Doomed Dendreon? Many Speculators Shocked By Poor Sales Again
(Thomson Reuters ONE) -
By Brian Wilson, Contributor
Dendreon (DNDN) has been a disastrous holding for many investors who may have
been initially optimistic about the company's drug PROVENGE. I initiated
coverage on the distressed biotech name on July 21st of this year with a hold
rating. I certainly did not want my followers to buy any more of the stock, and
I had my reservations about a cold-blooded sell recommendation due to the
extreme bearishness surrounding the company.
What we needed in Dendreon's quarterly report (released after the bell on July
30th 2012) was a sign that sales of PROVENGE were going to grow enough to bring
the company to profitability. In a model I constructed, the number $340,000 (in
quarterly sales) came up as the approximate amount that Dendreon has to reach in
order to reach profitability. I came up with this figure assuming that Dendreon
would be able to reach a 40% profit margin by selling PROVENGE, and that the
company's costs remains similar to where they are today.
After Q2 2012 results, I was shocked to see that PROVENGE revenue not only
failed to increase at the rate we were hoping for, but actually declined. It is
a potential sign, not a confirmation, that PROVENGE might be approaching its
peak sales. I'd wait another one or two quarters to make the assumption,
however.
The full reaction to the news may not be over, but it only took two trading
sessions to bring Dendreon 30% lower in open trading, erasing roughly $200
million in value. There are about 38 million shares short, which are now in the
green (since Dendreon is trading at a 52-week low). This eliminates, or at least
delays the huge potential short squeeze we may have seen if Dendreon had
reported a decent quarter.
The one positive takeaway from the quarterly release was that Dendreon seems to
finally realize how unsustainable their business model is, and CEO John Johnson
has finally come up with a restructuring plan that can bring some profitability.
Dendreon plans to reduce costs by $150 million per year, and move profit margins
above 50% by closing one of their high-tech facilities.
Dendreon has become a very cheap stock compared to what it used to be, but
betting on PROVENGE is still a dangerous move. There is only be a certain amount
of improvement in the manufacturing process of the drug, and until we see sales
revenue grow we are looking at a permanently unprofitable company.
In a note to clients this week, J.P. Morgan analysts downgraded DNDN to Neutral
from Overweight on the heels of the company's 2Q report and restructuring
announcement believing that "while management took difficult yet decisive action
with regard to restructuring, the move may be too little, too late."
Wrote the analysts: "There's no denying that Provenge is about to face
increasing competition in its key pre-chemo market segment. The question is
whether it becomes an either/or market (i.e. Provenge or Zytiga/enzalutamide) or
one where sequential therapy of effective products becomes commonplace. In the
end, we think it will depend on the particular physician (and payor), but in an
environment where we are still consistently surprised by the lack of
understanding (by docs) of the Phase 3 IMPACT data that led to Provenge's
approval, we question how quickly the majority of physicians will gravitate
towards sequential therapy. With Provenge sales slipping 2% q/q ahead of
Zytiga's pre-chemo approval, we'd prefer not to stick around to see how it does
when Zytiga is actually readily available in this setting."
Accordingly, the banker said they are not comfortable investing in a company
with significant turnover from top to bottom and with declining growth ahead of
potentially substantial competition.
The full report on DNDN and others are available at:
http://www.biomedreports.com/20120802101084/doomed-dendreon-speculators-shocked-
by-sales-again.html
Healthcare investors and Biotech traders interested in accessing BioMedReports'
new complete database of clinical trials and upcoming FDA and world-wide
regulatory decisions which can be used to make more profitable trades and see
upcoming catalysts can go to: http://biomedreports.com/fdacal.html
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Datum: 02.08.2012 - 14:00 Uhr
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