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Is Dendreon Just a Dot-Com Story at This Price?

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Editor's note: An earlier version of this article gave a mistaken amount of cash on Dendreon's books. The article has been updated, and the Fool regrets the error.

If you are afraid you've missed all the gains in this year's Dendreon (Nasdaq: DNDN  ) rally, then I've got some bad news for you: You probably have. And for anyone fortuitous enough to participate, you could do a lot worse than to get out now while the going is 500%-plus good.

Sure, the company's phase 3 trials for its breakthrough prostate cancer drug, Provenge, look promising.

And yes, with about $300 million in cash, equivalents, and short-term investments on its balance sheet, Dendreon has enough resources to offset its $87 million in debt.

But it just doesn't make any sense to me to buy Dendreon anymore -- or even to hang in there for the long haul right now.

For a start, investing in Dendreon right now can hardly be considered "investing" in the sense that buying shares of relatively beaten-down giants Merck (NYSE: MRK  ) or Bristol-Myers Squibb (NYSE: BMY  ) is. Those guys have several successful drugs on the market, and Dendreon has none.

Further, buying Dendreon isn't investing in the same way as buying Medtronic (NYSE: MDT  ) or Intuitive Surgical (Nasdaq: ISRG  ) is. Medtronic's devices could ride demographic trends while Intuitive's robot seems to be taking over the operating room. Dendreon has to worry about even newer up-and-coming prostate cancer treatments.

Let's be honest. Buying Dendreon right now is not much more than a big bet that Provenge will get FDA approval and become a blockbuster pretty quickly. Looking at the history of biotech companies, you might as well grab one of those cheap package deals to Vegas and put your money on red once you're there.

Let's assume that Provenge's breakthrough drug is approved by the FDA; that would be a good thing. However, marketing approval does not a blockbuster make. It took three years after Nexavar got approved in December 2005 before one-drug wonder Onyx Pharmaceuticals (Nasdaq: ONXX  ) turned a profit. And sales for the cancer drug are still well shy of the $1 billion mark that it has the potential to reach. In other words, drug approval does not automatically translate into earnings, and Dendreon's management team is untested in this regard. And never forget, Fools, that it is earnings which drive a company's long-term success.

While I don't necessarily think Dendreon will disappear from the scene like other one-hit wonder biotech companies have, a huge price run-up on the excitement over FDA drug approval (especially potential approval) doesn't make the best long-term investing thesis, either.

Buying Dendreon today is not the same as what it was back in January. Buyers today should be making a serious long-term commitment, and for me, the uncertainty is still too high. It might get cheaper again, in which case opening a position may make sense. But for now, if I were an investor, I'd be looking to follow management's lead earlier this year and lock in my gains.

Intuitive Surgical is a Motley Fool Rule Breakers pick. Take a free 30-day trial to read why Fool co-Founder David Gardner loves this company.

Fool contributor Daniel M. Harrison owns no companies mentioned in this article. The Motley Fool's disclosure policy was written so that you'd know things like that.

Read/Post Comments (20) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 18, 2009, at 1:14 PM, JJC708 wrote:


  • Report this Comment On June 18, 2009, at 1:18 PM, stevierayjon wrote:

    Ummm, you need to update your numbers.

    DNDN has over 300 million in the bank now.

    I'll listen to Deutsche Bank instead of your foolishness.

    Their 2014 price target is $96, yielding a one-year price target of $36 using DCF analysis. I personally believe they are being conservative. (using 2014 peak sales of only 1.8 billion)


  • Report this Comment On June 18, 2009, at 1:19 PM, Spietroski wrote:

    The fact that DNDN has 300 Million in cash right now and not 90 Million in cash pretty much discounts most of what the author is trying to get across. Yes, it is a gamble that it will go up or down, depending upon if you are short or long, but being the first immunotherapy to actually treat a pre-existing cancer, with a huge potential market ahead of it where patients have few other options, could be revolutionary in how cancer treatments are developed and delivered.

    This is quite different than a DOT.COM that had no revenue and no had to create a market.

  • Report this Comment On June 18, 2009, at 1:44 PM, gloriason wrote:

    Your comments on Dendreon could not be more wrong. Dendreon has a first in class cancer treatment that will be approved by the FDA, no hedging, it will be approved by the FDA. As the other people have commented, Dendreon's cash position is extremely healthy. The $210 million cash addition happened within the last month. If you were truly interested in writing an accurate and informative article I'm sure you could have found this out without too much trouble. Dendreon has been upgraded to Buy and Outperform by numerous analysts in the last month with target share prices of $30, $35, $40, and higher. And don't even get me started on Dendreon's pipeline of cancer drugs or the fact that they still own all the rights to Provenge. Within one year, Dendreon's share price will be in excess of $40. Please do your research before you post any more articles.

