could require that we engage additional resources, thereby increasing our costs.

We use hazardous materials in our business and must comply with environmental laws and regulations, which can be expensive.

Our operations produce hazardous waste products, including chemicals and radioactive and biological materials. We are subject to a variety of federal, state and local laws and regulations relating to the use, handling, storage and disposal of these materials. Although we believe that our safety procedures for handling and disposing of these materials complies with the standards prescribed by state and federal laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. We generally contract with third parties for the disposal of such hazardous waste products and store our low level radioactive waste at our facilities in compliance with applicable environmental laws until the materials are no longer considered radioactive. We are also subject to regulation by the Occupational Safety and Health Administration (“OSHA”), and the Environmental Protection Agency (the “EPA”), and to regulation under the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other regulatory statutes, and may in the future be subject to other federal, state or local regulations. OSHA and/or the EPA may promulgate regulations that may affect our research and development programs. We may be required to incur further costs to comply with current or future environmental and safety laws and regulations. In addition, in the event of accidental contamination or injury from these materials, we could be held liable for any damages that result, including remediation, and any such liability could exceed our resources.

Risks in Protecting Our Intellectual Property

If we are unable to protect our proprietary rights or to defend against infringement claims, we may not be able to compete effectively or operate profitably.

We invent and develop technologies that are the basis for or incorporated in our potential products. We protect our technology through United States and foreign patent filings, copyrights, trademarks and trade secrets. We have issued patents, and applications for United States and foreign patents in various stages of prosecution. We expect that we will continue to file and prosecute patent applications and that our success depends in part on our ability to establish and defend our proprietary rights in the technologies that are the subject of issued patents and patent applications.

The fact that we have filed a patent application or that a patent has issued, however, does not ensure that we will have meaningful protection from competition with regard to the underlying technology or product. Patents, if issued, may be challenged, invalidated, declared unenforceable or circumvented or may not cover all applications we may desire. Our pending patent applications as well as those we may file in the future may not result in issued patents. Patents may not provide us with adequate proprietary protection or advantages against competitors with, or who could develop, similar or competing technologies or who could design around our patents. Patent law relating to the scope of claims in the pharmaceutical field in which we operate is continually evolving and can be the subject of some uncertainty. The laws providing patent protection may change in a way that would limit protection.

We also rely on trade secrets and know-how that we seek to protect, in part, through confidentiality agreements. Our policy is to require our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators and sponsored researchers and other advisors to execute confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties except in specific limited circumstances. We also require signed confidentiality agreements from companies that receive our confidential data. For employees, consultants and contractors, we require confidentiality agreements providing that all inventions conceived while rendering services to us shall be assigned to us as our exclusive property. It is possible, however, that these parties may breach those agreements, and we may not have adequate remedies for any breach. It is also possible that our trade secrets or know-how will otherwise become known to or be independently developed by competitors.

We are also subject to the risk of claims, whether meritorious or not, that our products or product candidates infringe or misappropriate third-party intellectual property rights. Defending against such claims can be quite expensive even if the claims lack merit. If we are found to have infringed or misappropriated a third party’s intellectual property, we could be required to seek a license or discontinue our products or cease using certain technologies or delay commercialization of the affected products or product candidates, and we could be required to pay substantial damages, which could materially harm our business.

We may be subject to litigation with respect to the ownership and use of intellectual property that will be costly to defend or pursue and uncertain in its outcome.

Our business may bring us into conflict with our licensees, licensors or others with whom we have contractual or other business relationships, or with our competitors or others whose interests differ from ours. If we are unable to resolve those conflicts on terms that are satisfactory to all parties, we may become involved in litigation brought by or against us. That litigation is likely to be expensive and may require a significant amount of management’s time and attention, at the expense of other aspects of our business.

