Dendreon CEO Leaves: Buyout Or Bankruptcy?

| About: Dendreon Corporation (DNDN)


Dendreon CEO John Johnson resigned.

Stock down 85% since day he was announced as CEO.

Buyout or bankruptcy? That is the question.

Just a week ago, I detailed how biotech Dendreon (NASDAQ:DNDN) was on the clock. The company has a debt due on June 15th, which is now less than one week away. The company, which has been pushing closer to the edge, has burned through tons of cash in recent years as losses have piled up. Provenge revenues have been disappointing, but cost cutting measures are starting to work. Recently, shares bottomed out at $1.81 after being at more than $50 a couple of years ago.

On Monday afternoon, we got really surprising news from the company. Dendreon CEO John Johnson announced that he was stepping down as President and CEO of the company. Mr. Johnson will serve as CEO until August 15th, 2014, but has resigned from the board effective June 3, 2014. Douglas G. Watson, Dendreon's lead independent director, has been named Chairman of the Board. This was very surprising news, and is likely to have a large impact on Dendreon's short and long-term future. The big question is what happens next?

Well, it depends on which side of the fence you are on. If you are a member of the bull camp, you would think that this move could lead to Dendreon being acquired. A takeover of Dendreon is the best hope for shareholders currently, as the company's dwindling cash position hasn't left too much hope for the company's survival past the 2016 notes being due in January 2016. The bull camp also hopes that Johnson's departure leads to a short squeeze. The latest update on short interest showed more than 41 million shares short, more than 27% of the float. On Monday, pharma giant Merck (NYSE:MRK) announced that it was paying a huge premium to buy Idenix (NASDAQ:IDIX), sending shares of Idenix up more than 229%. Dendreon bulls are hoping for a similar payday. Idenix had a market cap of about $3.6 billion at Monday's close, while Dendreon's market cap was just around $333 million. Dendreon will be getting its prostate cancer treatment Provenge into Europe later this year, which is expected to provide a boost to flatlining revenues. The company also is cutting costs at a rapid pace.

On the flip side, the bear camp will see this as a captain abandoning a sinking ship. Provenge revenues have continued to miss analyst estimates, with the stock continuing to plunge. Dendreon has been one of the best short ideas I've pitched on this site, since I detailed the possibility of a collapse right after Johnson took over. In the past three years, Dendreon's cash and investments balance has decreased from $779 million to $170 million. Dendreon has about $28 million in notes due next week, with around $600 million due in January 2016. As each quarter progresses and the cash position dwindles, the possibility of bankruptcy seems to increase. The bear camp believes that Johnson is leaving before Dendreon truly fails.

It was not a great time at the helm for Johnson. On the day he was announced as CEO, back in February 2012, Dendreon shares rose by nearly 5% to $14.25. Shares closed Monday at just $2.15, barely off their recent 52-week lows. The Dendreon bull camp hopes that Monday's news is a sign that the company could be acquired, while the bear camp takes it as a captain who is jumping from a sinking ship. It's unclear what will happen to the stock in the short-term, but the future of this company became even more questionable Monday with this shocking news.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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