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My valuation for Dendreon (DNDN)

|Includes: Dendreon Corporation (DNDN)

DNDN closed at $40.99 on October 4th, 2010.  

My key takeaways from the Q2 2010 Earnings call and forward guidance

  • 2,000 patients treated the first 12 months.
  • Expansion done on NJ facility early 2011, facility in Atlanta and Los Angeles mid 2011
  • Cost of Goods sold 30% as expansion ramps up, moving towards 20% by 2012
  • Finish 2010 with 200MM in cash not including receipts for drug sales in 2010 (please note that my revenue analysis excludes the cash balance)

For 2011, I used the current analyst estimates on Yahoo Finance as of October 3rd 2010. 

2011 Estimates Low Average High
RPP  $       93,000  $        93,000  $        93,000
# of Patients 2723 4320 7473
Analyst Estimates  $253,200,000  $ 401,750,000  $     695,000,000
Revenue Multiple 4 4 4
Market Valuation  $ 1,012,800,000  $ 1,607,000,000  $  2,780,000,000
       
Value per share $7.04 $11.17 $19.33

Using the most conservative numbers, the value of DNDN per share would be approximately $7.  This model uses a revenue multiple of 4.

2011 Estimates Low Average High
RPP  $       93,000  $       93,000  $       93,000
# of Patients 2723 4320 7473
Analyst Estimates  $  253,200,000  $  401,750,000  $  695,000,000
Revenue Multiple 6 6 6
Market Valuation  $ 1,519,200,000  $2,410,500,000  $4,170,000,000
       
Value per share $10.56 $16.76 $28.99

Using the average estimate and a revenue multiple of 6 (more in line with industry averages),  the model values DNDN at just under $17 per share. 

Since 2011, the manufacturing capacity is still being built out, a valuation of 2012 guidance seems more appropriate.

2012 Estimates Low Average High
RPP  $       93,000  $      93,000  $      93,000
# of patients 10753 16129 21505
Mgmt Guidance  $  1,000,000,000  $ 1,500,000,000  $  2,000,000,000
Revenue     Multiple 4 4 4
   $ 4,000,000,000  $  6,000,000,000  $  8,000,000,000
       
  $27.81 $41.71 $55.61
discount rate      
10% $25.03 $37.54 $50.05
12% $24.47 $36.71 $48.94
15% $23.64 $35.45 $47.27
20% $22.25 $33.37 $44.49

Since the revenues are over 1 year out, I have also included various discounts depending on your cost of capital. 

Using Management Guidance (vs Analyst Estimates previously) we come up with a broad range of values at 4x revenues $27.81 to $55.61 per share.  If we use a higher revenue multiple at 6x revenues (like before) the range moves to $41.71 to
$83.42 per share. 

Hosted by Google Docs (please feel free to download)
spreadsheets.google.com/ccc?key=0At1Wluk...

I am short (net long) DNDN 25 puts (cash covered) and am hoping to get long at that price. 


Disclosure: Short DNDN 25 puts (net long)