Litigation relating to the ownership and use of intellectual property is expensive, and our position as a relatively small company in an industry dominated by very large companies may cause us to be at a disadvantage in defending our intellectual property rights and in defending against claims that our product or product candidates infringe or misappropriate third-party intellectual property rights. Even if we are able to defend our position, the cost of doing so may adversely affect our profitability. We may in the future be subject to patent litigation and may not be able to protect our intellectual property at a reasonable cost if such litigation is initiated. The outcome of litigation is always uncertain, and in some cases could include judgments against us that require us to pay damages, enjoin us from certain activities or otherwise affect our legal or contractual rights, which could have a significant adverse effect on our business.

We are exposed to potential product liability claims, and insurance against these claims may not be adequate and may not be available to us at a reasonable rate in the future.

Our business exposes us to potential liability risks inherent in the research, development, manufacturing and marketing of pharmaceutical products and product candidates. If any of our product candidates in clinical trials or our marketed products harm people or allegedly harm people, we may be subject to costly and damaging product liability claims. Most, if not all, of the patients who participate in our clinical trials are already seriously ill when they enter a trial. We have clinical trial insurance coverage, and commercial product liability insurance coverage. However, this insurance coverage may not be adequate to cover all claims against us. There is also a risk that adequate insurance coverage will not be available in the future on commercially reasonable terms, if at all. The successful assertion of an uninsured product liability or other claim against us could cause us to incur significant expenses to pay such a claim, could adversely affect our product development or product sales and could cause a decline in our product revenues. Even a successfully defended product liability claim could cause us to incur significant expenses to defend such a claim, could adversely affect our product development and could cause a decline in our product revenues. In addition, product liability claims could result in an FDA or equivalent non-United States regulatory authority investigation of the safety or efficacy of our products, our manufacturing processes and facilities, or our marketing programs. An FDA or equivalent non-United States regulatory authority investigation could also potentially lead to a recall of our products or more serious enforcement actions, limitations on the indications for which they may be used, or suspension or withdrawal of approval.

Risks Relating to an Investment in Our Common Stock

*We are currently subject to certain pending litigation and may be subject to similar claims in the future.

As previously reported the Company and three former officers are named defendants in a securities action pending in the United States District Court for the Western District of Washington (the District Court”) and brought by a group of individual investors who elected to opt out of a securities class action lawsuit that was settled in August 2013. The pending action, filed May 16, 2013, is captioned Christoph Bolling, et al. v. Dendreon Corporation, et al., Case No. 2:13-cv-0872 JLR. Plaintiffs allege generally that the Company made various false or misleading statements between April 29, 2010 and August 3, 2011 concerning the Company, its finances, business operations and prospects with a focus on the market launch of PROVENGE and related forecasts concerning physician adoption, and revenue from sales of PROVENGE. Based on information provided informally by plaintiffs’ counsel, the plaintiff group, which totals approximately 30 persons, purports to have purchased approximately 250,000 shares of Dendreon common stock during the relevant period. The Bolling plaintiffs filed an amended complaint on July 16, 2013, alleging both violations of certain provisions of the federal Securities Exchange Act of 1934 and provisions of Washington state law and seeking unspecified damages. In response to a motion by defendants, the federal claims were dismissed with leave to amend in January 2014. On February 17, 2014, plaintiffs filed a Second Amended Complaint which defendants moved to dismiss on March 24, 2014. After briefing, the District Court, by order dated June 5, 2014, again dismissed the federal claims, but denied the motion as to the plaintiffs’ Washington state law claims for fraudulent and negligent misrepresentation. The case is now in the discovery phase. We cannot predict the outcome of the litigation; however, the Company intends to continue defending against claims vigorously.

