Beyond the Dendreon Implosion… What To Look For Next (DNDN)

August 4, 2011 · Filed Under analyst calls, Cancer, dendreon, fda, Financial, M&A · Comment 

This morning we gave a full preliminary analysis of the implosion happening at Dendreon Corporation (NASDAQ: DNDN) at 24/7 Wall St.  What is obvious as a heart attack, or as obvious as metastatic prostate cancer, is that the market is bracing for far worse news than what has been seen so far.  The price drop after withdrawal of guidance and the cost cutting only happens this far when another shoe is expected to fall.

We have seen many analysts come in on this today, mostly calls which are blow-ups.  To say that Dendreon caught most of the market off balance would be a severe understatement. We also believed that this was going to become the standard for final-stage prostate cancer care.

Here is what Wall Street analysts are making calls on today:

  • Raised to Neutral at Credit Suisse, but the target was cut to $22.00 from $29.00 as they were actually very negative ahead of the blow-up here.
  • Robert W. Baird downgraded Cut to Neutral from Buy and the new target is $20.00.
  • Collins Stewart cut the rating to Neutral from Buy and the new target is $19.00.
  • RBC Capital Markets cut the rating to Sector Perform from Outperform and took the target down to $15.00 from $50.00.
  • Needham cut the rating to Hold from Buy.
  • Cowen & Co. cut its rating to Neutral from Outperform.
  • Gleacher & Co. cut the rating to Neutral from Buy.
  • Canaccord Genuity lowered the price target 70% to $19.00 from $65.00 on “significantly diminished expectations for Provenge commercial penetration” but the company maintained a ‘Buy’ rating.
  • Bank of America Merrill Lynch cut the rating to Underperform from Buy and cut the target to $16.00 from $50.00 previously.
  • Brean Murray lowered the rating to Sell from Buy and issued a dismal $6.00 target.  Ouch!

After only 40 minutes of trading (plus pre-market trading), Dendreon shares are down a whopping 64% at $12.92 and shares hit a new low of $12.48 this morning.  We are now at ten-times volume on Dendreon as more than 24 million shares have already traded hands.

Again, withdrawing guidance and cutting the costs with employees and more is one thing, even if it is a really bad thing.  What the market is telling you is that more negative news is going to put a lid on this one in the near future.  Otherwise, Dendreon would be down ‘only’ 25% or so.

Many considered this to be a buyout candidate.  That will not be met by much enthusiasm today as investors worry about worse news yet to come.

As far as what to expect next, lawsuits are the first thing to expect.  Shareholders can accuse the company of over-inflating expectations.  Medicare and Medicaid pricing might be an issue, or maybe more doctor reports of considering alternative treatments will come.  Picking the next shoe to drop is difficult, but a drop of this magnitude is rarely a one-time event.  Most people got this one very wrong.

JON C. OGG

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