- Dendreon's depressed stock price is an invitation to hostile bids.
- FDA approvals have often been the single factor towards an acquisition strategy.
- Sequencing Provenge with other treatments may ultimately spur a significant partnership.
Dendreon's Stock Price Makes for Easy Pickins
A CEO departure in conjunction with struggling sales and a depressed stock price usually spell doom for a public company. This could well be the case for Dendreon (NASDAQ:DNDN).
However, a combination of recent events and circumstances may prove otherwise. Take, for instance, Cypress Biosciences. In July 2010, Cypress Bioscience received an unsolicited offer from Ramius, an investment fund known to take activist stances, for approximately $4.00 per share. At the time, Cypress's stock was trading at $2.50 per share. Management and the Board of Directors faced a dilemma, as it was their view that the company was worth significantly more, but was vulnerable because of the current market price of its shares (very similar to Dendreon's current situation). Faced with few options other than to enter a sale process, Cypress and the investment management company Deerfield Management began discussions about what alternatives might be available to preserve the company's ability to execute its business plan and maximize shareholder value. Management believed that the company was worth in excess of $6.00 per share. In short, Deerfield devised a financing strategy that would ultimately bring a higher price. In the end, Ramius raised its bid to $6.50 a share, which the Board and management gladly accepted (complete story on Deerfield's website). By the way, guess who filed a 13G in June 2014 for Dendreon? If you guessed Deerfield, you are correct.
Never Underestimate an FDA Approval
Provenge was approved by the FDA in 2010. By itself, Dendreon failed to deliver sales anywhere close to expectations. One must ask, is the problem the efficacy of Provenge, or corporate's inability to deliver? Regardless, investors were left with doubts about the company's business model and future. In addition, management's stubbornness to seek an early partnership put off potential acquirers and discouraged marketing partners. In short, one of the major reasons Provenge failed on the sales front is because Dendreon did not find a partner to help provide credibility to customers and investors alike.
Nevertheless, Provenge is the first and only FDA-approved immunotherapy for advanced prostate cancer, and is the only personalized treatment that is clinically proven to help extend life in certain men with advanced prostate cancer. How does that translate into dollars? For a pharmaceutical company desperate to seriously participate in cancer treatment solutions, FDA approvals can prove priceless.
Sequencing Still Being Analyzed
Dendreon continues studying how Provenge acts with other prostate cancer treatments. While communication and updates to trials remain somewhat mysterious, the future value of Provenge may well be in conjunction with another treatment. Although studies are in progress to find out if one drug sequence is better than another, the results may take some time. However, big pharmaceuticals wanting to pull the trigger on acquisitions may not have the luxury of time. Until then, doctors are likely to disagree about the best way to use these drugs. However, an article written in February of this year said that a good case could be made to start treatments with Provenge for several reasons. First, the drug was shown to improve survival, even though it did not lower the PSA nor demonstrate an objective response against the cancer. This means there is no way to tell if the drug is working. Secondly, if a patient does receive prednisone, then he/she must wait several months before Provenge can be administered, because the steroid can affect the immune response. A third reason to use this treatment before the others is that the drug appears to work more effectively in men with a PSA level lower than 22 ng/ml. Sequencing remains a valuable option for Provenge.
Dendreon's Stock Price May Be Telling the Real Story
Declining sales, increased competition, management disruption, and looming debts are usually disastrous for stock prices. The sheer fact that Dendreon has held $2 per share is somewhat astonishing. In fact, with John Johnson's recent departure, investors should have sent shares below $1 by liquidating their position and looking forward to the write-off. Perhaps Johnson's thoughts of a purchase price did not compare to what the rest of the board feels is fair value. Couple that with a dismal sales forecast, and it becomes puzzling why the stock has remained level over the last several weeks. This should leave investors concluding the only pillar still holding price steady is speculation on an acquisition.
A vulnerable stock price, an FDA-approved drug, and potential benefits from sequencing may well mean Dendreon is still in play.