2-Star Stocks Poised to Plunge: Dendreon?

Based on the aggregated intelligence of 130,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, cancer drug developer Dendreon (Nasdaq: DNDN  ) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Dendreon's business, and see what CAPS investors are saying about the stock right now.

Dendreon facts

Headquarters (founded)

Seattle, Washington (1992)

Market Cap

$394.77 million

Industry

Biotechnology

Trailing-12-Month Revenue

$111,000

Management

CEO Dr. Mitchell Gold (since 2003)

CFO Gregory Schiffman (since 2006)

Return on Capital (average, last five years)

(33.8%)

Competitors

Abbott Labs (NYSE: ABT  )

Cell Genesys (Nasdaq: CEGE  )

CAPS members bearish on DNDN also bearish on

General Motors (NYSE: GM  )

Ford Motor (NYSE: F  )

CAPS members bullish on DNDN also bullish on

Apple (Nasdaq: AAPL  )

Google (Nasdaq: GOOG  )

Sources: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS.

Over on CAPS, 67 of the 223 All-Star members who have rated Dendreon -- or 30% -- believe the stock will underperform the S&P 500 going forward. Among the bearish population are markhs and TSIF.

In late January, markhs seemed highly skeptical over Dendreon's potential prostate cancer drug:

1. Provenge has never shown much promise. Even if it passes the IMPACT Phase 3 trial, the commercial potential of this drug is questionable.

2. Dendreon has a history of mismanaged and bungled FDA submissions.

3. Too much debt and can't get new capital (along with #1 will keep this a risky stock even if they get FDA approval).

In a more recent pitch from last week, TSIF shares a more balanced stance, but still can't get comfortable with the company's cash burn:

Interesting drugs in the pipeline. Biotechs can spike in both directions based on trials, risks/rewards. Dendreon is holding it's own for now, but the burn rate will mean that if it doesn't come up with something productive soon it will/may have a tough time getting additional capital. Probably not a good call on my part. Red-thumbing the pop as I don't see the immediate cause.

To be sure, a lower quarterly loss of $8.8 million, coupled with a phase 3 trial that showed Provenge reduces the risk of death by 20% compared to a placebo, are what's been fueling the stock of late. The final analysis is expected to be completed by late April, so there's still plenty of room for the stock to rocket, or plunge, depending on the results.

That's just the binomial nature of baby biotechs, but if it has anywhere close to the "10 to 1 risk/reward ratio" that CAPS bull chd1028 anticipates, Dendreon might be a rare low-star stock with some legitimate promise. Just don't make too big of a bet.     

What do you think about Dendreon, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. More than 130,000 investors are waiting to hear what you have to say. CAPS is 100% free, so simply click here to get started.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Apple is a Motley Fool Stock Advisor selection. Google is a recommendation of Rule Breakers. The Fool's disclosure policy always gets a perfect score.


Read/Post Comments (7) | Recommend This Article (23)

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 March 23, 2009, at 2:58 PM, VFCsHouse wrote:

    the fools are at it again. probably looking to get in as cheap as they can before the results come out in april.

    http://vfcsstockhouse.blogspot.com

  • Report this Comment On March 23, 2009, at 5:32 PM, MotleyLiesNow wrote:

    It is clear that whoever wrote this article is trying to create doubt about this SUPER OPPORTUNITY to make a fortune in order to cover his or her own LARGE SHORT position, because it's LEAKING OUT NOW, that the IMPACT TEST was successful.

    That is why all talk has moved from "there's not much chance of the test succeeding" to "even if they do pass the test, it's not gonna be profitable in the long run" blah blah.

    But think about it, the price is $4 and some change?

    Even it was 8 dollars and some change right now,

    on IMPACT TEST day if the news is good, the price is automatically driven up by short coverings to no less than 16 (a very conservative price prediction) and possibly as high as 28...

    So you are 400% to 700% for sitting on a test that is predicted by to pass the 22% threshold (FDA and Dendreon made an agreement this time on the threshold, which the article doesn't address) with flying colors.

    Of course there is a risk that placebo beats Dendreon

    because they cannot overcome the 2% (midterm was at 20%). However, the previous test that was rejected by FDA (not because of "quality" reasons, but because the test sample size was too small) also had 20% at the midterm = end up 36% survival over placebo in the end. Why? The drug is late acting.

    I have pure faith in this miracle drug. You want to short it go ahead, it's your own financial funeral.

  • Report this Comment On March 23, 2009, at 5:37 PM, MotleyLiesNow wrote:

    Follow up: if you allow the author(s) of this article to keep you away from this miracle stock. You deserve to be manupulated by all the shorts who bought in at 2.95 and now are desperate to cover and writing articles about how Dendreon's Provenge is worthless.

    Truth is Dendreon has an 80 to 88% chance of passing this easy test. It's like telling an NBA basketball player to hit 1 out of 5 free throws.

    Is it possible that he would miss all 5, sure. But I would bet good money he hits one. All stock market "investments" are bets. This one looks good.

  • Report this Comment On March 23, 2009, at 5:39 PM, MotleyLiesNow wrote:

    Follow up: Cash burn??? Don't you understand???

    The Dendreon doesn't have the goal of producing this drug. They are planning to sell themselves to a bigger buyer. Most likely, Eli Lilly or Merck.

  • Report this Comment On March 23, 2009, at 5:41 PM, MotleyLiesNow wrote:

    Anyone who writes any article about any stock has an agenda, but especially the authors of the MOTLEY FOOL.

    I just want you all to know that this "free advice" you are reading from the FOOL is no different.

    Don't be fooled.

  • Report this Comment On March 23, 2009, at 5:42 PM, MotleyLiesNow wrote:

    Peer review is worthless if the peers are all shorties!

  • Report this Comment On March 23, 2009, at 11:49 PM, NostraDodger wrote:

    Why are you always bashing this stock? Everytime I've seen DNDN mentioned by the FOOL'S, it's nothing but negative vibes. Could it be that the FOOL writers are too lilly livered to put their money in this stock; but at the same time they're scared to death that someone else might make a fortune, and they'll be left to lick their wounds?

    They say misery loves company, but I'll take my chances on this one. It just makes since to help your own immune system fight a disease, instead of poison a poor fellow to death with chemo. So, put a sock in it!

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