You'd think that after pre-announcing gross sales of "approximately $82 million," Dendreon's (Nasdaq: DNDN ) fourth-quarter earnings wouldn't have much effect on the stock price. Net sales of its prostate-cancer treatment, Provenge, came in at $77 million after the expected $5 million in rebates and chargebacks.
But shares are trading down 20%. What gives?
I think it's what wasn't said that has investors a little upset: no long-term sales guidance and no guidance for when the biotech will break even. And the guidance we did get didn't look all that impressive.
Growth in the first quarter will be in the low single digits, although it's not quite as bad as it sounds, if you consider that the quarter-over-quarter comparison is tough because the fourth quarter was so good. Dendreon thinks that $2 million to $3 million in sales expected in the first quarter were accelerated into the fourth quarter for insurance reasons and to get the treatment over before the holidays.
If you assume a 3% increase and move $2.5 million from the fourth quarter into the first quarter, the quarter-over-quarter increase is actually a 10% increase. Better, but still down considerably from the 22% sequential increase over last quarter, again being generous and backing out that $2.5 million.
Dendreon is sticking with its breakeven guidance for U.S. operations at $500 million in annual sales. If 10% is the new "modest quarter-over-quarter growth" -- the only long-term sales guidance the company has given -- it would get to that run rate in the middle of next year. That's like 12.7 years in biotech-investor years.
To get investors interested, Dendreon really has to accelerate sales and decrease the cost of goods, which came in at a whopping 74% of product sales. The company is guiding for that cost to decrease to 50% as sales increase, but it's going to take some automation and increased efficiency to really bring it down to a reasonable level.
Accelerating sales is somewhat a factor of time. Many doctors are still waiting to get one reimbursement before prescribing Provenge to another patient, and then it's taking four to six positive experiences before they're really comfortable with the reimbursement process.
Dendreon has to deal with potential competition from other recently approved prostate-cancer drugs -- Johnson & Johnson's (NYSE: JNJ ) Zytiga and Sanofi's (NYSE: SNY ) Jevtana -- and a threat from Medivation's (Nasdaq: MDVN ) MDV3100, but I don't see that as a major issue because they can be used sequentially to treat a patient. The bigger issue is identifying patients early enough to get them on Provenge. If patients progress too far, Provenge is no longer an option.
Overall, I think today's move was a bit of an overreaction, but with so much uncertainty, investors will need to have a strong stomach to buy. I doubt the drama will subside anytime soon.
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