The Other Side of the Coin: Big Caution in Dendreon (DNDN, JNJ)
Dendreon Corporation (NASDAQ: DNDN) is one we have been very positive about before the FDA approval of Provenge for metastatic prostate cancer. We often like to feature both sides of the coin, and the other side of the coin is one of caution from Credit Suisse this week. If this research call is right, shareholders could face some competitive pressure in shares of Dendreon.
Credit Suisse has been very cautious when it comes to Dendreon Corporation (NASDAQ: DNDN). The firm noted that an editorial in this week’s New England Journal of Medicine was published based upon Johnson & Johnson (NYSE: JNJ) and its abiraterone post-chemotherapy trial results. What made the concern is the focus on results which validate abiraterone’s action.
Some may consider one article not a strong enough basis for this week’s caution. Credit Suisse believes that the results can imply off-label pre-chemotherapy use as a competing agent against Provenge from Dendreon. Another bit was the combination data of abiraterone and other agents as lacking, but the firm believes that its concerns about abiraterone as a competitor are currently under-appreciated.
The belief is that these trial results show that abiraterone might possibly be used in all patients with metastatic castration-resistant prostate cancer. This is a longer-term concern rather than near-term, but and the firm is not assuming either “a pre-chemo approval in 2011 or significant off-label use ahead of an approval.” Still, it does seem to enhance compeitive risks to Provenge.
The article from the NEJM suggests that this could impact both how new drugs are developed and used. There is also a concern that a lack of combination data could eventually impact how Provenge is used in combination with other therapies.
Credit Suisse’s official rating Underperform with a discounted cash flow model price target obkective of $29.00 per share. The firm is much more cautious on the risks here than most Wall Street analysts based upon competitive threats and based upon lower E.U. pricing and penetration.
Credit Suisse has modelled $0.59 EPS for 2012 on about $877.2 million in revenues and it sees 2013 estimates of $1.68 EPS and $1.162 billion in sales.
Sadly, this call is one that is very expensive to hedge against. The call is long-term rather than short-term, so we looked at longer-dated LEAPS in options. Going all the way out to the JAN-2013 $35 PUTS is almost at $6.50 per contract, implying that a sub-$29 share price is the breakeven point on your contract.
Reuters noted that of the analysts following Dendreon, the ratings were as follows:
- BUY- 11
- OUTPERFORM- 6
- HOLD- 5
- UNDERPERFORM- 1
- SELL- 1
Thomson Reuters has a consensus price target objective of $49.72 and Dendreon shares are currently trading around $42.25 with a 52-week range of $25.78 to $44.85.
AFTERTHOUGHT…… I have already been receiving some emails that need to be considered regarding abiraterone’s side-effects. These were not really covered in the report summary and they are very important to consider. I also kept the comments mostly to what this report was simply because it was one of the only standout research calls from the rest of the pack.
JON C. OGG
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