What's Going On With Dendreon?

| About: Dendreon Corporation (DNDN)
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By Fani Kelesidou

Biotechnology companies always have it rough in the market. Their success or failure is entirely dependent on their ability to produce cutting-edge drugs and products. While this sounds easy, given the advances in technology, it isn't so in reality. Competition is extremely close, and even the smallest of mistakes can cause the value of a company to plummet.

One of the most recent examples of a company getting left behind is that of Seattle-based biotech firm Dendreon (NASDAQ:DNDN). In a span of two years, the firm's stock value dropped from $50 to a staggeringly low $5 mark! Needless to say, the landslide in value cost many investors a lot of money. But what caused Dendreon to lose value like it did? And should investors still consider it a viable option? Let's take a closer look.

The company, The product, and The problem:

The Dendreon Corporation has been working for several years to discover and develop novel treatments against different types of cancer. What sets them apart from other biotech companies in the same niche is their focus on using a patient's own blood cells in the treatment procedure. With their flagship product, Provenge, they were able to achieve this goal as well. By fusing a patient's blood cells with their specially developed protein, they were able to reduce prostate cancer in all tested subjects. In fact, survival of patients went up by an average of 4 months, which is quite significant.

Provenge acquired FDA approval in 2010, and because of the treatment's revolutionizing potential, the stock value of the company surged up to almost touch $60. With the commercial launch of Provenge, Dendreon carved a comfortable place for itself within the biotech market.

However, things took an unprecedented turn in 2011, when Dendreon suddenly abandoned its forecast on Provenge. The company reported that doctors weren't confident over reimbursements, which led to decreased sales of Provenge to begin with. The claims made by the doctors weren't unfounded entirely either - a round of therapy cost $93,000, which isn't affordable for everyone. Nevertheless, this move by Dendreon resulted in chaos. Within a single day, the price of Dendreon stock fell by 67 percent, and drove away investors by the dozens. This translates to a drop in the company's value of about $3 billion.

One of the reasons that Provenge is said to have failed to make sales is because Dendreon did not find a partner for the commercialization of the drug. Without an effective guide, the product failed to attract enough customers or provide reasons for consumers to feel confident. This series of events has culminated with recent reports coming in about Dendreon's intention to sell the facility that made Provenge.

So what? Any reasons to invest in this company now?

While Dendreon's recent moves has driven large and small investors away, there is still a silver lining to this whole situation. The company is selling its immunotherapy manufacturing facility to Novartis Pharmaceuticals (NYSE:NVS) for $43 million in cash. While the cost may be petty, it represents faith in the company's product for a giant like Novartis to spend 43 million dollars in cash. In the days leading up to the agreement's finalization, Dendreon's stock also started to look up, reaching the mid-$5 mark at the end of the day. Another thing that might make investors more confident is to look at the current shareholders of Dendreon. Names like J.P. Morgan Chase and Tang Capital Management come up on the roster, and this is impressive. Companies as big as J.P. Morgan do not invest in anything unless they are absolutely sure of the company's business model and its sustainability. If institutions like these are buying in large shares, you can be sure they're doing it on sound evidence, and follow the lead.

Another reason is that Provenge, the flagship product, will be seeking approval from the European Medical Agency in early 2013. Since the therapy has already proven successful, many analysts are predicting that it won't have a problem getting European approval either. Should Provenge enter the European market and gain traction, sales will rise and bring the stock value up as well. Considering that the current price is ideal for an entry-level investor, the potential payout is an excellent incentive to invest.

Some analysts are also saying that the purchase of Dendreon's immunotherapy manufacturing facility is an indication of a larger company buy-out in the future. The company does have great reputation, but lacks in the sales department. Being bought out by a multinational like Johnson & Johnson or Novartis would help bring Provenge's success full circle. It would also make investors very happy. While the actual takeover may not even happen, the talk going around the market is itself a catalyst for a rise in prices.


Seattle-based biotech corporation Dendreon managed to catapult itself into popularity with its prostate treatment therapy, Provenge. Using a mix of a patient's own immune system and the company's specially designed protein, the treatment was highly successful, launching Dendreon stock through the roof. However, a lack of sales and consumer confidence caused Dendreon to fall short on sales, and its stock value plummeted by a staggering 67% in a single day. Since then, the company has been lying low, working on new products in its pipeline.

While the scenario looks grim, investors are still encouraged to buy in. Given that a large number of shares belong to institutions like J.P. Morgan and Tang Capital Management, investors can be confident that Dendreon has a viable business model. With the recent purchase of Dendreon's immunotherapy manufacturing facility by Novartis, and speculation of a takeover, the payout value is increasing. Adding to this mix of incentives is that Provenge will be seeking European Medical Agency approval in March, which is expected to boost sales and stock value.

In light of all these factors, Dendreon seems like a safe bet, particularly for entry level investors. Until Provenge gets approval from the EMA though, perhaps trading in small amounts would be more advisable

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Fani Kelesidou, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.