How Much Is Dendreon Worth?

Before diving into the valuation process, here is a quick recap of recent Provenge history, and what to expect in the near future.

Provenge, developed by Dendreon Corporation (DNDN), is an active cellular immunotherapy (i.e. vaccine) for treatment of metastatic, androgen independent prostate cancer (AIPC). On 11/13/2006, Dendreon filed the final portion of its Provenge Biologics License Application (BLA) with the FDA. The primary basis for the BLA was Phase III study DEN-9901, which showed median survival of 25.9 months vs. 21.4 months for placebo, and a 41% risk of death reduction. Shortly thereafter, on 1/16/2007, the FDA granted Priority Review for Provenge, which allowed for an accelerated review process reserved for therapies that address unmet medical needs. In late March 2007, an FDA Advisory Committee voted 17-0 supporting Provenge’s safety profile and 13-4 backing its efficacy. Then, in May 2007, Dendreon received an FDA Approvable Letter.

Much discussion ensued on reports of conflicts of interest of several Committee members, due to apparent ties to firms with drugs with which Provenge would compete, and suspicion that the FDA’s decision had been influenced. Afterward, Dendreon received confirmation from the FDA that positive survival data from its in progress IMPACT study (D9902B) would support Provenge approval.

On 4/14/2009, Dendreon announced that primary IMPACT study endpoints had been met, which means data demonstrates at least a 22% reduction in risk of death. The company will present detailed study results at the American Urological Association’s Annual Meeting on 4/28/2009. Dendreon has said it plans to resubmit a Provenge BLA application in Q4 2009. It is likely that the Provenge application will once again receive priority review; this means if Dendreon submits the new BLA in early Q4, an approval decision could very well come as soon as December 2009, and almost surely no later than March 2010.

To approximate the value of Dendreon, I will use two methods. First, if Provenge is approved, it will compete directly with Sanofi’s Taxotere (Docetaxel), which generated about $2.8 Billion in 2008 sales. Although Taxotere is indicated for other cancer indications in addition to Androgen Independent Prostate Cancer (AIPC), it is safe to assume more than 50% of its annual sales are due to AIPC, based on the difference sales of the drug after it gained FDA approval for AIPC in 2004. It is also worth noting that because of the serious side effects of Taxotere, somewhere between 25%-50% of the potential prostate cancer patients refused Taxotere treatment. Taken together, the estimated market for AIPC should be at least $1.8-$2.8 Billion.

Because Provenge has been shown to be much more effective, with few serious side effects, it is reasonable to expect that it will gain greater than 50% of the market share after approval, leading to peak sales estimates between $900 Million to $2.8 Billion a year. Current Price/Sales ratios for cancer-focused biotech with at least one approved product range 4-8 times, and therefore, if Provenge is approved, Dendreon should be valued at $3.6-$7.2 Billion (based on the low end $900 Million sales figure). As of March 5, 2009, Dendreon has 98 million shares outstanding, leading to a price per share of $36-$73. Finally, there is always a chance that Provenge won’t get approved, and so the expected Dendreon share price using a 70% chance of approval will be around $25-$51 ( [0.7*$36]+[0.3*$0] and [0.7*$73+0.3*0], assuming Dendreon is worth $0 per share if Provenge is not approved).

The second method is based on premiums paid in 2008 M&A deals involving cancer-focused biotechs. Three deals stand out as being appropriate for comparison: Eli Lilly’s (LLY) acquisition of Imclone, Takeda’s (TKPHF.PK) acquisition of Millennium Pharmaceuticals, and Celgene’s (CELG) acquisition of Pharmion. In each of these deals, a cancer-focused biotech with one potential blockbuster cancer drug was acquired; the drugs being Erbitux, Velcade, and Vidaza belonging to Imclone, Millennium, and Pharmion, respectively. In all three deals, the premiums paid were around 50%. Therefore, using this method, the current acquisition price tag for Dendreon shares based on Thursday’s (4/16/2009) closing price would be around $25.50.

I made quite a few assumptions here to arrive at these estimates, but I believe they are reasonable, factual, and conservative enough to serve as an initial valuation attempt for Dendreon.

Disclosure: Long DNDN.

