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I'm bullish on Dendreon (DNDN), the company behind Provenge, the first ever FDA-approved immunotherapy, which works against prostate cancer ((PC)) -- but that's hardly news, because I always am bullish on this company (FWIW, the stock doesn't care).

Last time I wrote about it, Dendreon shares were hovering around their 52-week lows. That day, they closed at $6.06 - on the way down to $3.69.

Volatility

Dendreon shares had quite a ride. Wild swings might be a more appropriate definition. Between April 2009 and April 2010, the stock surged from a low near $2.60 (Provenge was waiting for FDA approval), to a peak near $54, after FDA approval.

By July 2011, as management cut sales estimates of its only product, the stock fell to a low near $10.40. There was a rally to the mid-teens, but they fell to the mid-$3 range again. Since hitting this October 2012 low ($3.69), shares have steadily climbed. At the time of this writing, they are sitting in the low $6s.

Valuation

As announced on Jan 7, 2013, product revenues are growing. If we annualize last quarter sales, we get $342 million. Also growing is total number of infusing accounts.

On April 20, 2012, I wrote:

Fourth-quarter revenue was $77 million. If we annualize the data ($77 million x 4 quarters = $308 million) and round up the number under the assumption of no-to-slow growth (which seems to be the order of the day on the Street), we get $320 million.

Nine months later, annualized revenue is higher, and breakeven point is lower - from $500 million to $400 million (company guidance).

Dendreon currently has a market cap of roughly 900M. It is a bit less than three times last quarter annualized turnover.

Consider the following: Last year GlaxoSmithKline (GSK) valued Human Genome Sciences at more than $2.50 billion, when the former had quarterly revenues of $45.5 million. And GSK already owned 50% of rights to HGSI's main product.

Any way you slice it, Dendreon still looks cheap to me.

Sanford C. Bernstein Weighs In

On Jan 11, 2013, Sanford C. Bernstein's analyst, Geoffrey Porges, forecast peak revenue of $799 million for Provenge by 2017 and earnings per share ((EPS)) of $1.14 in 2016.

The competitive landscape was stabilizing, Porges said, citing feedback from urologists who prescribe Provenge.

"Our interviews all suggested steady increases in expected use (of Provenge) among these busy community urology practices; none of the physicians expected to reduce their use, and most expected to use Provenge in combination with Xtandi in the future, and saw little threat from Zytiga," Porges said.

Based on these findings they are increasing their revenue forecast for Provenge; They now forecast peak revenue for Dendreon of $799mm by 2017, compared to $580mm previously with a significant contribution from ex US markets.

They expect the company's cash expenses to now match revenue by mid 2013, and for the company to report full year positive earnings in 2014. Firm's adjusted EPS estimates are now for pro forma earnings of $0.17 in 2014, then $0.54 in 2015 and $1.14 in 2016. These are all significantly higher than recent consensus.

Quick note: Geoffrey Porges is said to be an authority among pharma/biotech analysts.

Next stop: European Market

I provide the links to a couple of webpages: here (page 2 - look for Autologous peripheral blood mononuclear cells activated with PAP-GM-CSF, which is Provenge) and here (next meeting - Committee for Medicinal Products for Human Use (CHMP): 18-21 February 2013). It is possible that the European Committee will next review Provenge. After a positive recommendation, the market authorization should come by early May 2013.

It is my opinion that Dendreon will sell more Provenge in Europe than in the U.S.

The European healthcare system is one where the governments foot the bill. I believe that European doctors will prescribe and administer Provenge as early as possible. They will do so because it does make sense.

Remember, Provenge is the first ever FDA-approved immunotherapy. Even though the immune system works to defend the body against infection and disease, sometimes cancer cells can "hide" from the immune system. Provenge is an immunotherapy that is designed to train immune cells to seek and attack prostate cancer cells. By stimulating the natural ability of immune cells already in the body, Provenge helps fight advanced prostate cancer. Studies and guidelines already say that Provenge should be used as first-line PC therapy.

From the moment Dendreon started in business 20 years ago, most scientists have said that if its immune-booster for prostate cancer was going to work, it would probably work best at an early stage of disease, before tumors had gotten too powerful for the immune system to contain:

An analysis of its pivotal 512-patient study of sipuleucel-T (Provenge), which separated patients into four quartiles based on how high or low their prostate-specific antigen ((PSA)) scores were. The study wasn't designed to get a statistically significant answer to this question, meaning the finding could be a fluke. Still, the results do align with what many scientists believe based on the history of clinical trials with the product that it should work better among patients with less-aggressive forms of disease. The analysis, by lead author Gerald Chodak at Weiss Memorial Hospital in Chicago and colleagues, was posted online on the American Society of Clinical Oncology's website.

"All of these analyses support the robustness of clinical benefit for patients, and this PSA quartile data is helpful for patients when you think about sequencing of therapy," says Mark Frohlich, Dendreon's chief medical officer. "The data strongly argues that using it as early as possible is the best for the patient and still allows you to go on and get other therapies."

While Dendreon is currently conducting clinical trials aimed at expanding the use of Provenge into earlier stages of disease treatment, that will take some time. To my knowledge, U.S. insurers do not reimburse off-label Provenge prescription.

Back to Europe. Since the European healthcare system is one where the governments foot the bill, it is sometimes possible for hospital doctors to prescribe medicines and treatments off-label. Doctors can do that if they think the patients will benefit. It does make sense for doctors to prescribe Provenge because we know that the earlier it is administered, the better. If the cancer that has formed in the prostate is still contained within its tissue of origin, it is called in situ cancer. Provenge might be able to prevent PC to spread. In situ cancer may remain contained indefinitely. For the patients, that means less hospitalizations, less medications. For the healthcare systems, that means less costs.

One might ask why European doctors would prescribe Provenge off-label. That's because I think European healthcare authorities would hardly grant Provenge a much different label than the FDA (which is for the treatment of asymptomatic or minimally symptomatic metastatic castrate resistant - hormone refractory - prostate cancer - source: Provenge.com). True, rationale does support an earlier use - as explained above - but clinical trials still do not.

Now, this is the catch. Since rationale does support an earlier use, it is my opinion that many (many is not all: Europe has several different national healthcare systems, and prescription and reimbursement rules vary) European doctors will prescribe Provenge regardless of the label. This will result in a larger market for Provenge, in my opinion.

It is true that - since European healthcare is heavily regulated - Provenge will fetch less in Europe than in the U.S. But I think that lower producer prices and higher market penetration will offset the lower reimbursement price.

A Quick Glance Overseas

I think DNDN's current stock price does not take into consideration future sales in other markets. Brazil, China, India, Japan, Russia... The Rest Of the World (ROW) markets, i.e. those outside the U.S., are more than just Western Europe. Sooner or later Provenge will have global sales that will outweigh those coming from the U.S. market.

Sum Up

In sum, I think that Dendreon is undervalued. I'm still long the stock.

Source: Bright Horizons For Dendreon

Additional disclosure: I am long DNDN and will not alter my position within 72 hours of the time of publication of this article.