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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.

Maxim ditches Dendreon
Jennerex. Onyx Pharmaceuticals (UNKNOWN: ONXX.DL  ) . Amgen (NASDAQ: AMGN  ) . Bristol-Myers Squibb (NYSE: BMY  ) . The field of companies racing to develop virus-based cancer cures just keeps growing and growing, as biotechs big and small try to find the best way to train the body's immune system to fight cancer. But according to one analyst at least, one of the early leaders of this movement toward such "oncolytic immunotherapies" is starting to fall behind.

This morning, analysts at Maxim Group announced they're ready to throw in the towel once and for all on Dendreon (NASDAQOTH: DNDNQ  ) , maker of the once-revolutionary Provenge vaccine against prostate cancer. They're downgrading all the way to "sell" and assigning a $4 price target to the stock, which currently fetches more than $6 -- suggesting that the stock could lose as much as 36% of its value over the next 12 months.

But are they right?

One word: Yes
Admittedly, Maxim's advice appears to fly in the face of the recent upgrade that rival i-banker Cantor Fitzgerald gave Dendreon last month. Arguing that despite competition from other oncolytic researchers -- such as the others named above, and even more closely from Johnson & Johnson's (NYSE: JNJ  ) Zytiga -- "expectations for Provenge are too low," Cantor upped its target price on Dendreon to $7 last month, even as it held its rating at "neutral."

And yet, it seems to me that Maxim has the better of this argument. Remember that Dendreon itself publicly declared it needs to make $500 million in annual sales in order to just break even on its business -- much less earn real profit. Problem is, Dendreon was originally expected to approach this goal in 2013. Today, though, most analysts agree that Dendreon's unlikely to book more than $363 million in revenue this year, and won't pass the $500 million mark before 2016. In the fast-moving world of biotech, that's an awful lot of breathing room that Dendreon has given its competitors.

Meanwhile, Dendreon itself remains incapable of earning a profit. It's cut its rate of cash burn substantially, granted, yet still ran $118 million negative on free cash flow over the past 12 months. Considering that Dendreon has already amassed nearly $200 million more debt than cash on its balance sheet, that's an uncomfortable position for the company to be in. In short, Maxim's right -- and Dendreon's a sell.

With friends like these...
At the same time, Dendreon's peers in the search for a cancer cure just get stronger and stronger. Onyx, arguably the weakest of the bunch (Dendreon excepted), is now profitable on a trailing-12-month basis. While expected to post a loss this year, analysts polled by S&P Capital IQ believe Onyx will turn a small profit in 2014, then grow rapidly in profitability from there on out. It's also cash-rich and free cash flow positive in most years.

Amgen looks even better. Vastly profitable, the stock costs only 15.4 times earnings today, versus "infinity-times-earnings" for unprofitable Dendreon. Its debt levels are minimal for a biotech giant of its size, and Amgen throws off a ton of free cash every year (distributing some of it in a tidy 2.2% dividend yield).

As for giants Bristol-Myers and Johnson & Johnson, it probably goes without saying that both are profitable, and sizable producers of free cash and earnings alike. They also pay better dividends than anyone else mentioned above. Granted, at 20 times earnings (J&J) and 31 times (B-M), neither of these stocks looks particularly cheap. When considered in light of their anemic, mid-single-digit earnings growth rates, I'd be hard pressed to recommend investing in either one.

Fortunately for their shareholders, however, and unfortunately for Dendreon, a competitor's stock doesn't have to look attractive in order for said competitor to easily crush its rivals. That's the fate Dendreon faces if it doesn't get its act together soon, and begin delivering on its promises about Provenge.

Resurgence, or dead cat bounce?
Shares of Dendreon have surged in recent months, with the stock gaining new life from the depths of late 2012. Has the company really solved its underlying problems, or are investors setting themselves up for more disappointment? Our new premium research report on Dendreon answers these questions, and many more, while also outlining just how Dendreon intends to regain its former glory. Claim your copy, and a year of free analyst updates, by clicking here now.

Read/Post Comments (3) | Recommend This Article (6)

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 14, 2013, at 5:03 PM, sy1797 wrote:

    Dendreon needs to make $400 million in annual sales in order to break even, not $500 million.

    Most analysts agree that Dendreon's will be break even next year and may be this year.

