Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Dendreon's Path to Profitability

The Dendreon (NASDAQOTH: DNDNQ  ) bear argument typically revolves around the drug's disappointing sales performance to date, and the competition it's facing in the future. However, one aspect of the bull argument today has nothing to do with sales -- and everything to do with costs.

When revenue growth is hard to come by, taking a hard look at costs is a necessary evil. The company's done just that by right-sizing its manufacturing footprint in order to lower the sales hurdle needed to achieve profitability. A look at Dendreon's current quarter financial sheds light on the opportunity presented by reducing manufacturing costs to below 50% of product sales, a goal it hopes to achieve by the third quarter of 2013.

Even if sales were to remain at current levels, reducing manufacturing costs to 50% would amount to about $13 million in quarterly savings, or about $50 million a year from current levels of about 66% of sales today. Unfortunately, even after achieving that level of cost savings, the company would have a long way to go before breaking even on a cash flow basis, let alone on GAAP earnings.

Even then, investors need to consider the more than $500 million in convertible debt sitting on Dendreon's books. In 2016, the time comes to repay those lenders, and in the absence of some amazing revenue growth the funds are likely to come through a secondary offering.

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.

Editors Note: A previous version of this article contained a video suggesting that Dendreon could become profitable by cutting manufacturing costs to 50% of product sales. We discovered an error in this analysis, and have removed the video as a result. The Fool regrets the error.

Read/Post Comments (0) | 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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2275532, ~/Articles/ArticleHandler.aspx, 9/30/2016 9:53:20 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 37 minutes ago Sponsored by:
DOW 18,308.15 164.70 0.91%
S&P 500 2,168.27 17.14 0.80%
NASD 5,312.00 42.85 0.81%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
DNDNQ $0.00 Down +0.00 +0.00%
Dendreon Corp CAPS Rating: *