  • Report this Comment On June 18, 2009, at 2:21 PM, infinitus wrote:

    Sorry Daniel,

    but this article clearly shows your lack a lot of knowledge, understanding (of biotech business and obviously oncology) and ability to research before writing.

    a) there are 300 MM in cash right now

    b) show me the beef in buying Merck or BMS right now. Where is their valuable pipeline? What would make me buy these two buyout candidates right now others than gambling for a run up on buyout rumor?

    c) investing in stocks is a multifactorial matter. Hence no one can oversee all the factors, there remains every time a bit of gambling/betting.

    d) if the portion of gambling right now is too much for you, than stay away from biotechs your whole life. The FDA approval can be seen as a given with a minimum of uncertainty. There are several models of valuation of DNDN out their in the WEB, you only have to dig for it. Take the most conservative model and you might see that DNDN is undervalued at this level (even so when you think about buyout)

    e) to compare DNDN to ISRG or MDT is ridiculous

    f) where are the other drugs with the promising late stage Phase III trials (and with equal few side effects like Provenge) which could get competitive to Provenge?

    g) to compare Provenge with Nexavar is ridiculous too! Nexavar targets metastatic hepatic cell carcinoma and 2nd line metastatic renal cell carcinoma. This two entities are very small in number compared to metastatic prostata cancer

    Was this article only poor researched or was it an poor attempt of bashing? Both are not welcome.

    I would like to see your potential by writing a reply to the comments.

    Thank you in advance,


  • Report this Comment On June 18, 2009, at 2:36 PM, jayray78 wrote:

    Ok, I'm going to give you a little latitude on this subject. Although most of your research is flawed and your comparisons are flimsy, I'll overlook that. I would agree that now is not a great time to try and get into Dendreon. It's just not going anywhere right now. We all know that the FDA approval is almost in the bag, but that's not for another six months. With no dividend to speak of the rick/reward of buying and holding starting now is pointless. For those of us who got in sub $20.00 buy and hold is looking great. Consider us the true believers. Its just not a trade option until the actual approval comes out. Having said all that, I am still looking to strengthen my position on the dips.

  • Report this Comment On June 18, 2009, at 2:38 PM, sjcoffeybean wrote:

    No comment about pipeline? Specifically Nuevenge? Partnership possibilities? I agree taking profits on Dendreon is a good idea for investors in early. I was in under $5 and sold 1/4 of my stake on the run up. I will probably take another 1/4 off the table in the $30+ range. The other 50% rides with the company. They have too much potential to be ALL out as this article recommends. True investors rarely go all in or all out. Why not recommend taking some profits? More prudent in my opinion

  • Report this Comment On June 18, 2009, at 2:48 PM, nqe6 wrote:

    I can't help but be suspect of the author's motives in publishing this article just before quadruple witching when the pps is at the pivotal $25. DNDN was a "gamble" in January when we didn't know if Provenge would meet the predefined endpoints, yet that is what the author defines as an "investment." The author compares Provenge to drugs that have significant side effects. The author, imo, fails to draw any simularity between dot-com bust stocks and DNDN, other than DNDN ran up significant. But the author does not explain why the run ups occured. Speculation of the internet revolution fed the entire internet sector. DNDN run is contra to the general biotech trend and is due to solid, positive clinical data concerning a novel approach (vaccination) to treat a major disease (prostate cancer) with minimal side effects.

  • Report this Comment On June 18, 2009, at 2:54 PM, RainierMan wrote:

    You were probably dismissing the company when their stock was at $3 a few months ago too. ya think maybe....juuuust maybe their TECHNOLOGY in general has some value?

    Oh, and who would ever think that FDA approval could move a stock? Imagine!

    Welcome the world of biotech investing. And yes, it is investing, though it apparently does not meet YOUR definition. It's riskier than investing in large companies. Duh.

  • Report this Comment On June 18, 2009, at 2:59 PM, FrankMom wrote:

    Interesting article. Author may be properly called a Fool, since he hasn't done adequate research. Dendreon has more in it's arsenal than just Provenge - can you say Neuvenge for breast cancer and Provenge for early prostate cancer treatment and benign prostate enlargement, much less the "packet technology" all treatments utilize. The original FDA Panel recommended approval a year ago, saying it was effective and safe. Even at $25 it is much cheaper than Intuitive Surgical. Unless the chemo / radiation "oncology" lobby is successful in squashing this new treatment, it will offer a longer much better quality life for thousands of Prostate Cancer patients.

