Can Dendreon Cure Its 52-Week-Low Woes?

Shares of Dendreon (Nasdaq: DNDN  ) hit a 52-week low yesterday. Let's take a look at how the company got here to find out whether cloudy skies remain on the horizon.

How it got here
Anyone following the saga of Dendreon's Provenge prostate-cancer drug knows that the company's problems exploded into the open last summer with the quarterly earnings report from hell. The stock's been stuck in a rut since guidance released at the time sent shares plummeting 65%.

Current and future competition from Johnson & Johnson's (NYSE: JNJ  ) Zytiga and Medivation's (Nasdaq: MDVN  ) MDV3100 have certainly contributed to depressed share prices, but what keeps hurting the stock is bad news after bad news tied to a string of weak quarterly results. A new CEO hasn't helped yet, and the high cost of Provenge treatments comes in a very short time frame for doctors, which has been one of the longer-running concerns surrounding Dendreon's growth prospects.

Dendreon is one of the worst-performing biotech drugmakers over the past year, and it must smart for shareholders to see competitor Medivation soar while their shares keep sinking:

DNDN Total Return Price Chart

DNDN Total Return Price data by YCharts

What you need to know
Since we're dealing with biotechs (except for J&J) as competition, standard measures like P/E ratios and net margins don't always apply. In this case, let's look at how Dendreon fares relative to its peers in some high-growth metrics.

Company

P/S Ratio

3-Year Annualized Revenue Growth

Gross Margin (TTM)

Dendreon 2.2 1,434% 49.4%
Johnson & Johnson 2.6 1.3% 68.6%
Medivation 35.9 41.8% 99.2%
Spectrum Pharmaceuticals (Nasdaq: SPPI  ) 3.1 76.5% 82.8%
Exelexis (Nasdaq: EXEL  ) 2.5 33.2% 100%

Source: Morningstar.

Medivation's and Exelexis' perfect gross margins are the result of collaborations and licensing out drugs in their pipelines, making 2011 into Exelixis' first profitable year ever, while Medivation has yet to turn a profit. If they can get their drugs approved, gross margins will come down, but hopefully bring consistent profitability with them. Spectrum's 39% net margin is the envy of many biotechs, but it's a recently profitable company that risks flopping if generic drugs reclaim ground against its high-margin cancer treatments after being in short supply. All of these cancer drugmakers have higher price-to-sales ratios than Dendreon, reflecting greater investor confidence in their long-term success.

Dendreon may have a silver lining, but it's faint. Biotech Fool Brian Orelli hypothesizes that Provenge might be used in conjunction with, rather than simply being replaced by, J&J's Zytiga. The market hasn't reflected that weak optimism yet, and there hasn't been real evidence that it will.

What's next?
Where does Dendreon go from here? That will depend, at least for now, on Provenge finding an important place in more prostate-cancer treatments. The Motley Fool's CAPS community has given Dendreon a three-star rating, and a number of All-Star CAPS players are wary of its potential. Just over half the Wall Street analysts the Fool tracks on CAPS are Dendreon bulls, but none of them have seen positive results from their outperform calls.

Interested in tracking this stock as it continues on its path? Add Dendreon to your Watchlist now for all the news we Fools can find, delivered to your inbox as it happens. If you're looking for a medical stock with huge potential, take a look at the Fool's free report on one rule-breaking multibagger handpicked by Fool co-founder David Gardner. Get all the information you need now -- just click here for your free report.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool owns shares of Johnson & Johnson, Exelixis, and Dendreon. Motley Fool newsletter services have recommended buying shares of Exelixis and Johnson & Johnson. Motley Fool newsletter services have recommended creating a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy.

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