Dendreon's CEO Exits: Is this the Beginning of the End?

Dendreon CEO John Johnson announced yesterday that he is stepping down for "personal reasons." His departure comes ahead of a large company debt payment. Could Dendreon be on the precipice of bankruptcy?

Jun 10, 2014 at 2:30PM

Dendreon (NASDAQ:DNDN) CEO and Chairman John Johnson has decided to call it quits after overseeing the biotechnology company's turbulent restructuring and attempted turnaround over the last two years. In 2012, Johnson took over for Mitchell Gold, who was unable to shepherd the company's prostate cancer vaccine Provenge to commercial success and following his departure became embroiled in an SEC investigation for insider trading. 

Although Johnson instituted deep layoffs and even sold one of Provenge's manufacturing facilities to Novartis, the drug's inability to compete against cheaper and easier to take rivals like Johnson & Johnson's (NYSE:JNJ) Zytiga have kept Dendreon operating in the red. The rapid market uptake of Medivation and Astellas Pharma's competing Xtandi looks like it could put even more downward pressure on Provenge sales.

Johnson's departure comes ahead of a $26.3 million debt payment that is due on June 15. As Dendreon reportedly has about $170 million in cash, it should be able to handle this payment, but the bigger concern is the $560 million in senior notes due in 2016.

With Provenge sales essentially flatlining in recent quarters and annual sales likely to stall out at roughly $320 million per year, there is good reason to believe Dendreon will face some tough choices come 2016. With that in mind, let's take a closer look at why Johnson's sudden departure might be an ominous sign of things to come.

Johnson has jumped ship before
Most Dendreon investors probably recall that Johnson accepted the CEO position after a tumultuous tenure at the now-defunct Savient Pharmaceuticals. Similar to Dendreon's current situation, Savient was having troubles selling its lead commercial product Krystexxa, a treatment for chronic gout.

Despite a rigorous education campaign spearheaded by Johnson, the company was unable to right its ship. As a result, Savient filed for bankruptcy protection in October 2013, roughly 14 months after Johnson's departure, and was eventually sold for a mere $120 million.  

Dendreon appears to be sinking
A quick look at the chart below pretty much sums up Johnson's tenure at Dendreon. Since he took the helm in July 2012, the company's share price has cratered a whopping 71%.  

DNDN Chart

DNDN data by YCharts.

Dendreon's sinking share price and deepening financial problems certainly aren't solely Johnson's fault --  the company was in trouble prior to his tenure. And he did oversee a massive cost-cutting effort that has shrunk the company's net loss by a notable 50% year over year. 

But now there doesn't appear to be much else to cut, and Provenge simply isn't generating top-line growth for the company. With Exelixis potentially entering the prostate cancer arena next year with cabozantinib, Provenge sales may be on a downward spiral at a time when the company desperately needs revenue growth. 

Foolish wrap-up
I think the CEO's departure at this critical time bodes poorly for Dendreon. Absent a dramatic turnaround, the company is likely to be sold piecemeal to the highest bidders following a bankruptcy filing. It's no secret that Dendreon tried to sell itself last year, but that process has apparently reached a dead end.

My view is that potential buyers likely see the company as a dead man walking and will simply wait for the bankruptcy procedures to start in order to get the lowest possible price for the pieces they desire. In other words, it looks like the Savient situation all over again. 

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