Why Dendreon Corporation Shares Soared

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Dendreon (NASDAQOTH: DNDNQ  ) , a biopharmaceutical company developing immunotherapeutic options for cancer patients, soared as much as 20% after it reported fourth-quarter earnings results before the opening bell.

So what: For the quarter, Dendreon reported an 8% decline in year-over-year sales of metastatic prostate cancer immunotherapy vaccine Provenge to $74.8 million as its adjusted loss, thanks to steep cost cuts and its second restructuring in a matter of two years, fell by 44% to $25.4 million, or just $0.17 per share. By comparison, Wall Street had expected only $72.9 million in revenue, with a wider loss of $0.24 per share. Dendreon's community oncology segment grew by 19% from the prior year, and the number of large accounts hit 100, up from 94 in the sequential third quarter. The company also notes that it plans to make Provenge available in Europe, beginning with the U.K. and Germany, in cities with larger populations and easier access to health care so as to minimize its rollout costs.

Now what: It was nice to see Dendreon not drop a bomb on shareholders for once during earnings season, but its cash burn continues to be a serious concern. It ended the year with $199.4 million in cash, cash equivalents, and investments compared to $429.8 million at this time last year. Obviously, its costs will shrink as Provenge sales begin in Europe and its second restructuring reduces its expenses, but there still is no timetable on when it'll be cash flow positive.

Also, competition in the metastatic prostate cancer space is very fierce. It could be tough for Dendreon to gain traction following phase 3 data from Medivation's (NASDAQ: MDVN  ) Xtandi, which demonstrated marked superiority over the placebo in a pre-chemo setting. Xtandi has really stood apart from the competition in recent months and could become the therapy of choice for most physicians in late-stage prostate cancer, making Dendreon's turnaround even tougher to accomplish. For now, I'm perfectly happy watching this situation unfold from the sidelines, and I'd suggest you do the same.

Dendreon might be off to the races today, but it'll likely have a hard time keeping up with this top stock in 2014
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