The Company also is the subject of stockholder derivative complaints first filed in August 2011 generally arising out of the facts and circumstances that are alleged to underlie the previously settled securities action. Derivative suits filed in the District Court were consolidated into a proceeding captioned In re Dendreon Corp. Derivative Litigation, Master Docket No. C 11-1345 JLR; others were filed in the Superior Court of Washington for King County and were consolidated into a proceeding captioned In re Dendreon Corporation Shareholder Derivative Litigation, Lead Case No. 11-2-29626-1 SEA. In addition, on June 22, 2012, another derivative action was filed in the Court of Chancery of the State of Delaware, captioned Herbert Silverberg, derivatively on behalf of Dendreon Corporation v. Mitchell H. Gold, et al., Case No. 7646-VCP. The various derivative complaints name as defendants various current and former officers and directors of the Company. While the complaints assert various legal theories of liability, the lawsuits generally allege that the defendants breached fiduciary duties owed to the Company in connection with the launch of PROVENGE and by purportedly subjecting the Company to potential liability for securities fraud. The complaints also include claims against certain defendants for supposed misappropriation of Company information and insider trading; the Silverberg complaint, asserts only this latter claim. After a formal mediation and further post-mediation negotiations, the parties to the various derivative actions reached a tentative settlement of the actions, the terms of which are set out in a Memorandum of Understanding dated as of July 18, 2014. The settlement is subject to final documentation and court approval. We cannot predict whether the process of full settlement documentation and court approval will be successful. In any event, the purported derivative lawsuits do not seek relief against the Company although the Company has certain indemnification obligations, including obligations to advance legal expense to the named defendants for defense of these lawsuits. Additionally, the Securities and Exchange Commission (“SEC”) is conducting a formal investigation, which we believe relates to some of the same issues raised in the securities and derivative actions. We are cooperating fully with the SEC investigation. The ultimate financial impact of these various proceedings, if any, is not yet determinable and therefore, no provision for loss, if any, has been recorded in the financial statements. With respect to all of the above-described proceedings, the Company has insurance that we believe affords coverage for much of the anticipated costs, subject to the policies’ terms and conditions.

On March 7, 2014, a stockholder derivative complaint was filed in United States District Court for the District of Delaware. The lawsuit, captioned Quintal v. Bayh, et al., No. 1:14-cv-00311-LPS, names as defendants both present and former members of the Company’s Board. Plaintiff’s purported derivative complaint alleges that members of the Company’s Board of Directors violated the terms of the Company’s 2009 Equity Incentive Plan by granting to non-employee directors shares of Company stock that vested immediately upon grant as part of the non-employee director’s annual compensation package. Defendants filed a motion to dismiss the complaint on April 14, 2014. The Court heard oral argument on Defendants’ motion on July 29, 2014, and the motion is now under submission. We cannot predict the outcome of the motion to dismiss or the timing of the action. While the Company has certain indemnification obligations, including obligations to advance legal expense to the named defendants for defense of this lawsuit, the lawsuit does not seek monetary relief against the Company.

The Company is not a defendant in the stockholder derivative actions as the defendants are the members of the Company’s Board of Directors and certain executive officers. Nevertheless, the Company is at risk of incurring significant costs in connection with these derivative actions, including for example costs associated with discovery and defense of the individual defendants. We

cannot predict the outcome of any of these suits or proceedings. Monitoring and defending against legal actions, whether or not meritorious, and considering stockholder demands is time-consuming for our management and detracts from our ability to fully focus our internal resources on our business activities and we cannot predict how long it may take to resolve these matters. In addition, legal fees and costs incurred in connection with such activities can be significant. We cannot predict the outcome of the matters or the associated costs to us, nor the amounts that the Company may need to pay to settle them or satisfy an adverse judgment. The Company maintains directors’ and officers’ liability insurance that it believes is applicable to these various lawsuits; however, this insurance coverage may not be adequate to cover all claims against us. We have not established any reserves for any potential liability relating to the suits or other claims related to the same matters. It is possible that we could, in the future, be subject to judgments or enter into settlements of claims for monetary damages. A decision adverse to our interests on these actions or resulting from these matters could result in the payment of substantial damages and could have a material adverse effect on our cash flow, results of operations and financial position.

Our business may be affected by other legal proceedings.