  • Report this Comment On June 18, 2009, at 3:01 PM, asdadasdasasasas wrote:

    Really not happy with how factually inaccurate this article is. Certainly the author cannot be taken seriously if he is unable to get facts right.

  • Report this Comment On June 18, 2009, at 3:02 PM, puppie96 wrote:

    Daniel, I'm appalled by the lack of research and knowledge that this article reflects. You have completely missed the mark on both the financial and medical/scientific sides of the story. I could certainly point out innumerable specifics to support that statement, but it would considerably more space and time than I have to educate someone so altogether lacking even primer-level, fundamental knowledge about this company and the product.

    Moreover, I'm sickened by the timing of your factually inaccurate and extremely biased article on the day before ops-ex. I would hope that is mere coincidence, but I somehow doubt it.

  • Report this Comment On June 18, 2009, at 3:27 PM, spockcapone wrote:

    I have to agree that you seem to know nothing about what you are talking about. From wrongly reporting the amount of money that DNDN has to what the valuation of the company is. You do not address what will happen to the share price if a partner is announced sometime in the future. You do not address what will happen if someone puts in an offer to buy the company. You do not address what will happen as we head towards FDA submission and potential approval. In short you sound like an ignorant "fool" who recently shorted the stock and now want the price to go lower ... OR you want the price to go lower to try and buy in. I was thinking about buying a subscription to your site but thanks to this idiotic, poorly researched post I'll pass

  • Report this Comment On June 18, 2009, at 5:53 PM, SaulKay wrote:

    Very dangerous article. Makes the headlines section of Yahoo for Dendreon and superficially makes sense, but scary how totally off base someone can be and potentially influence others with surface appearance.

    Dendreon's Impact results not only represent a breakthrough in prostate cancer treatment, but validates the proprietary antigen cassette technology that could also provide similar breakthrough therapies for breast, kidney, bladder, colorectal, and other cancers.

    Kind of like warning people off the invention of the light bulb because Edison hadn't yet successfully marketed it and had no earnings.

    No mention of likely Rest of the World partnering prospects (probable shortly after FDA approval) nor value of pipeline.

    Very bad work. Shabby.

    Go to Investor Village for a really good board discussing the company in depth.

  • Report this Comment On June 19, 2009, at 12:20 AM, puppie96 wrote:

    A few hours later, I recognize that my original post was far too mild.

    There is no editorial control whatsoever at Motley Fool. It is clear that this article was written by a self-serving author with an agenda, and that the timing cannot possibly be accidental.

    I encourage all readers who linked to this article through the Yahoo Dendreon page to join me in writing to Yahoo in support of dropping links to Motley Fool. This isn't a freedom of speech issue; this article has so far overstepped reasonable boundaries that Motley Fool should be branded as a publication with an agenda involving advancing their own financial interests through outright manipulation.

    At the moment, we have here one of those rare occasions when the readership is informed enough to counterattack. If this is at all representative of Motley Fool's publications, as it probably is -- although who would notice unless you have done your research yourself and have some strong interest in the stock -- their links don't belong on a Finance web page at Yahoo or anywhere else.

    Please, send your sentiments to Yahoo and make an effort to have Motley Fool links removed from Yahoo Finance. This one episode, in and of itself, is enough justification for that action, and I have no doubt that there are more.

  • Report this Comment On June 19, 2009, at 5:47 AM, danielmharrison wrote:

    The amount of cash on Dendreon's books has been updated to reflect the $300 million amount. The previous amount was taken from the company's most recent filing, obviously, and I regret omitting the $200 million raised in the fundraising since then.

    But actually, that point is less material to the spirit of the article: if you look at what I'm saying, it's that the company has plenty of money to pay off its debts. That's still the case with the extra $200 million. It's not the focus of the article at all.

    Contrary to some speculation, there is no intended synergy between the publication of this story and quadruple witching. I own no positions in the stock, as disclosed at publication. And I said myself that I don't think Dendreon will necessarily be out of business by the end of the year, etc., etc.

    What I'm saying is, Dendreon's product is still PENDING approval, and opening a position right now has significantly less chance of yielding the kinds of returns for new investors as for the ones who invested earlier in the year. Also, having gained some 500% in capital gains returns this year already, who wouldn't be inclined to take some profit? That's an amazing return!

