Why Dendreon Corporation Stock Slumped Today

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: In its latest 10-Q, filed yesterday, cancer drug maker Dendreon  (NASDAQOTH: DNDNQ  ) noted that there is "a significant risk that...we will not be able to repay or refinance the 2016 Notes." The company is "considering alternatives...including alternatives that could result in leaving our current stockholders with little or no financial ownership of Dendreon."

So What: With the company sitting on cash, cash equivalents and investments of $136.7 million as of the end of last quarter and still burning through cash (a net of $32 million spent in operating activities over the past six months), it's no surprise that the company is having difficulty coming up with the money to pay off $620 million in debt due in January 2016. Provenge sales ticked up last quarter to $82 million, and the company has successfully reduced its net loss to just $0.10 per share compared to $0.45 in the year-ago quarter through cost discipline, but it looks like too little, too late.

Now What: Dendreon's investors have had a rough go of it, and the future doesn't look any brighter. Leaving current shareholders "with little or no financial ownership" through massive dilution is a scary fix, even if it successfully keeps the company afloat. I don't view this as a "buy the dip" or "contrarian" opportunity -- to me, this stock is a third rail: I wouldn't touch it.

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