By the looks of Dendreon's (Nasdaq: DNDN) shares -- up to more than $57 per share post-approval, down to $26 in July, and now sitting at around $36 -- it seems investors are having trouble getting a handle on whether to be exuberant or pessimistic about the drugmaker now that it has a drug on the market.

It's understandable; the current value of Dendreon is based on the potential future sales of its prostate cancer treatment Provenge. Valuing it based on current sales would be silly.

Look at its older brothers
One of my favorite ways to value a drugmaker with little to no revenue is to look at the values of more-advanced biotechs to get an idea of what the company could be valued at. Take a guess at how long it might take to reach that point, and calculating the expected return is fairly easy. It some ways, it's a little crude, but the strategy has the advantage of using actual figures that investors are willing to pay.

Unfortunately in Dendreon's case, it's not easy to find an example of what the company might become. At this point, Dendreon is a one-hit wonder with no pipeline. That used to be a good description of Onyx Pharmaceuticals (Nasdaq: ONXX) before it licensed a few drugs, but Onyx shares its revenue with Bayer, and Dendreon has the full rights to Provenge.

Abraxis BioScience is about the only one-drug wonder out there, although we'll have to do some math since it's actually smaller than Dendreon; Celgene (Nasdaq: CELG) recently agreed to purchase the company for $2.9 billion, which works out to 6.5 times the company's trailing 12 months of sales. Using that number, which might be a little low, and assuming Dendreon can eventually get Provenge sales up to $1.5 billion or maybe even $2 billion, that puts Dendreon's market cap between $10 billion and $13 billion -- roughly a double from its current level.

Get any answer you'd like
A traditional way you'd figure out how much a company is worth is by calculating future cash flows and then discounting them back to the present day (remember, future dollars are worth less than current ones). That works OK for large, stable drugmakers Pfizer (NYSE: PFE) and Merck (NYSE: MRK). Here's one that Matt Koppenheffer recently did for Johnson & Johnson.

But for Dendreon, the growth assumptions are so huge that changes in their trajectory can have major changes in the valuation. You're free to do the exercise if you'd like, but with the right assumptions, you can likely get an answer from highly undervalued to highly overvalued and everything in between.

No such thing as a free lunch
In order for Dendreon's share price to move higher, the company has to produce a decent sales ramp.

As far as I'm concerned, Provenge is going to sell itself. There's really only one other option for patients with advanced metastatic prostate cancer: sanofi-aventis' (NYSE: SNY) Taxotere. The treatments haven't gone head to head yet, but comparing the two clinical trials side by side, it looks like Provenge extends survival longer and definitely has less severe side effects.

That basically leaves two risk areas for investors: insurance coverage and manufacturing capacity.

Dendreon has already secured reimbursement from Aetna, Humana (NYSE: HUM), Kaiser, and other insurers, but Medicare is still up in the air. The Centers for Medicare & Medicaid Services has opened an analysis of payment for Provenge, but a decision won't be handed down until next year. Until that's resolved, expect some risk discount to be incorporated into the stock.

The manufacturing of Provenge is complicated because it involves an individualized treatment using the patient's own immune cells. Until the company brings additional plants on line, sales will be limited; at current capacity, it can only produce about $120 million worth of Provenge per year. If the plant openings are delayed, we could see Dendreon's shares fall until the company can prove to investors that it can produce the treatment at a large scale.

So what's it worth?
Like any stock, Dendreon is worth whatever investors are willing to pay at the time. That's kind of a cop-out, but as the price changes indicate, it's hard to get a feel for exactly how much it's worth. What is clear from the recent fall is that there's a bit of risk being priced into the stock. If Dendreon can prove to investors that their worrying was for naught, then the shares are sure to move higher.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.