Comments

[User 397568:]

There is more in the pipeline for DNDN then just Provenge. Immunotherapy can be a whole new platform for the way cancer is treated. The potential value of DNDN is yet to be seen. I would be very disappointed with the company being aquired for anything less than $60 per share at this point. Lets wait a year and $60 might even be considered a bargain.

Apr 19 07:46 AM

[polar40:]

I agree with user 397568. DNDN is already working on breast cancer and probably colon cancer. This is a new breakthrough tachnology to strengthen ones own immune system and has proven to be safe with little side effects. It would be worth much more than $25.
Long DNDN

Apr 19 09:04 AM

[biotech86:]

Data supoorting licensure in one thing... good. Large scale production and commercialization of the vaccine is another story.... very challenging.

Apr 19 10:31 AM

[Ralph Kane:]

The market for prostate cancer will be tapped in the U.S. by Dendreon alone; and plans to partner with a European firm to distribute there are already announced; additional products to address other cancers are already in the pipeline; and production facilities have already been secured.

Dendreon has stated it will re-buff take over offers or joint offers. Since the product line is not but an initial offering, the risk reward ratio has been huge...the reward will be huge now that the years of research & efficacy verification have completed.

The top figure mentioned in the article of $76 may be accurate...until distribution begins, and then...+++.

Apr 19 11:46 AM

[User 204405:]

Provenge is a treatment that requires invasive surgery for every single patient treated. A sample of the tumor has to be taken and analyzed in the lab in order to produce a drug tailored specifically for that patient. That is a huge barrier to the potential profits of Dendreon. The overhead on Provenge is much, much heavier than on Avastin, for example, which is mass produced in factories.

Apr 19 03:06 PM

[phil_vardena:]

There are around 220,000 men diagnosed with prostate cancer, every year, in the USA.

I think that, within a few years' time, every single one of them will ask and have treatment with Provenge. But let's just assume they will be 50,000.

Each Provenge treatment will reportedly cost $40,000 (I mean the whole treatment: blood taking, then three infusions),

50,000 x 40,000 = € 2,000,000,000.00.

In a few years' time, with stabilization of financial market, DNDN might fetch 10x sales.

This gives me a market cap of 20,000,000,000.00.

For simplicity's sake (but it should not be much far from reality) I assume there will be 100,000,000 DNDN shares (2007 annual report share count is 82,531,000).

This gives me a pps of $200.00.

This excludes ROW (almost a triple if we just count the EU, Japan, the so-called "western world". Think India, think China....... vbg)

All of the above excludes:
1 - Neuvenge;
2 - the treatment that DNDN will be able to develop against Carcinoembryonic antigen (CEA) - actually in pre-clinical phase - lung, colon, breast cancer;
3 - Carbonic anhydrase IX (CA9) - cervical, colon, renal, cancers (pre-clinical phase);
4 - the small molecule against Trp-p8 - prostate, breast, colon, lung cancers (moving from pre-clinical into clinical phase).

I have a substantial (at least, for me!) position into DNDN and plan to buy more with full hands as soon as the FDA will approve Provenge. And the hell with diversification! I'll sell my first batch at $80, my second at $400 and will sell the rest later and will retire early!

This is a revolution: many people, diagnosed with cancer, will live longer and better thanks to Dendreon.

phil

Apr 19 04:37 PM

[ksmithdc:]

Interesting read, thanks.

Apr 19 08:26 PM

[provengers666:]

Hey, Phil....you just lost all credibility...for someone who purports to have such strong opinions, you might want to at LEAST tell people what the most current share count is....hint: it's a LOT higher than the 82 million you referenced, and it will likely become much higher within the next year as the company raises money to develop the other drugs in the pipeline.....also, you might want to mention that any European sales will be much less profitable as they have to share the proceeds with the partner....that said, it seems to be a good candidate for a run to $30 in the near term...anyone who tells you they can predict the longer term is full it...

Apr 20 04:13 AM

[reitinvestor:]

204405....no, no, no............Provenge requires a blood sample from the patient..........the antigen is in a test tube at DNDN...........no?

