BofA Analyst Rallies Behind Dendreon (DNDN)
Dendreon Corporation (NASDAQ: DNDN) is seeing shares gain this morning on news that Bank of America/Merrill Lynch initiated research coverage with a BUY rating and a $44 price target objective. The buy rating was initiated with the belief that its PROVENGE will see significant market penetration after its manufacturing capacity expansion in 2011. BofA called PROVENGE a first-in-class product and a product that will drive a biotechnology business model with unique manufacturing challenges. Also noted was a high barrier to competitive entry.
BofA/ML research noted, “We believe DNDN shares trade at a discount to future cash flow potential as the overhang of execution into a big launch year looms. While 2011 is not risk-free, we are encouraged by strong demand metrics, and believe these signals foreshadow a strong 2012.”
The price objective is based on a probable adjusted discounted cash flow that includes the assumption of $300 million in convertible debt financing in early 2011. More important than the $44 target stated: “…as the company transitions to cash flow positive in 2012, upside beyond our PO is likely based on peer comparable multiples.”
Other data points show growth as well. European expansion plans represent a key catalyst according to the research report. The firm further noted that the current risks and investor skepticism are creating a buying opportunity as investors gain increased confidence in these risks and skeptic items.
BofA/ML is expecting global peak sales of $2+ billion based on a successful manufacturing expansion, clarity on an EU filing strategy, and successful resolution of CMS reimbursement. the firm expects free cash flow of $263 in 2012 on sales of $878 million generating adjusted net income of $282 million.
Dendreon shares are indicated up more than 2% at $36.30 and the 52-week trading range is $25.05 to $57.67. The current market cap is about $5.2 billion.
JON C. OGG
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