Dendreon Just Raised the Bar

Offering earnings guidance above analyst expectations is obviously a bullish sign because, over time, earnings growth follows sales growth. And when a company predicts greater sales or profits, we expect its stock price to soon follow.

Biotech Dendreon  (NASDAQ: DNDN  ) recently said fourth-quarter revenues were going to be around $85.5 million, or $81.6 million -- a 5% increase -- on an adjusted basis, better than the $80.7 million Wall Street was anticipating, and it seemed to regain momentum as sales also rose sequentially. With a keener focus on community urologists, it tacked on a 25% increase in that market. The community segment now represents 71% of revenues, much better than the 58% it accounted for last year.

While community oncologists saw just a 4% rise this quarter, it indicates that Dendreon is gaining traction. The division had been flat in the third quarter, though that, in itself , was an improvement from the decline it registered in the second.

It's been a rough year for the biotech, which finds its stock some 60% below its 52-week highs. On the bright side, however, shares have gained sharply from their October lows, rising 80% in less than three months time.

Now don't go blindly buying -- or selling -- on this bullish sentiment, because you still need to do some research. Even if it looks like the situation is improving, we can only use the announcement as a jumping-off point for additional research.

Just the facts
Confronted, on the one hand, with the possibility that its prostate cancer fighting therapy Provenge might face a longer hill to climb before gaining widespread acceptance, and growing competition on the other, Dendreon smartly decided to pare down to its essentials, and focus on the task at hand. It sold off its New Jersey manufacturing facility to pharma giant Novartis, laid off 600 employees, and committed to reduced expenses. At the same time, though, it's looking to Europe to expand its market opportunity and potentially double sales in a single stroke.

It's going to have to hurry, because the competitive pressures mounting here at home are going to be just as intense in Europe. Johnson & Johnson's (NYSE: JNJ  ) Zytiga has quickly become the first line of defense in the treatment of prostate cancer, even if they follow up with Provenge afterwards. Indeed, Dendreon is counting on its study testing Provenge with Zytiga to convince doctors that, if they're going to prescribe J&J's drug, they ought to prescribe their own, too, to use all of the arrows in their quiver and not make it an either/or decision.

It may be that Provenge is best used as a combination drug with other treatments, sort of a cocktail of drugs, like those used to fight HIV and hepatitis C. Dendreon also plans on testing it with Xtandi, which is being developed by Medivation and Astellas Pharma.

Between a rock and a hard place
Prostate cancer is quickly becoming a hot market for biopharmaceuticals. It's the most common form of cancer in men in the U.S., with more than 240,000 new cases diagnosed annually. Although Dendreon was first to market after Provenge surmounted a wall of doubt, and won FDA approval by surpassing the efficacy and safety of Sanofi's Taxotere, Zytiga has really taken the industry by storm, and now has received expanded approval from the European Commission.

While Zytiga has won expanded approval at home, too, I wonder how much that will actually impact the market. The new indications now allow the drug to be administered before chemotherapy has been tried, but because Zytiga essentially completely castrates a man chemically, it seems that doctors and patients may want to try other routes first before deciding on this drastic course. It's a difficult choice regardless: The cancer being treated has spread beyond the prostate to other areas of the body, so getting it in check is vital, yet losing what defines one's masculinity is not to be taken lightly.

To its credit, Dendreon has indicated that it's not willing to cede the field to its rivals and will, in fact, be making its case more aggressively and directly to consumers with a big marketing campaign. The Motley Fool's health-care analyst, David Williamson, expects these ads will highlight Provenge being used in conjunction with other treatments because, as noted above, that looks like it will be the best way to blunt Johnson & Johnson's lead here, at least allowing it to ride on its coattails to a certain extent.

Raise your sights
Dendreon's earnings guidance suggests it already is having some success gaining a higher profile for its drug, with the medical community and this second prong approach out to help, as well. There are still a lot of questions to be answered about the biotech, and Dave Williamson has put together a brand new premium research report on Dendreon detailing every key issue facing the company, and outlining just how it 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.


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