We have been in the past, and may become in the future, involved in legal proceedings in addition to those described above. You should carefully review and consider the various disclosures we make in our reports filed with the SEC regarding legal matters that may affect our business. Civil and criminal litigation is inherently unpredictable and outcomes can result in excessive verdicts, fines, penalties and/or injunctive relief that affect how we operate our business. Monitoring and defending against legal actions, whether or not meritorious, and considering stockholder demands, is time-consuming for our management and detracts from our ability to fully focus our internal resources on our business activities. In addition, legal fees and costs incurred in connection with such activities may be significant. We cannot predict with certainty the outcome of any legal proceedings in which we become involved and it is difficult to estimate the possible costs to us stemming from these matters. Settlements and decisions adverse to our interests in legal actions could result in the payment of substantial amounts and could have a material adverse effect on our cash flow, results of operations and financial position. Refer to Part II Item 1 for further discussion of our legal proceedings.

Market volatility may affect our stock price, and the value of an investment in our common stock may be subject to sudden decreases.

The trading price for our common stock has been, and we expect it to continue to be, volatile. The price at which our common stock trades depends on a number of factors, including the following, many of which are beyond our control:

•

the relative success of our commercialization efforts for PROVENGE;

•

developments concerning our competitors;

•

preclinical and clinical trial results and other product development activities;

•

our historical and anticipated operating results, including fluctuations in our financial and operating results or failure to meet revenue guidance;

•

changes in government regulations affecting product approvals, reimbursement or other aspects of our or our competitors’ businesses;

•

announcements of technological innovations or new commercial products by us or our competitors;

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developments concerning our key personnel;

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our ability to protect our intellectual property, including in the face of changing laws;

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announcements regarding our significant collaborations or strategic alliances;

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publicity regarding actual or potential performance of products under development by us or our competitors;

•

market perception of the prospects for biotechnology companies as an industry sector; and

•

general market and economic conditions.

During periods of extreme stock market price volatility, share prices of many biotechnology companies have often fluctuated in a manner not necessarily related to their individual operating performance. Furthermore, historically our common stock has experienced greater price volatility than the stock market as a whole.

Anti-takeover provisions in our charter documents and under Delaware law and our stockholders’ rights plan could make an acquisition of us, which may be beneficial to our stockholders, more difficult.

Provisions of our amended and restated certificate of incorporation, as amended (“certification of incorporation”) and amended and restated bylaws (“bylaws”) will make it more difficult for a third party to acquire us on terms not approved by our board of directors and may have the effect of deterring hostile takeover attempts. Our certificate of incorporation, as amended, authorizes our board of directors to issue up to 10,000,000 shares of preferred stock, of which 2,500,000 shares have been designated as “Series A Junior Participating Preferred Stock,” and to fix the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The rights of the holders of our common stock will be subject to, and may be junior to the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock could reduce the voting power of the holders of our common stock and the likelihood that common stockholders will receive payments upon liquidation.

In addition, our certificate of incorporation divides our board of directors into three classes having staggered terms. This may delay any attempt to replace our board of directors. We have also implemented a stockholders’ rights plan, also called a poison pill, which would substantially reduce or eliminate the expected economic benefit to an acquirer from acquiring us in a manner or on terms not approved by our board of directors. These and other impediments to a third-party acquisition or change of control could limit the price investors are willing to pay in the future for shares of our common stock. Our executive officers have employment agreements that include change of control provisions providing severance benefits in the event that their employment terminates involuntarily without cause or for good reason within twelve months after a change of control of us. These agreements could affect the consummation of and the terms of a third-party acquisition.

We are also subject to provisions of Delaware law that could have the effect of delaying, deferring or preventing a change of control of our company. One of these provisions prevents us from engaging in a business combination with any interested stockholder for a period of three years from the date the person becomes an interested stockholder, unless specified conditions are satisfied.

*We do not intend to pay cash dividends on our common stock in the foreseeable future.

We have never declared or paid cash dividends on our capital stock. We are not currently profitable. To the extent we become profitable, we intend to retain any future earnings to fund the development and growth of our business and do not currently anticipate paying any cash dividends in the foreseeable future.

*The fundamental change repurchase feature of our convertible notes may delay or prevent a takeover attempt of our company that would otherwise be beneficial to investors.

