Redemption Still Possible For 2 Fallen Biotech Stocks

Includes: DNDN, VVUS
by: Bio Insights

Although there are many upcoming quarterly reports that are going to important to biotech stocks, there are two particular companies and dates that I wanted to point out in this particular article. Both of these companies have seen their shares totally crushed by the market, but they each have a chance at redemption given the right financial figures and the right guidance in their upcoming quarterly report(s). Investors who enjoy the prospect of "catching a falling knife" may be especially interested.

First is Dendreon (DNDN), which originally had a Q3 2012 earnings press release scheduled for October 30th. Unfortunately, Hurricane Sandy flooded New York City and halted trading for two days, so the company rescheduled the release to November 2nd (tomorrow). The second company of interest is Vivus Inc. (VVUS), which is set to report earnings on November 6th (this coming Tuesday.)

First, we'll discuss Dendreon and why its upcoming earnings release is particularly important for the future of the company (and the price of the stock). Going back to their Q2 2012 earnings, note that Dendreon's prostate cancer treatment PROVENGE (Sipuleucel-T) seems to have trouble generating sufficient sales revenue to appease DNDN shareholders. To make matters worse, profit margins for the company have been so bad that Dendreon is still in negative EPS territory after roughly two years on the market. Nobody was expecting things to turn out so badly for Dendreon, especially in April of 2010 after Wall Street first received news of PROVENGE's FDA approval (shares have dropped about 90% ever since). At this point, most would label the treatment and its parent company as one colossal disappointment to be ignored in its current state, but there is some hope of a redemption.

Dendreon has taken notice of its horrendous profit margins (which were roughly 23% as calculated using Q2 2012 figures), and addressed the issue in the conference call following the latest earnings report. Dendreon intends to bring margins above 50% by reconfiguring their manufacturing model and cutting other costs that have hindered the company's earnings, which would theoretically allow the company to be profitable given that Provenge could breach about $100 million in quarterly sales revenue. Whether or not this will actually happen is uncertain, of course, but the market would rejoice if Dendreon were to post financial figures tomorrow that imply that the company is going to be profitable in 2013.

The other name I wanted to mention was Vivus, which is marketing the only FDA-approved prescription obesity drug in the United States - Qsymia. The drug has been available since September, and since the obesity drug market is still largely unexplored territory the market is watching very eagerly to see whether or not the company's $1.46 billion valuation is accurate. Also watching closely are Arena Pharmaceuticals (ARNA) and Orexigen Therapeutics (OREX) investors, since Arena's Belviq and Orexigen's Contrave are future competitors to Qsymia.

Vivus has seen some nasty selling recently, dropping over 22% in just the last five trading sessions. There are a few reasons that bears are targeting VVUS, even after its success in FDA approval and its marketing of Qsymia. One has to do with recent rumors about lower-than-expected Qsymia prescription sales. In my latest "Superactive Bio Stocks" newsletter, I noticed that Vivus dropped quite sharply on 2,000 prescription estimate that BioWorld quoted from IMS research, which was exacerbated by the pent-up selling demand that may have been building during the 2 inactive trading sessions caused by Hurricane Sandy.

Another reason that VVUS has been bearish is due to the decision from the CHMP (the Committee for Medicinal Products for Human Use), which recommended against approval of Qsymia's MAA. This basically means that the European Medicines Agency (EMA) is not going to agree with the FDA's ruling on Qsymia in the United States, and may prevent the drug from reaching the EU. On the bright side for VVUS shareholders, the company is undergoing talks with the EMA about the situation which may or may not help. Although the current rejection is a huge blow to Vivus, the market had already taken this unsurprising outcome into consideration long before the recent announcement. At this point, the concern is centered around the US market. If Vivus posts impressive Qsymia prescription sales come November 6th, we could see a big counter-rally.

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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