So much for being less risky. Dendreon's (Nasdaq: DNDN ) stock is trading down 65% today on the heels of a disappointing quarter. Gone is the full-year revenue forecast of $350 million to $400 million, with half of that coming in the fourth quarter. It's a little hard to go from doing $19 million a month, the sales in July, to an average of around $60 million a month in the fourth quarter.
Even with $50 million in revenue last quarter, the company still wasn't even close to cash flow positive, spending over $100 million in cash. At that rate, the company would be out of cash in about six quarters.
Of course revenue will increase; Dendreon's new guidance -- if you can call it that -- is for "modest" quarter-over-quarter revenue growth. The company is also planning on scaling back expenses, and some of the start-up costs will go away, assuming the third manufacturing plant is approved later this summer.
When exactly Dendreon will move into the black is anyone's guess, though. An analyst asked what sales level the company would need to hit to get there, but management hemmed and hawed before finally admitting that there were too many moving parts to give an answer.
The problem with matching expenses to revenues is intensified by the fact that Provenge is made specifically for the individual patient. In addition to managing sales force expenses like any drugmaker would have to do, Dendreon is dependent on matching manufacturing expenses with sales to keep cost of goods sold in check. That's something that recent launches of drugs like Human Genome Sciences' (Nasdaq: HGSI ) Benlysta, Johnson & Johnson's (NYSE: JNJ ) Zytiga, or Bristol-Myers Squibb's (NYSE: BMY ) Yervoy don't have to worry about because they can be manufactured in large batches.
At the same time, Dendreon needs to be able to ramp up quickly. The biotech claims the slow launch is caused by community doctors not feeling confident that they'll be reimbursed quickly. If the company is right and changes to Medicare billing decreases reimbursement delays, doctors may start prescribing Provenge to more patients.
Until we get some visibility on sales ramp and expenses, Dendreon is going to be really hard to value. Fortunately, investors have plenty of experience with volatility from Dendreon's pre-Provenge-approval days.
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