The indenture governing our 2016 Notes will require us to repurchase the notes for cash upon the occurrence of a fundamental change and, in certain circumstances, to increase the conversion rate for a holder that converts its notes in connection with a fundamental change. A takeover of our company may be a fundamental change that would trigger the requirement that we repurchase the notes and increase the conversion rate, which could make it more costly for a potential acquirer to engage in a combinatory transaction with us. Such additional costs may have the effect of delaying or preventing a takeover of our company that would otherwise be beneficial to investors.

*Changes in interest rates can affect the fair value of our investment portfolio and the debt we have issued and its interest earnings.

Our interest rate risk exposure results from our investment portfolio and our non-recourse notes. Our primary objectives in managing our investment portfolio are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. The securities we hold in our investment portfolio are subject to interest rate risk. At any time, sharp changes in interest rates can affect the fair value of the investment portfolio and its interest earnings. Currently, we do not hedge these interest rate exposures. We have established policies and procedures to manage exposure to fluctuations in interest rates. We place our investments with high quality issuers, limit the amount of credit exposure to any one issuer, and do not use derivative financial instruments in our investment portfolio.

The fair value of the 2016 Notes is affected by changes in the interest rates and by changes in the price of our common stock.

If securities or industry analysts publish research or reports or publish unfavorable research about our business, the price of our common stock and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who covers us downgrades our common stock, the price of our common stock would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our common stock could decrease, which could cause the price of our common stock or trading volume to decline.

Risks Relating to Foreign Operations

Risks associated with operating in foreign countries could materially adversely affect our business.

In September 2013, PROVENGE was approved in Europe. In Germany and the United Kingdom, Dendreon will make PROVENGE commercially available to patients within the approved label through Centers of Excellence using its Contract Manufacturing Organization, PharmaCell. In addition, we may expand our presence in Europe to other countries. As a result, our activities in Europe may include importing, marketing, selling and distributing our products in European countries. Our clinical and commercial supply chain activities could occur outside the United States. Consequently, we are, and will continue to be, subject to risks related to operating in foreign countries. Risks associated with conducting operations in foreign countries include:

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differing regulatory requirements for drug approvals and regulation of approved drugs in foreign countries;

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differing laws and regulation regarding protection of private information required for our business operations;

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unexpected changes in tariffs, trade barriers and regulatory requirements;

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economic weakness, including inflation, or political instability in particular foreign economies and markets;

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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

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foreign taxes, including withholding of payroll taxes;

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foreign currency fluctuations, which could result in increased operating expenses or reduced revenues, and other obligations incident to doing business or operating in another country;

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workforce uncertainty in countries where labor unrest is more common than in the United States;

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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

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business interruptions resulting from geo-political actions, including war and terrorism.

These and other risks described elsewhere in these risk factors associated with our international operations could materially adversely affect our business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

Share Repurchases. The following sets forth information with respect to purchases of shares of common stock made during the three months ended June 30, 2014 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18 of the Securities Exchange Act of 1934:


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
April 1 — April 30, 2014		17,845	$	2.91		—		—
May 1 — May 31, 2014		3,830		2.16		—		—
June 1 — June 30, 2014		104		2.37		—		—

Total		21,779	$	2.77		—		—

(1)	Represents shares withheld from vested restricted stock to satisfy the minimum withholding requirement for federal and state taxes.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit Number		Description

10.1		Transition and Separation Agreement, dated as of June 9, 2014, by and between the Company and John H. Johnson (incorporated by reference to Exhibit 10.1 to the Company’s current Report on form 8-K filed on June 9, 2014)

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of Chief Executive Officer and Interim Chief Financial Officer pursuant to 18 U.S.C § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL INSTANCE DOCUMENT

101.SCH		XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

101.CAL		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT

101.DEF		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT

101.LAB		XBRL TAXONOMY EXTENSION LABELS LINKBASE DOCUMENT

101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 11, 2014


DENDREON CORPORATION

By:		/s/ W. Thomas Amick
		W. Thomas Amick
		President and Chief Executive Officer
		(Principal Executive Officer)

By:		/s/ Gregory R. Cox
		Gregory R. Cox
		Interim Chief Financial Officer and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)

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