  • Report this Comment On February 14, 2013, at 8:22 PM, TMFDitty wrote:

    You are correct. Dendreon now says $400 million is sufficient for breakeven:

    But its original statement was $500 million:

  • Report this Comment On February 17, 2013, at 7:26 PM, lebronz wrote:


    Are you and the Motley owner going to believe Maxim and their puny opinionated rating about DNDN or can you focus on how to value a biotech longterm? Do you know that DNDN owns the the first ever, patented, FDA approved, therapeutic cancer vaccine that harnesses a dying mans immune system to prolong his life from mCRPC?

    Can Maxim explain why Blackrock Inc, Deerfield, and Vanguard recently took gargantuan passive stakes and now own in aggregate about 26 million dndn shares all together if the one year target price is $4...?

    See all 3 13G's here:

    Maxim knows that we can see these large purchases by major tutes because they were >5%. Imagine what purchases we can't see happening this quarter...and can't see until May 15?

    Institutional accumulation has already gone from 58% in Q2/2012 to 63% in Q4/2012.

    With Blackrock Inc's recent 8 million share purchase and Deerfields increase to a 5.77% stake in Q1/2013, that puts tute holdings around 70%.

    Does Maxim, the Motley owner or any Motley writer there track institutional accumulation of novel biotechs while the stock is being shorted to death?

    Think the Maxim analyst (that caters to large institutional shareholders) can recognize an invisble BEAR RAID on a biotech via massively shorting millions of shares over the last 18 months, while major institutions are accumulating?

    I have confidence that you will after you witness what happens to dendreon over the next 3 years prior to Jan 2016 when the $600M convertible note is due.

    Oh, while you're Motley owner and David Williamson continue to focus on quarterly sales, have you, as the unique individual you are, looked at YOY Provenge sales.

    Obviously you haven't, but maybe you can see a trend?

    2010- $46M

    2011- $216M

    2012- $322M




    2016: $600M Convertible note due (JP Morgan will convert and get their 42.3 million shares once dndn is above $51 and become dndn's largest shareholder (and after institutional shorts massively and strategically cover from CEO Johnson providing yearly guidance again or some other binary event; and after their institutional partners own 90% of the company).






    I wrote out the years because dndn has 12 years market exclusivity for Provenge under Obamacare. Because of this, institutional shorts will continue massively shorting this stock while they steadily and stealthily accumulate and own greater than 90% of dndn.

    Short interest has been trending upward from 14 million back in August 2011 (when M Gold pulled guidance and was the trigger for the massive short bear raid attack to 18 million) to 50 million TODAY.

    50 million is the highest its ever been. This is the invisible bear raid that drove the price down from $17 last Feb to where it is today.

    Ever wonder why CEO Johnson is mum about this massive invisible bear raid short attack? Ever wonder why the HLF CEO chooses to defend his company against their hedgefund short attack?

    The monthly flooding of nearly 2 million shares per month since last February has driven the price down from $17....while major institutions continue accumulating.

    You may ask why would hedgie shorts want to drive out retail over the last 16 months. Well, this is a TIME game and 16 months is nothing in the 12 years market exclusivity timeline that Provenge will enjoy (until April 2022; no threat from biosimilar).

    But why you ask...> ? The answer is the size of the U.S. mCRPC market.

    30,000 men are newly diagnosed each year w/ mCRPC

    60,000 men are living with mCRPC

    dndn is only treating 3440 per year (2012) or 860 per quarter.

    Once dndn treats 1076 per quarter (or 4304 annually) that is their breakeven ($100M) and it's still BARELY A DENT in the U.S. mCRPC market.

    Oh, and any wallstreet phobia theory of competition threatening Provenge sales is incredibly weak. Dying patients and ethical doctors will sequence the available therapies to prolong the dying man's Quality of Life and length of his life to the MAXIMUM! Someday your Motley owner will get that thru his thick skull.....

    Oh, and tell David Williamson that no one wants to spend money to buy a "premium research report on DNDN" when it should just be one word long....................and that's BUY! As a young man David should be thinking how he can help the retail investor versus wallstreet institutions...otherwise he'll end up with no heartstrings to pull whatsoever like Adam F from the Street. Tell David to take the "Tombstone Test" now before he gets older. The Motley owner may already be captured, but its never too late to change.

    Tell everyone about DNDN now Rich before major greedy institutions own 90% of the 154 million outstanding shares of DNDN.

    DNDN should be a retailers stock, not owned all by wallstreet!


    ps: Expect institutional shorts to short a positive EU CHMP opinion this Friday, 22nd so they can continue their strategic share accumulation strategy over TIME (because dndn won't do another secondary offering).

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