At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the best ...
Deutsche Securities started off the trading week with a bang Monday. Initiating coverage on a sextet of the sexiest names in biotech, Deutsche hung "hold" ratings on:

  • Amgen (Nasdaq: AMGN), citing concerns over "the decline of its base business."
  • Biogen Idec, pending a catalyst in the form of data on the firm's hemophilia drug pipeline late next year.
  • Celgene (Nasdaq: CELG), since Deutsche worries about Revlimid's prospects in the European Union.
  • Genzyme (Nasdaq: GENZ), which is actually good news for the stock, because Deutsche believes the sanofi-aventis deal will get done. Had it any doubts, I suspect the rating would have been even less enthusiastic.

Meanwhile, Gilead Sciences (Nasdaq: GILD) got a "buy" rating from Deutsche, on hopes that "at least one of the company's HIV pipeline drugs will come to market." And in the most interesting twist of all, Deutsche threw its support behind Dendreon (Nasdaq: DNDN).

No doubt 'bout Dendreon
According to Deutsche, Dendreon's an out-and-out buy today. While many analysts today hedge their bets on the company's new Provenge cancer treatment, predicting it will hit "blockbuster" status of $1 billion in annual sales, Deutsche goes even farther. According to Deutsche, Provenge should ultimately take in a much as $1.3 billion in revenue internationally -- as in, in addition to what it earns within U.S. borders. What's more, Deutsche calls this estimate "conservative" in light of the "high price point" Dendreon has set on the treatment.

Conclusion: Deutsche is positing annual global Provenge sales somewhere north of what many investors expect; somewhere between $1.3 billion, and "infinity and beyond."

Yowza indeed. But the most recent report out of Dendreon had Provenge booking just $5.2 million in sales in July. Fellow Fool Brian Orelli warns that, even operating full-tilt at its single plant now up-and-running, Dendreon will max out at about $10 million-per-month before bringing new manufacturing capacity online early next year. The resulting annual revenue is a far cry from what Deutsche's expecting. There seems to be a bit of a gap here between fact and projection -- so, just how much faith should investors put in Deutsche's Dendreon divination?

Perhaps quite a lot.

After all, according to our CAPS stats, Deutsche Securities is one of the better biotech investors out there. In a notoriously hit-or-miss industry, where even subpar accuracy can net an investor huge outperformance of the plodding S&P 500 -- if one hits the right winners -- Deutsche manages the neat feat of getting most of its picks right.


Deutsche Said:

CAPS says:

Deutsch's Picks Beating S&P By:




37 points

Momenta Pharma



41 points

Human Genome Sciences



337 points!

And as a matter of fact, the last time Deutsche was actively covering Dendreon, in June of 2009, it got that pick right, too -- beating the market handily with 25-point outperformance. Call me crazy if you like, but I put a whole lot more credence in "conservative" numbers worked up by an analyst with a record of success than I do in vague mentions of "more than $1 billion" parroted by your average AP reporter.

And yet ...
If anyone's right about Provenge's potential, chances are good that Deutsche Securities is. However, there's still the nagging matter of the stock's price to deal with. Sure, Provenge has "got potential" to exceed expectations -- but does Dendreon offer value to the investor today?

At Deutsche's $44-per-share price projection, the analyst tells us that Dendreon should be worth about $6.3 billion if it fulfills its Provenge potential. Fine and dandy. But larger, more established drug plays such as Pfizer (NYSE: PFE) and Lilly (NYSE: LLY) sell for about two times sales -- actual sales, not hypothetical sales from several years out in the future. Granted, biotechs tend to trade at a bit higher multiple (Amgen trades at 3.5-times sales, for instance), but still.

It seems to me that for Dendreon to deserve the $6.3 billion price tag the analyst is hanging on it, the company may need to exceed Deutsche's conservative projections. It's might need much as $3.1 billion in total sales to do so.

Time to chime in
Can Provenge help Dendreon reach this goal? Will the company's potential treatments for breast, lung, colon, and kidney cancer fill the valuation gap in time to keep the shares from falling back to their pre-Provenge levels? Here's your chance to tell the world what you think about Dendreon.

Click. Vent. Vote.

Momenta Pharmaceuticals is a Motley Fool Rule Breakers recommendation and Pfizer is a choice of Inside Value, but Fool contributor Rich Smith does not own shares of (nor is he short) any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 499 out of more than 165,000 members. The Motley Fool has a disclosure policy.