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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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Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson and Dendreon. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (9)

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 February 27, 2012, at 7:33 PM, DAG_Investments wrote:

    Good article, thanks... and an even better title... unfortunately, the title fits perfectly.

  • Report this Comment On February 27, 2012, at 10:49 PM, breezy1014 wrote:

    Again, and again Dendreon management is failing to manage sales of Provenge. Here is an antibody stimulant immunotherapy that saves and extends lives for patients with prostate cancer and yet Dendreon continues with management missteps in selling and promoting the efficacy and quality of life issues with Provenge.

    Investors are financially suffering from management’s initial forecasts of increasing sales and then reporting disappointing lower 3Q sales. And then in January, Dendreon reported an increase in sales for 4Q and now (2/27/2012) a forecast of single digit per cent in sales going forward.

    Dendreon needs to promote sales of Provenge to capture a greater audience; perhaps, Dendreon should consider offering a discount in cost for those who sign a contractual agreement during a 6 month period.

    Management spent millions building production sites claiming that such sites would increase sales regionally. Management spent millions creating a sales and production staff only to lay-off personnel incurring additional funds.

    Mr. John H. Johnson was retained as Dendreon's President and CEO but has yet established a strategic plan to promote and implement a Provenge therapy sales program.

    In going forward, Dendreon should adopt alternative promotional programs and also report the survival rates after treatment to encourage and promote sales. It has been two years since FDA’s approval of Provenge therapy and yet Dendreon continues to misguide investors and fails to execute positive alternatives to increase sales.

    Understandably, Dendreon is entitled to recoup the millions in research costs but the price tag for treatment may just be too overwhelming to be seen as an affordable effective treatment.

  • Report this Comment On February 28, 2012, at 1:46 AM, tcalea wrote:

    price is irrelevant.....Medicare is paying for it in almost all patients.

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