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At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

Is it finally time to buy Dendreon?
"How long have you owned Dendreon (Nasdaq: DNDN  ) ?" How you answer the question probably determines the answer to a second question: "How much do you hate Dendreon?" If, for example, you've owned this cancer researcher since it hit its high of $54 back in April 2010 and are sitting on a 92% loss, chances are you hate the stock quite a bit. If, on the other hand, you've owned Dendreon less than a year and suffered no worse than the stock's 52-week loss of 44%, you may only loathe it a little.

But what if you've never owned it at all? What if you were taking a look at the stock for your very first time, and deciding what to do with it -- would you consider cutting Dendreon a break, and maybe even buying a few shares?

Innocent as a newborn babe
That's the question we're asked, in effect, as we ponder Needham & Co's decision to "initiate" coverage of Dendreon's stock Monday morning. Taking a look at Dendreon with fresh eyes, Needham wonders if all the other analysts who've been following the stock for far longer just might have set their sales expectations "too low." Examining the trends, the analyst wonders if we're starting to see the first signs of an improvement in profit margins at Dendreon.

Well, have they? Well, are they?

Rebooting Dendreon...
A few months ago, Fool biotech analyst Brian Orelli took a close look at Dendreon, and here's what he found: Competition from rival oncology drugs out of Johnson & Johnson (NYSE: JNJ  ) and Sanofi (NYSE: SNY  ) , with yet another rival on the horizon from Medivation (Nasdaq: MDVN  ) , has forced Dendreon to reset expectations for future Provenge sales. While the possibility of blockbuster growth remains viable, for now the company's shuttering one plant and aiming for a more modest goal of $1 billion in annual sales.

That's not quite as much as it previously hoped to achieve, but on the bright side, Dendreon now thinks it can achieve positive cash flow, and eventually positive free cash flow, on as little as $400 million in annual sales versus the $500 million previously targeted.

...or not
Now, the good news here is that if other analysts are still fixated on the old goal -- and furthermore underestimating Dendreon's ability to move product -- then the company could surprise us and start generating cash sooner than expected. Right now, analysts are projecting $380 million in revenues at Dendreon next year, with the company topping its new $400 million objective only in 2014, then hitting its old objective of $500 million in 2015 -- and proceeding upward from there.

The better news is that Dendreon is already at $400 million annual revenues today. Fact is, total revenues for the past 12 months exceeded $440 million. This suggests that future years' revenues could be correspondingly higher, and that profits (now not expected anytime before 2017) could emerge faster than we think.

The bad news, however, is that despite hitting its new $400 million revenue target, Dendreon is still burning cash hand over fist -- $118 million in negative free cash flow over the past year. This being the case, the promise of positive cash flow at $500 million must also be in doubt. And indeed, with competition mounting faster than a Provenge patient's doctor's bill, there's not going to be any guarantee that the company gets to positive free cash flow... ever.

Foolish takeaway
Whether you're an old hand at Dendreon, or one new to it like Needham*, the facts remain the same: This company isn't profitable today, and may never become so. At $400 million in revenues, $500 million, infinity, or beyond.

*Interesting bit of trivia by the way: Fact is, while Needham says it "initiated" coverage of Dendreon just this morning, in fact, our record on Motley Fool CAPS confirms that the analyst also recommended it once before, back in 2009. And Needham was wrong about Dendreon then, too, underperforming the S&P 500 by 18 percentage points before throwing in the towel.

Dendreon's run over the past four years witnessed sub-$5 share prices skyrocket to 10-bagger status before tumbling all the way back down below $5, as its revolutionary prostate cancer vaccine Provenge became a lightning rod of debate. But where does that leave investors -- other than a bit nauseous from the roller-coaster ride? Our own David Williamson answers this question, and many more, inside our brand new premium research report on Dendreon. Inside, he details every key issue facing the company and outlines just how Dendreon intends to regain its former glory. The report also comes with a full year of analyst updates, so claim your copy of this exclusive report today by clicking here now.

Read/Post Comments (3) | Recommend This Article (2)

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 November 13, 2012, at 9:26 AM, lebronz wrote:

    Agent Smith.... this is Mr. Anderson (Matrix ;-),

    I'm going to give you the benefit of the doubt that you're much more intelligent than Motley Fewls David Williamson.

    David likes to make "scary be wary videos" on DNDN and tells his 99% audience that the biotech company is dangerous to invest in... with his "scary video article titles" (all the while he's invested in DNDN).

    So to your question about sales expectations being set too low....? Well, consider the following Rich:

    Facts from American Cancer Society:

    *1-2 million men have prostate cancer (pc) in the U.S.

    *271,740 men will be/have been diagnosed with pc this year.