    Think of it this way: if you open a position today, you are essentially paying $2.6 billion for $300 million in cash, plus $1 billion in future sales (which are still pending FDA approval), plus another lot of sales further down the line, supposing that those $1 billion in sales materialize. I don't necessarily think that earlier in the year investors were paying too much for those things, but today, you have to admit -- $2.6 billion seems very high.

    Is anyone here honestly claiming that those investing in the stock today are likely to see another 500% rally in Dendreon shares by year-end?

  • Report this Comment On June 19, 2009, at 8:26 AM, cabledave wrote:

    When someone uses an inflammatory approach to their view, IE comparing DNDN to the dot com bust, they are almost always trying to manipulate people instead of enlighten.

  • Report this Comment On June 19, 2009, at 9:59 PM, miduso wrote:

    hey daniel,

    your days as a rogue fool writer are numbered. it's a shame they let you post your flawed data on a somewhat respectable site like fool....eating crow yet??

    LOLOLOL....your own buddy had to defend you!

    loser you are!

  • Report this Comment On June 22, 2009, at 4:36 PM, bhessel wrote:

    Daniel Harrison wrote:

    > Buying Dendreon today is not the same as what it

    > was back in January. Buyers today should be

    > making a serious long-term commitment, and for

    > me, the uncertainty is still too high.... Is anyone

    > here honestly claiming that those investing in the

    > stock today are likely to see another 500% rally in

    > Dendreon shares by year-end?

    LOL you can tell someone is in rhetorical retreat when they resort to tilting at strawmen.

    No, Mr. Harrison, no one here is claiming that DNDN is likely to rise another 500% by the end of 2009. However, I thought we we discussing "investing" - if your criteria for selecting stocks includes a requirement the price be likely to zoom 500% in the next six months, then I think you are confusing "investing" and "speculation".

    Your thesis appears to be that DNDN is a poorer investment now at $26 than it was in January at $4 because not enough uncertainty has been removed. Well hindsight is 20-20 but FWIW - and I have been following Dendreon closely since 2003 - I considered the stock extremely speculative in January. Had the IMPACT Phase 3 study results come in with a lower than 22% survival advantage over the placebo, Provenge would have been a three-time loser drug and Dendreon - with no other products in their pipeline that aren't based on the same principle as Provenge - out of money and most likely out of business.

    That equation shifted dramatically on 14 April ( ). Once it was known that the IMPACT results met the bar set by the FDA, approval, while not guaranteed, became highly likely.

    So if the probability of FDA rejection (and near-instant company death) was 50% in January, and since then the company has announced Provenge results that evidently meet the agency's criteria for approval and raised $200 million, what is the probability of rejection-instant death now? Maybe 5%? Arguably considerably lower than that.

    With that in mind, what is a fair price for DNDN now? Here is a two-year old revenue projection by biotech reporter Adam Feuerstein, which reasonably conservatively foresees a five-year rampup to get to $1B in sales ( keep in mind you have to add two years to all his dates). He used a 6x sales valuation multiple (justified by the fact that Dendreon plans to retain full USA rights to Provenge) and risk-adjusting the $6B valuation 85%/year backwards five years, you get a 2009 valuation of $2.7 billion...pretty darn close to where we are now. If this scenario pans out, you wouldn't get 500% in six months, but you would get a 17.6% compounded annual growth rate for the next five years.

    Presuming Provenge gets approved, are there still risks that could upset this applecart? Indubitably! Indeed, I consider taking a position in *any* individual company stock to be speculation, and recommend ETFs as a less risky investment vehicle.

    Having said that, however, I would contend that DNDN today is much closer to the "investment" end of the speculation-investment continuum than it was in January...exactly the opposite of your conclusion.

    Brad Hessel (long DNDN common and LEAPS)

  • Report this Comment On June 22, 2009, at 4:53 PM, PhillyDan wrote:

    Bad article. Do your research. Most of the comments have covered why your article is wrong. DNDN has come up with an innovative cancer treatment in Provenge that will extend beyond as a treatment for Prostrate cancer but also longer term as a treatment for Breast cancer and other cancer types. Certainly they will have to do other studies to get FDA approval for the other treatments but getting FDA approval for Provenge will set the path to approval for the other treatments. The long term revenue potential for DNDN is outstanding. In 3 to 5 years it will be a 100+ stock.

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