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One Person's Trash Is Another Person's Treasure Selection: Dendreon

Sean Williams
November 30, 2012

Three weeks ago, I announced my intention to create a portfolio composed of 10 companies that investors have unjustly cast aside. My goal in creating the One Person's Trash Is Another Person's Treasure portfolio is to highlight just how successful value investing and contrarian viewpoints can be, as well as uncover some great companies that have a good chance of turning their fortunes around. For a more thorough explanation of what I hope to accomplish and how I'll measure my success, I encourage you to visit my portfolio mission statement.

For reference, here are my previous two selections:

For my third selection, I've chosen biotechnology firm Dendreon (Nasdaq: DNDN  ) .

Why traders have given up on Dendreon
When Dendreon's late-stage prostate cancer treatment Provenge was approved by the Food and Drug Administration in April 2010, its prospects were immeasurable. With few treatments available to patients and what appeared to be a big survival advantage, Provenge was expected to become a blockbuster. However, a series of bungles -- including pricing the full course of treatment at $93,000 and marketing the drug on its own without a partner -- allowed its competition to sweep in and steal the show.

Currently, Johnson & Johnson's (NYSE: JNJ  ) Zytiga appears to be the metastatic castration-resistant prostate cancer treatment of choice among physicians, according to research firm Baird. Also, Medivation (Nasdaq: MDVN  ) and Astellas Pharma (NASDAQOTH: ALPMY) received an extremely rare early approval for Xtandi to treat prostate cancer in August. On top of this, you can add in competition from Jevtana, made by Sanofi (NYSE: SNY  ) . In Europe, Medivation has already filed for approval while Zytiga gained EU approval last year -- but only after dropping the price of Zytiga lower than its current $5,500 monthly bill that you find in the United States.

Simply put, the deck is already stacked against Dendreon, and it was forced to restructure its operations and reduce its workforce in order to cut expenses to manageable levels -- and still the company is losing money.

Why investors should trust Dendreon
Every basket portfolio of 10 companies should have one or two long-shot picks, and this is one of mine. Provenge sales may have limped out of the gate, and Dendreon's certainly moving at a snail's pace in Europe as it runs trials for EU regulators on safety, but there are plenty of ways Dendreon can turn things around.

To begin with, Dendreon could (and in my personal opinion, will) seek out a partner with more marketing knowledge, specifically abroad, which could then help Dendreon price its Provenge treatment to a level which is likely to draw the praise of EU regulators and insurers. As my Foolish colleague David Williamson recently noted, EU insurers are much more cost sensitive, so pricing Provenge appropriately in Europe will be important. Dendreon was recently informed by Aetna (NYSE: AET  ) that its Provenge treatment would be covered on a limited basis which may also spur more insurers domestically to cover the full treatme