In 2009, Dendreon (Nasdaq: DNDN) proved a lot of investors -- myself included -- wrong when its prostate cancer treatment, Provenge, passed a critical phase 3 trial. After its subsequent approval, Provenge missed sales guidance, causing Dendreon's shares to plummet near where there were before the phase 3 data was released.

It's going to be a lot harder for Dendreon to come back this time. Rather than waiting for positive clinical trial data, the biotech has to execute on a business plan. Here are three things to look for in the coming quarters.

Margins
Dendreon currently spends 77% of the amount it brings in just on the manufacturing of Provenge. That's insanely high and doesn't leave enough to pay the rest of the bills and still bring in a profit. Typically, costs of goods sold for a biotech are much lower. Amgen's (Nasdaq: AMGN) costs of goods is around 15% or so.

Provenge is a little different because it's manufactured individually for each patient. The treatment is never going to have gross margins as high as the typical biotech that can make its drugs in batches. But Dendreon can certainly do better.

There's little Dendreon can do about the cost to manufacture each treatment beyond automating the process, but there are fixed costs that can be reduced. To that end, the biotech recently announced that it's closing its manufacturing facility in New Jersey to cut down on costs.

The decreased fixed costs combined with an increase in sales give Dendreon hope that it can get cost of goods sold down to just 50% of sales, which should allow it to become profitable.

Competition
The wild card for Dendreon is the other companies developing prostate cancer treatments. Sanofi's (NYSE: SNY) Taxotere was already on the market when Provenge was approved, but Provenge beat the chemotherapy on both efficacy and safety measures.

Subsequently, Johnson & Johnson's (NYSE: JNJ) Zytiga was approved and Medivation's (Nasdaq: MDVN) enzalutamide posted nice clinical trial data showing strong efficacy results.

Dendreon hopes that Provenge and the other prostate cancer treatments can be used sequentially to fight the deadly cancer rather than competing directly. And there's some evidence that early treatment with Provenge might lead to better outcomes, which would place Provenge in the ideal initial-treatment spot.

But Dendreon still needs to prove the sequential-treatment hypothesis with a clinical trial. The trial is still recruiting patients, so it'll be years before Dendreon can definitively dominate the treatment paradigm.

Pipeline
Developing a second drug would seem to be less critical than ensuring sales growth and profitability, but I don't think this area should be ignored. There's still a subset of doctors and investors who aren't convinced that Provenge works despite the clinical trial data that say otherwise. It's easy for Provenge doubters to brush off clinical trial data as a fluke.

Dendreon is running clinical trials testing the same underlying technology that Provenge uses -- training a patient's immune cells to attack a tumor -- in bladder cancer. In theory, the success or failure of DN24-02 should have no effect on Provenge sales since they treat different diseases, but in reality, I think a proof of concept in another tumor type could go a long way in getting doctors and investors on board.

Bad news buy?
Dendreon could be a good buy at this level. At a market cap of $700 million, it's priced at just 2.2 times sales based on its run rate. That's a screaming buy if the company can become profitable anytime in the near future.

But when a company has had this many issues, there's no telling what else could be around the corner. Investors would be best off putting Dendreon on a watchlist and waiting to see whether it can execute on its turnaround plan. If it happens quickly, you'll miss out on a big run-up, but that seems like a small price to pay to avoid a further decline if Dendreon can't get profitable.

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