Why I'm Still Avoiding Dendreon

Investors sold the news of Dendreon's (NASDAQ: DNDN  ) first-quarter earnings and the company's very slight year-over-year revenue growth, although the stock has more recently risen on the announcement of a Provenge abstract presentation. With $68.8 million in sales last quarter, its prostate cancer drug Provenge has fallen significantly short of the $250 million-plus in quarterly revenue that analysts predicted when Dendreon was a $30 stock.

Shares are now down to a little over $2. Furthermore, with no profitability in sight, a dwindling cash position, intense competition from Johnson & Johnson (NYSE: JNJ  ) and Medivation (NASDAQ: MDVN  ) , and the company's stock value continuing to fall, I'm comfortable avoiding this stock.

The most glaring Provenge problems
When cancer immunotherapy Provenge first launched, analysts had bullish expectations, including peak sales potential in excess of $1 billion. However, competition from the likes of Johnson & Johnson and Medivation has crippled Dendreon's fundamentals.

Johnson & Johnson is an enormous company with $18.1 billion in first-quarter sales, and is not overly dependent on any one drug. However, the success of its once-daily oral medication Zytiga for prostate cancer has definitely helped to drive its growth. In the company's last quarter, worldwide pharmaceutical sales grew 10.8% to $7.5 billion, and Zytiga's sales increased nearly 50% to $512 million.

Medivation markets Xtandi, and unlike Johnson & Johnson, the company's well-being is directly tied to the success of this one drug. Xtandi is also given in capsule form, used to treat prostate cancer in patients who have previously received docetaxel. In the first quarter, Xtandi earned $124.5 million in the U.S. and $47.8 million in foreign markets.

Of these two drugs competing against Provenge, only Zytiga is approved to treat prostate cancer patients prior to chemotherapy. Therefore, Zytiga's success can be directly tied to Provenge's trouble. Meanwhile, Medivation recently filed a request with the FDA to use Xtandi on patients who have not previously been treated with chemotherapy. This could be a big blow to Provenge, or even a knockout punch.

The manufacturing difficulty
Xtandi and Zytiga are much cheaper, and are given in pill form and thus are easier to administer than Provenge. Dendreon's product has an extensive manufacturing process that begins as a blood draw. That blood is then shipped to one of Dendreon's two manufacturing facilities -- it used to be three before Dendreon closed its large Morris Plains facility in New Jersey -- where monocytes are harvested and Provenge is created. Provenge then has to be delivered overnight back to the hospital where it cannot be stored or frozen, but rather infused back into the patient.

This expensive and complex process helps explain why the company has not yet turned a profit -- in fact, its cash burn last quarter was about $30 million. As a result, Dendreon's $155 million in cash may continue to decrease through operations and short-term liability payments. Further share dilution may be required.

Final thoughts
Some think the company's European launch of Provenge will create value and drive sales higher. However, with no partner, Dendreon will be forced to either build expensive facilities or make logistical costs even more expensive by overnight shipping across continents. I just don't see the likely benefit here, and this is a stock I would personally avoid.

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Read/Post Comments (6) | 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 May 20, 2014, at 1:11 PM, hawaii wrote:

    How much did JNJ pay you to write this crap. Everyone knows JNJ paid Doctors. not to use Provenge. Provenge is SUPERIOR. This SMEAR campaign by hedgefunds,as well analyst's over the YEARS makes me sick.Why don't you talk about Johnson n Johnsons reputation of late & the huge fines that have been handed down.Get a life & get the FACTS STRAIGHT.

  • Report this Comment On May 20, 2014, at 1:17 PM, hawaii wrote:

    Fools would not post my reply. So lets debate JOHNSON N JOHNSON'S REPUTATION of late concerning the billions in fines LEVIED against them

  • Report this Comment On May 20, 2014, at 1:28 PM, JimmyPharma wrote:

    This assessment of competition from xtandi and zytiga is a little superficial. Though they are both used to treat metastatic prostate cancer, they do so in entirely different ways. xtandi (enzalutimde) and zytiga (abiraterone) act to inhibit androgen receptor signaling either by inhibiting production of testosterone(zytiga) or by directly interacting with the androgen receptor (xtandi). Inhibition of androgen signaling (hormone deprivation therapy) has been a mainstay of treating metastatic prostate cancer for deades and these new generation of drugs to seem work much better than older similar treatments. Provenge is a cancer vaccine that stimulates the immune system to attack cancer cells by immunizing against a protein (PAP) that is found on many cancer cells. Why i'm optimistic on provenge is that it has the potential to be combined with either of the two above treatments (which is actually happening in clinical trials right now) and the potential to be combined with other immunostimulatory drugs such as yervoy which is now being done with other cancer vaccines in clinical trials. Involvement of the immune system may be a critical factor in trying to find a treatment regimen for cancer that can provide lifelong remission. As a note, dendreon also announced today that they observed antigenic spreading in their immunized patients, another very positive sign of the power of cancer vaccines.

  • Report this Comment On May 20, 2014, at 1:39 PM, BrianNichols wrote:

    I think the manufacturing process, falling sales, drug price, and Dendreon's stock speaks for itself. There is no profitability

  • Report this Comment On May 20, 2014, at 1:59 PM, Lhh wrote:

    Foolish foolish choice and explanation of why not to be investing in Dendreon. Just read the side-effects of the alternative treatments and then make a decision on what course of action you will take if you are diagnosed with this cancer. Then figure out how long until this is profitable. The profits for the shorts and detractors are about to come to a bitter end.

  • Report this Comment On May 20, 2014, at 2:11 PM, Sade100 wrote:

    It’s very easy to say all these negative things without any supporting proof but I wonder what the author will think or say or do if either a very close one or he gets this unfortunate and deadly disease which no man is spared from. I guarantee you all if this unfortunate event happens in the future he will kick himself and hit his head against the walls because of these detrimental and potentially damaging comments he wrote for a few bucks. I don’t wish this to anyone but we all need to be thinking for the good of medical science and humanity when we write such unfortunate things with a simple goal of making a few bucks with a short vision and miss out the big picture.

    Sincerely Sade100

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