Dendreon to sell royalty in Merck hepatitis C drug-Victrelis

UPDATE 2-Dendreon to sell royalty in Merck hep C drug* Dendreon says made deal to strengthen cash position

* CPPIB to pay $125 mln for Victrelis royalty rights

* Shares off 1 percent

Dec 6 (Reuters) - Dendreon Corp said on Tuesday it will sell its royalty interest in Merck & Co Inc's hepatitis C drug Victrelis for $125 million in an effort to build up its cash holdings.

Dendreon said Toronto-based CPP Investment board (CPPIB) has agreed to buy the royalty rights, which are related to Victrelis intellectual property and were acquired by Dendreon in July of 2003.

Victrelis, one of two new treatments for hepatitis C on the market, received approval in May of this year.

Dendreon has been struggling with disappointing sales and physician acceptance of its Provenge vaccine to treat prostate cancer and earlier this year withdrew its bullish sales forecast for the drug.

"We view this as a smart move by the company," ISI Group analyst Mark Schoenebaum said in a research note.

He said the $125 million upfront cash payment "limits downside risk in case (Provenge) revenue ramp is slower than expected."

Dendreon shares slipped 10 cents, or 1.1 percent to $8.70 on Nasdaq. They were trading for around $44 in May, but plummeted in August after the company withdrew its Provenge forecast calling for a big fourth quarter.

"The sale of the Victrelis royalty interest allows the company to strengthen our cash position, and enables us to further invest in our core business initiatives," Greg Schiffman, Dendreon's chief financial officer, said in a statement.

CPPIB is an investment management organization that handles the assets of the Canada Pension Plan.