    *6% or almost 60,000 men from the 1-2 million man pool are living with mCRPC (Provenge label). Mark Frolich says the number is 60-80,000, so I will use the lower figure going forward. I personally always believed it was 100,000 men still living with mCRPC in the U.S.

    Robin Karnuskas from Deutsche Bank once said 70,000 men in an article. (

    *30-35,000 men are "newly diagnosed" throughout a year with mCRPC from the 1-2 million man pool (Provenge label). These 30,000 typically have 2 years to live, so thats how Mark Frohlich arrives at the 60,000 figure of men still living with mCRPC.

    *30,000 men die each year from pc.

    *The baby boomer influx over the next 2-7 years only sustains or increases these numbers.

    *The European population of men with PC is similar to the U.S (EU approval of Provenge is up 4 decision by Summer, 2013 (worse case), but most likely in January because everything is on track.

    So Rich, 30,000 men are "newly diagnosed" with mCRPC throughout a year. Let's just use that figure and stay REAL CONSERVATIVE on the size of the market for Provenge.

    Do you know how many men dndn is treating per quarter Rich?

    On average, it's only about 860 men.

    In Q1 this year, dndn treated 880 men

    In Q2, dndn treated 860 men

    In Q3, dndn treated 840 men.

    Just take the number of men x $93,000 to get the revenue number.

    Okay, so with 30,000 men newly diagnosed with mCRPC throughout a year that equates to 7500 men per quarter, yes?

    So dndn is only treating about 860 out of 7500 men per quarter.

    When dndn treats 1076 men per quarter, they hit their breakeven revenue target of $100M.

    But Rich, that is still only 1076 out of 7500 men!!

    Are you beginning to understand the size of the market and how dndn is way WAY underserving it?

    Wallstreet likes to talk about the recent NJ plant closing, layoffs, and the "threat" of competition from Zytiga & Xtandi.

    Well, dndn has 2 other, brand new, high tech, 155,000 sq.ft facilities in CA and GA.

    And regarding the competition from Xtandi and Zytiga, wallstreet wants us to believe its a THIS or THAT, but the truth is dying prostate cancer patients want their life extended to the MAX!

    So doctors will SEQUENCE the available cancer therapies!

    Ethical urologists/oncologist will have the dying prostate cancer patients at heart and try to extend their life to the MAX.

    Ethical doctors won't have wallstreet analysts interests at heart by just giving Zytiga...roflmao!

    Of course, David Williamson thinks this is the case!

    So Rich, I suggest you tell everyone you know NOW about DNDN because she is going to explode next year when CEO Johnson overdelivers and blows through treating 1076 men in a quarter.

    Do you really believe going from treating 840 men to 1076 men in a quarter is a stretch Rich?

    Remember, I'm only using the 30,000 newly diagnosed each year figure...and not the 60,000 currently still living with mCRPC (remember, these men are terminal and typically have 2 years to live).

    Good luck Rich,


    ps: Oh, btw, the wealthy hedgefund shorts have been trying hard to illustrate the threat of competition by purposely shorting over 15 million shares in the last 8 months (flooding the market) which drives down the stock price downward.

    Wallstreet analysts goal of working with CEO Johnson's "underpromise this year" philosophy and scaring to drive out the retail investor and keeping away curious investors is working to a TEE:

    especially when combined with David Williamson's scary videos....lolz

    Finally, If you recall, CEO John Johnson is Carl Icahn's buddy.

    Icahn appointed him CEO to ImClone back in August 2007 and Johnson then sold that company to Eli Lilly for $6.5B.

    Now CEO Johnson is running DNDN ;o)

    So Rich, you are smart to listen to Needham....and certainly much smarter than David Williamson and his "scary DNDN video titles"... ;o)

  • Report this Comment On November 13, 2012, at 9:40 AM, lebronz wrote:

    Sorry Rich, here is where Robyn K of Deutsche Bank said the market is 70,000 men living with mCRPC (provenge label). The link in my initial comment doesn't work.

    Remember, dndn is, unfortunately, only treating on average about 860 men a quarter or 3440 men annually.

    Not only is the company currently going through restructuring (closing of NJ plant, layoffs), wallstreet is currently trying to restructure the current shareholders as well. It's all about greed for the 154 million outstanding shares because dndn won't do another secondary wallstreet has other means of acquiring shares over time ;o)

    Dont fall for it Agent Smith ;o)


  • Report this Comment On November 13, 2012, at 9:59 AM, lebronz wrote:

    Oh, and your math is suspect Rich!

    The following is DNDN last 4 quarterly rev results

    Q4/2011 - $77M

    Q1/2012 - $82M

    Q2/2012 - $80M

    Q3/2012 - $78M

    That equals $317M annual revenue pace Rich..

    DnDn is not at $400M or $440M annual revenues today like you suggest.



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