Dendreon CEO To Shorts: Bombs Away!

| About: Dendreon Corporation (DNDN)


Based on the separation agreement, it appears that the CEO clearly quit and was not fired because he was blocking a deal.

There is clearly no acquisition on the near term horizon and the CEO did not want to be the one to take company bankrupt.

Nothing for the shorts to worry about, the company will either go bankrupt or have an extremely dilutive financing.

Just a little while ago I wrote an article here about the options for DNDN going forward. The short, short version is that they either will go bankrupt, do something extremely and fantastically dilutive or be acquired. I concluded by writing:

Owners of DNDN should realize they don't really own a share of the company, they own a call option with a payoff only if it is acquired. Otherwise their call option will expire practically worthless.

The CEO effectively confirmed that there is no acquisition anywhere near the horizon. It would be one thing if he was blocking a deal (though why would he?) and was fired but it is clear that he quit. First, notice that the company is pretty much completely unprepared for his departure, just starting an executive search. Second, he is not getting the severance package that is listed in the Proxy statement as being valid "upon termination without cause or resignation for good reason." Here is what he is supposed to receive according to the Proxy:

Our Chief Executive Officer will receive a lump-sum payment equal to 200% of his base salary and 200% of the target annual cash bonus award identified for the relevant year. In addition, each executive will receive full acceleration of all stock options and restricted stock awards held by him or her. Furthermore, our named executive officers other than our Chief Executive Officer will be entitled to payment for continued health benefits coverage by us for up to 18 months, and receive up to $10,000 for moving expenses or outplacement services. Our Chief Executive Officer will be entitled to payment for continued benefits coverage, including health benefits, life, accidental death and dismemberment and disability insurance, by us for up to 24 months, and receive up to $50,000 for moving expenses or outplacement services incurred within one year of termination.

His base salary is $800,000 a year with a target annual cash bonus of 100% of his base salary. 200% of this would be $3.2 million. Now let's see what he is actually receiving according to the separation agreement in the 8-k:

Within ten (10) days following the Employment Termination Date, the Company will pay Executive his full Base Salary and accrued but unused vacation pay through the Employment Termination Date, each at the rate then in effect, plus all other benefits to which Executive has a vested right at that time.

In consideration of Executive's agreements and covenants contained herein, provided that Executive has delivered an executed release in the form provided by the Company (which shall be a "mutual" release) within twenty-one (21) days following the Employment Termination Date (and any revocation period with respect to such release has expired), the Company shall pay Executive the following amounts within thirty (30) days following the Employment Termination Date:

(I) $198,000, less applicable withholding amounts, if Executive remains employed with the Company through August 15, 2014;

(ii) $75,000, less applicable withholding amounts, if the Company executes and delivers a contract manufacturing agreement with a third-party on or before August 15, 2014 and Executive is employed by the Company through such execution date; and

(III) $75,000, less applicable withholding amounts, if the Company executes and delivers a co-promotion agreement on or before August 15, 2014 with a third-party providing that the Company will detail one or more of such third party's products in exchange for reimbursement of a portion of DNDN's sales costs and Executive is employed by the Company through such execution date.

Where's the $3.2 million? Where's the acceleration of options? Or the money for moving expenses? Clearly, this departure is not covered by the severance policy of DNDN. So was the CEO fired with cause? Not likely. Cause is always difficult to prove and would also be difficult to believe given this statement from the press release by the newly elected Chairman of the Board:

"On behalf of the Board, I would like to thank John for his leadership, dedication, and passion for helping prostate cancer patients live longer and better lives through PROVENGE," said Mr. Watson. "While serving as chief executive officer, John has made many significant contributions to Dendreon and driven important strategic initiatives to help reposition the Company, including launching a new commercial strategy, gaining marketing authorization in the European Union, increasing manufacturing efficiencies, significantly lowering costs, and advancing our clinical pipeline."

I believe it is pretty clear that the CEO resigned and no CEO would resign right before an acquisition, not when they can expect to be paid millions (the deal for the CEO if he is let go post an acquisition is even better than the normal severance as he would be owed 250% of his base and target bonus or $4 million).

It seems to me that the only reason for the CEO to resign is because he didn't want to be in charge of DNDN when it went bankrupt (it's not like he would be getting severance then either) in a little more than a year's time (in Q3 of 2015 if the company doesn't raise additional capital). He also seems to think that raising enough capital to pay off the convertible debt due January 2016 is slim to none. And even if he succeeded, the dilution would probably run between 67-89% as I wrote previously.

DNDN investors that are still holding on should really let go. The guy who probably had the most insider knowledge available on the company, just quit. Do you think he would have done that if he had even the slightest chance of getting a $4 million payday on an acquisition?

And now the shorts can short DNDN relentlessly, knowing full well that they are not being bought. No way. No how.

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