Apr 20 09:56 AM

[mbarnes:]

There is also good data on vitaminD in prostate cancer. Take a look at vitiaminD3world.com for some good summaries of the data

Apr 20 06:43 PM

[Whippet:]

reitinvestor- the antigen is in a test tube at Dendreon, but the cells are not. The blood sample is to get a small population of the patient's own dendritic cells (hence their company name), load them with antigen, and then reintroduce them to the patient. Dendritic cells are the most powerful type of APCs (antigen presenting cells); these "re-educate" the patient's immune system to attack the antigen in the tumor cells. This pathway bypasses the body's natural controls over self-immunization (the basis of illnesses such as MS, rheumatoid arthritis, etc.) Hence the originality, power, and promise of this avenue of treatment for many types of cancer.

As for investment, I'm long Jan 2011 calls. I don't expect the share price to go anywhere unless a buyout occurs before the FDA's decision on the sBLA and can get less capital exposure out of this play.

Apr 21 01:23 PM

[xxoo:]

There are currently 98 million shares outstanding. So lets assume they raise $100 million which is sufficient. At $20 per share is only 5 million shares, at $25 is only 4 million shares. Dilution of 4 to 5 % is peanuts.


On Apr 20 04:13 AM provengers666 wrote:

> Hey, Phil....you just lost all credibility...for someone who purports
> to have such strong opinions, you might want to at LEAST tell people
> what the most current share count is....hint: it's a LOT higher than
> the 82 million you referenced, and it will likely become much higher
> within the next year as the company raises money to develop the other
> drugs in the pipeline.....also, you might want to mention that any
> European sales will be much less profitable as they have to share
> the proceeds with the partner....that said, it seems to be a good
> candidate for a run to $30 in the near term...anyone who tells you
> they can predict the longer term is full it...

Apr 22 04:18 AM

[xxoo:]

settle down. phil referenced 07 share numbers.
And your overseas findings are also bad. They will have less costs with a partner and yes they will share profits. It is difficult to figure the bottom line to DNDN. So settle down provengers


On Apr 20 04:13 AM provengers666 wrote:

> Hey, Phil....you just lost all credibility...for someone who purports
> to have such strong opinions, you might want to at LEAST tell people
> what the most current share count is....hint: it's a LOT higher than
> the 82 million you referenced, and it will likely become much higher
> within the next year as the company raises money to develop the other
> drugs in the pipeline.....also, you might want to mention that any
> European sales will be much less profitable as they have to share
> the proceeds with the partner....that said, it seems to be a good
> candidate for a run to $30 in the near term...anyone who tells you
> they can predict the longer term is full it...

Apr 22 04:24 AM

[Michael Murphy:]

Dan - I finally got my valuation article posted from my Instablog here:
seekingalpha.com/artic...

I have similar numbers to yours based on US-only, on-label-only use, but much higher numbers when you add in ROW and off-label. And then the additional cancers, both US & ROW....

I think your 30% haircut for the approval question is much too high. This was done under a Special Protocol Assessment, DNDN more than hit their number - approval is almost certain. Maybe a 5% haircut?

Apr 22 03:13 PM

[phil_vardena:]

I said "For simplicity's sake (but it should not be much far from reality) I assume there will be 100,000,000 DNDN shares (2007 annual report share count is 82,531,000)."

Are you able to read?


On Apr 20 04:13 AM provengers666 wrote:

> Hey, Phil....you just lost all credibility...for someone who purports
> to have such strong opinions, you might want to at LEAST tell people
> what the most current share count is....hint: it's a LOT higher than
> the 82 million you referenced, and it will likely become much higher
> within the next year as the company raises money to develop the other
> drugs in the pipeline.....also, you might want to mention that any
> European sales will be much less profitable as they have to share
> the proceeds with the partner....that said, it seems to be a good
> candidate for a run to $30 in the near term...anyone who tells you
> they can predict the longer term is full it...

Apr 26 04:45 PM

[buda:]

I assume the tumor sample can be aspirated. Nothing terrible or difficult about that.


On Apr 19 03:06 PM User 204405 wrote:

> Provenge is a treatment that requires invasive surgery for every
> single patient treated. A sample of the tumor has to be taken and
> analyzed in the lab in order to produce a drug tailored specifically
> for that patient. That is a huge barrier to the potential profits
> of Dendreon. The overhead on Provenge is much, much heavier than
> on Avastin, for example, which is mass produced in factories.

Apr 29 04:21 PM

[Chiroworks:]

As a Chiropractor, I see no use for it.

Nov 01 12:09 PM