Is There Any Hope Left For Dendreon

Dendreon Corporation  (NASDAQ: DNDN  )  shareholders have been on a rollercoaster over the past few years. Dendreon got their lead product Provenge approved for use in metastatic castration-resistant prostate cancer, but has been unable to profitably produce and market the drug, reporting net losses every year that Provenge was on the market. With this in mind, we need to ask ourselves whether this is the end of the line for Dendreon.

Dendreon's debt situation
The biggest indicator of success moving forward will be whether or not Dendreon will be able to meet its rather substantial debt obligations. Dendreon recently announced the payment of its 2014 notes, but these notes are just a tiny fraction of what they will have to pay in 2016.

The 2016 notes represent a large catalyst for shareholders, with $620 million due -- significantly more than the $155 million Dendreon has in cash. Dendreon’s cash position continues to worsen, as cash burn was around $30 million last quarter; management estimates a similar burn this coming quarter. And Provenge sales haven’t impressed – last quarter, company revenue was $68.8 million, roughly in line with revenue over the past five quarters.

Investors who still hang onto hope regarding Dendreon will point to the opening of the European market. They hope to see significant new sales in Europe, which will begin to ramp up in the fourth quarter of this year. But those sales will require infrastructure, production, and sales force investments that may further strain Dendreon’s resources.

What about other options?
The recent departure of Dendreon’s CEO John Johnson has left investors hoping for a buyout. But I don’t see an unprofitable drug and a large debt pile as attractive to a potential acquirer. Even if another company stepped in to buy Dendreon, I don’t think it would necessarily be for any sort of premium -- after all, the company doesn’t appear to have many options given its financial straits. And given Dendreon’s current market cap of under $400 million, share dilution sufficient to pay off the debt seems like an unattractive alternative for shareholders.

Bottom line
Dendreon will have a hard time meeting its 2016 debt obligations. With continuing losses and no immediate hope to turn them around, I’m not sure that Dendreon will have the cash needed to keep operating. While some investors might see this as a turnaround opportunity, I don’t see the oncoming barriers as surmountable, and I think that biotech investors have better places to park their money.

Dendreon Opportunity?

Just today Dendreon Corporation (DNDN) announced "corporate restructuring" and that it would cut approximately 500 jobs. This comes on the back of disappointing sales for its Provenge treatment for Prostate Cancer, and an over 60 percent drop in its stock price on the day of the sales. Dendreon has spent a lot of money to open yet another manufacturing plant, and it seems to have atleast initially way over-anticipated the demand of Provenge. DNDN last quarter announced Provenge sales of just 49.6 million dollars, which is substantially lower than analyst estimates. DNDN also withdrew its previous revenue guidance and said that it expects moderate quarter over quarter growth in sales.

Previously DNDN had predictions of 350 to 400 million dollars in sales for the fiscal year, however that has now been withdrawn by the company.

The main problem that is facing DNDN is getting reimbursed by insurance companies.Provenge's price tag is a whopping 93 thousand dollars, and insurance companies seem to have a hard time justifying the cost in the face of how many more months it adds to a patient's life.

For the fourth quarter DNDN reported a net loss of 114.6 million dollars or 79 cents per share. DNDN is quickly bleeding cash and will need for Provenge sales to increase to have any hope.

The next question really becomes does DNDN have anything else in its pipeline that might be worth investing in? The answer is yes.... kind of. DNDN has a few different drug candidates listed under its pipeline, one of the more promising treatments appears to be a treatment called Sipuleucel-T, which is in Phase II and III trials in Hormone sensitive prostate cancer, as well as in metastatic Prostate Cancer. However, Cancer drug trials take a very long time to run by their very nature, so I am not sure how far away this drug is from the market, but I would say atleast a few years if it can even garner approval.

DNDN also has some other compounds which are in various stages of clinical trials but for now they seem to be reliant on Provenge for their future success.

On DNDN I would say invest on what you can see. I would estimate that the sales numbers although initially slumped, will probably pick up later, so the company could still be successful later. I believe that this company is very reliant on Provenge.

Its a risky bet but it might be worth picking up a few shares and being prepared for their next earnings and seeing if you can make some quick money on this one. DNDN's other drugs appear to be years out, so for right now Provenge seems to be the drug that is going to make or break this company.

Disclosure: I do not own a position in DNDN, and do not plan on opening one for the next week at least.


To view all drugs in their pipeline, here is a link to DNDN's home website:
www.Dendreon.com

To get a quick rundown of the earnings report:
http://www.thestreet.com/story/11208772/1/dendreon-earnings-provenge-whiffs-badly.html

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