Dendreon Approaching End Of Road, While Other Immunotherapies Thrive

| About: Dendreon Corporation (DNDN)

After announcing quarterly earnings, Dendreon Corporation (NASDAQ:DNDN) has solidified its position as the dog of the market. As already-lowered expectations have been drastically cut, the company still can't reach the most reasonable of goals. In the process of its fall, there are other stocks that have felt the pain of an association with Dendreon's cancer vaccine platform. During this specific quarter, the company feeling an undue amount due to its association is Galena Biopharma (NASDAQ:GALE), which is a small Phase 3 biotechnology company focusing on a vaccine to prevent the recurrence of breast cancer. However, what's interesting is that these two companies have very few similarities, and few connections other than both trading in the biotechnology space. Thus it raises a few questions when investors sell Galena stock because of weakness in Dendreon's earnings, seeing as how it is a weak association.

In the market when a company announces bad earnings, lowers guidance, or announces a major restructuring plan (such as Dendreon), it usually creates some weakness within its sector. Yet, besides the immunotherapy connection, Galena and Dendreon have no partnerships, market share, or catalysts that involve the other. That is why the pullback in shares of Galena is a bit of a head-scratcher, as Dendreon is on an exclusive list as being one of the worst performers of the last 12 months, and appears to face several problems in the months that lie ahead. Meanwhile, Galena has been a momentum play of 2012, returning over 250% YTD, thanks to strong clinical data for a large market indication, the issuance of patents, and upside potential that far outweighs its current valuation. Hence, these two stocks that were seemingly connected on Tuesday show all the characteristics of two companies on completely different long-term paths.

Let's face it: Dendreon's ride may be over. The company is cutting 40% of its workforce, it can't meet earnings expectations, it has lost the support of investors, and the logistics of Provenge make it near impossible for the company to achieve profitability. The COGS for Dendreon is what the company hopes to improve by cutting 600 jobs and closing its facilities in New Jersey, as COGS between 50% and 75% will not lead to profitability. With Provenge having a short shelf life once manufactured, requiring several blood draws, and having an off-the-shelf product cost of nearly $20,000, I don't see how the company could possibly achieve profitability at any point in the near future.

Galena Biopharma, on the other hand, has been a great story in the market for 2012. For those of you who are unaware of the company, the following is a brief summary of its recent data, which has led to much of its gains. Its lead candidate, NeuVax, is a synthetic E75 peptide vaccine that targets low to intermediate levels of HER2 to prevent the recurrence of breast cancer. According to the National Cancer Institute, over 200,000 women in the U.S. are diagnosed with breast cancer annually, with 75% testing positive for HER2; therefore, it creates a very large market potential for NeuVax. The company recently announced Phase 2 data for its 187 patient trial, and in one study showed 89.7% of patients in the vaccinated group were disease free compared to 78.6% in the control group after 60 months. But also, more impressively, was the 36-month data, which reflected a recurrence rate of 0% for those treated with the company's patent-protected NeuVax.

NeuVax recently began a much larger 700-patient trial, using the same endpoints from the successful Phase 2 trial. However, still being a clinical-stage drug, it is hard to draw conclusions, although we do know that the vaccine is produced for less than $1,000 per dose (compared with Provenge's off-the-shelf product cost of nearly $20,000).

So basically, there are few to no similarities between the two drugs, and no comparison between the stocks. In some ways the two stocks are complete opposites, as DNDN was one of the most overvalued stocks of the last five years before and immediately following its approval. Yet, GALE is arguably the most undervalued stock in biotechnology, with strong clinical data - and if approved, a vaccine that could create billions in annual revenue.

Thus, I don't understand the connection between DNDN and GALE, as there must be other companies more similar to DNDN. Yet, I suppose if NeuVax is as good as advertised, then it doesn't matter if it loses 5% of its value following the loss of DNDN; because if approved, and if data continues to impress, then it's a stock that could soon surpass DNDN in market capitalization and separate itself in terms of connection to the struggling developer of Provenge, which was once heralded as a no-brainer investment, and as the best cancer drug in development.

The remainder of 2012 will likely give indications to investors as to Dendreon's and Galena's paths. The markets have a chance to absorb DNDN's current sell-off and see if the share price stabilizes in the interim. Investors have only a few months to see what Q3 and Q4 earnings have in store and will have a chance to ascertain what effects the recently-announced cutbacks and restructuring have had on the company's bottom line. If the changes aren't enough, then the company must make other changes in order to attain profitability and pay its bills in the interim.

Galena's NeuVax has a large market potential in treating low and medium-expressed HER2 tumors in breast cancer patients. As of April 30th, Galena had cash and cash equivalents of $24.9 million after an April 5th $11.6 million offering. The company is still riding the waves of its Phase 2 results giving investors much hope. As interim data analysis approaches, the drug will likely begin receiving much attention again. The interim data is scheduled to be released at 70 events or recurrences. In other words, the longer it is before we hear from the company about the phase 3 data, the more promising the data will likely be.

Time will only tell if the two divergences in stock action will continue as GALE has had an outstanding year, and DNDN has suffered due to apparently-unrealistic sales expectations and has had to deal with competition coming up quickly from Johnson & Johnson's (NYSE:JNJ) Zytiga and Medivation's (NASDAQ:MDVN) MDV3100.

Disclosure: I am long GALE.

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