Is Dendreon Just a Dot-Com Story at This Price?

Editor's note: An earlier version of this article gave a mistaken amount of cash on Dendreon's books. The article has been updated, and the Fool regrets the error.

If you are afraid you've missed all the gains in this year's Dendreon (NASDAQ:DNDN) rally, then I've got some bad news for you: You probably have. And for anyone fortuitous enough to participate, you could do a lot worse than to get out now while the going is 500%-plus good.

Sure, the company's phase 3 trials for its breakthrough prostate cancer drug, Provenge, look promising.

And yes, with about $300 million in cash, equivalents, and short-term investments on its balance sheet, Dendreon has enough resources to offset its $87 million in debt.

But it just doesn't make any sense to me to buy Dendreon anymore -- or even to hang in there for the long haul right now.

For a start, investing in Dendreon right now can hardly be considered "investing" in the sense that buying shares of relatively beaten-down giants Merck (NYSE:MRK) or Bristol-Myers Squibb (NYSE:BMY) is. Those guys have several successful drugs on the market, and Dendreon has none.

Further, buying Dendreon isn't investing in the same way as buying Medtronic (NYSE:MDT) or Intuitive Surgical (NASDAQ:ISRG) is. Medtronic's devices could ride demographic trends while Intuitive's robot seems to be taking over the operating room. Dendreon has to worry about even newer up-and-coming prostate cancer treatments.

Let's be honest. Buying Dendreon right now is not much more than a big bet that Provenge will get FDA approval and become a blockbuster pretty quickly. Looking at the history of biotech companies, you might as well grab one of those cheap package deals to Vegas and put your money on red once you're there.

Let's assume that Provenge's breakthrough drug is approved by the FDA; that would be a good thing. However, marketing approval does not a blockbuster make. It took three years after Nexavar got approved in December 2005 before one-drug wonder Onyx Pharmaceuticals (NASDAQ:ONXX) turned a profit. And sales for the cancer drug are still well shy of the $1 billion mark that it has the potential to reach. In other words, drug approval does not automatically translate into earnings, and Dendreon's management team is untested in this regard. And never forget, Fools, that it is earnings which drive a company's long-term success.

While I don't necessarily think Dendreon will disappear from the scene like other one-hit wonder biotech companies have, a huge price run-up on the excitement over FDA drug approval (especially potential approval) doesn't make the best long-term investing thesis, either.

Buying Dendreon today is not the same as what it was back in January. Buyers today should be making a serious long-term commitment, and for me, the uncertainty is still too high. It might get cheaper again, in which case opening a position may make sense. But for now, if I were an investor, I'd be looking to follow management's lead earlier this year and lock in my gains.