2010 Outlook: The Road Ahead For Dendreon (DNDN)
Dendreon Corporation (NASDAQ: DNDN) made its big FDA score now that Provenge has received FDA approval, albeit about two years later than many feel it should have made it. That pre-FDA snapshot showed an expected price move from options based upon the FDA action, and now shares have performed even above and beyond those bands based upon Provenge getting FDA approval.
What we wanted look at was effectively what the scenario ahead has in store for Dendreon’s stock based upon reader comments, analyst comments, outside commentary, and historical share price data… and some internal intuition.
On Friday, shares hit yet a new high of $57.67, but closed down at $54.06 on over 46 million shares. This traded 30,615,100 on Thursday for a $50.18 close, but the closing bell the day before was $39.62. We tried to apply all sorts of charting analysis, and we had to go all the way back to Genentech. Still, a no-man’s land on the charts. The basic chart for the time being would indicate a trading range of $48 to $64, and admittedly that won’t really help anyone make any great investment decision.
Here are the past statistical huge volume days in the eighteen months or so:
- 30.6 million shares Thursday for a close of $50.18 versus a $39.62 close on Wednesday.
- 31 million shares on March 2, 2010 but this was only a $33.26 stock at the time.
- April 29, 2009… 48,319,000 shares to close at $22.94.
- April 28, 2009… 33,026,400 shares to close at $11.81.
- April 14, 2009… 65,410,500 shares to close at $16.99, versus $7.30 close the day before.
- October 6, 2008… 35,721,400 shares traded for a close of $6.93.
- BIGGEST DAYS EVER were in May, 2007 with 2 days of 100+ million shares.
Perhaps the second biggest issue for Provenge is the cost, put at roughly $31,000.00 per infusion or $93,000 for the three infusions. While a very expensive proposition, this is for advanced prostate cancer patients and this does extend life by an average of 4.1 months based on the last Phase III data. We had expected that the treatment regimen would run $40,000 to $70,000 based upon many prior estimates and based upon personal opinion and comparative analysis for other end of life drugs. Perhaps the cost will come down as Dendreon recaptures some of that circa-$1 billion spent.
The biggest issue in the pricing is that the demand will greatly exceed supply at first until all of the facilities can supply that demand, something not expected for some time. After the company reaches its capital recovery stage, there may then be some price changes that are less costly. A key factor is that each regimen is made specifically for each patient and the drug cannot exactly be warehoused ahead of time.
The New Jersey facility will apparently be able to get Provenge to 2,000 patients over the next year in approximately fifty locations that participated in trials. At those sites, doctors decide who gets the dosage. There is one more facility in Georgia and one in California under construction that will not be at full operation for another year or so.
The company has discounted seeking partnerships while it was seeking and awaiting FDA approval and the next focus is on getting approval in the European Union. The first approved patient treatment will be immediately, or starting next week.
These are some of the official analyst summaries we have seen:
- Baird price target raised to $64 from $48;
- Brean Murray (Buy) price target raised to $65 from $50;
- Canaccord (Buy) price target raised to $62;
- JPMOrgan (Overweight) price target raised to $66 from $46;
- Leerink Swann price target raised to $80 from $40;
- Needham price target raised to $62 from $38;
- Rodman & Renshaw (Reiterated Outperform)
- Lazard remains cautious and said that Dendreon remains fully valued at the current levels and it is cautious on the commercialization issues with the drug.
- In mid-April, Citigroup downgraded the stock from Buy to Hold.
BioHealth Investor READER COMMENTS:
- MARK K.: “Every stock goes through a stage of volatility when it’s product goes through any drastic changes, so whats happening to DNDN is not surprising. I do believe that DNDN is on the threshold of discovering a therapy that could in fact revolutionize chemo-therapy as we know it. I’m staying in, but will watch to see how the company will market Provenge and, if successful, will they model that strategy for future drugs which are already in trials. In short, I believe the sky’s the limit with Dendreon.”
- SCOTT: “Bottom line is yes DNDN is very volatile. We have seen major swings but what I do know that when the FDA does approve this drug we will see a double on this stock in one day. Then if a bidder comes in then add to the double amount the offering price. In a blink of an eye DNDN can be $100″
As far as the trader-investor mentality is concerned, now the easy money has been made. What more upside is there? Dendreon has multiple indications for Provenge, but that may be years before anything is known there.
We have tried to offer a more clear picture for Dendreon and what lies ahead. The old Thomson Reuters analyst consensus of $355+ million for 2011 in revenues is now probably greatly undercounted. 2010 is just the year that treatments start and that manufacturing facilities are built. 2011 is the year that will be the true pivotal year for the company to prove it can operate as a real product company. Personal opinion is that based upon the costs, based upon the cases of prostate cancer and based upon the demand, Provenge could be a blockbuster drug ($1 billion in annual sales) in 2012.
As far as a buyout, it is very likely that all buyers missed their chances to make an acquisition here. The one that got away. Partnerships may be put aside, and Dendreon may be able to do its own marketing. Provenge may sell itself, just like Viagra did but on a much smaller scale. But a manufacturing partner might be able to come in and greatly escalate that manufacturing time to get to full capacity much quicker.
Dendreon came public in June, 2000, for $10 per share and raised only $45 million. It was a disappointing IPO the day it came out as it raised about 1/3 less than planned. Still, this turned out to be a fairy tale that had many troubling chapters along the way in its FDA process. Its new market cap is now $7.25 billion, so start using that figure based upon future sales of 2012 and even farther out to get your forward revenue multiple.
Lastly, the negative side does need to at least be addressed. Many men who would have or could have gotten Provenge have already died. The FDA took two years longer here than what many expected and hoped for. But the cost may be a factor of some sort here as that steady fight from insurance companies on newly approved drugs and reimbursement rates. After all, the treatment cost does not include all the associated costs tied to a patient’s last year of survival. And the other notion will be that many who want Provenge to add another 4 months of life simply won’t be able to get access because of production limitations for the coming months. And that in turn may lead some families to be overly critical of Dendreon “for not giving our family that extra time when they could have” either based on availability, supply, and potentially on cost issues.
Dendreon’s pipeline includes:
- Lapuleucel-T as an active cellular immunotherapy targeted to the HER 2/neu receptor in development for bladder, breast, ovarian, and colon cancer.
- D-3263, HCl as a small molecule compound that activates the ion channel receptor TRPM8 in clinical development for the potential treatment of patients with solid tumors.
- Dendreon has also in-licensed 2 additional antigen targets: carbonic anhydrase IX (CA-9) and carcinoembryonic antigen (CEA), for the development of ACI candidates. Product candidates targeted at CA-9 are in preclinical development for the potential treatment of kidney, colon, and cervical cancer. Product candidates targeted at CEA are in preclinical development for the treatment of breast, lung, and colon cancer.
JON C. OGG