This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Dendreon: Parsing Provenge's Problems

Stocks in this article: DNDN BMY JNJ

The more important calculation and question is what happens to Wall Street's estimation for Provenge peak sales, since this is the figure upon which investors value Dendreon.

The company insists the commercial opportunity for Provenge remains the same while acknowledging that it will take longer to get there. Investors and analysts are going to be more skeptical, which means the current peak sales consensus of $1.5 billion to $2 billion will be reduced -- perhaps dramatically.

Citibank biotech analyst Lucy Lu, in a July research note that correctly cautioned clients about Dendreon, laid out a scenario in which peak sales of Provenge could be just $500 million to $750 million.

"If peak sales were to fall in the range of $500-750M, we believe Dendreon could trade down to approximately $25-30 (5-6x peak sales of $750M)," Lu wrote.

Thursday, Lu reduced her 2014 Provenge sales estimate to $540 million, which cut her price target on Dendreon to $14 a share.

Deutsche Bank biotech analyst Robyn Karnauskas drew an equally grim valuation picture for Dendreon in an email to clients Wednesday night in which she threw out some "back of the envelope sensitivities" on peak Provenge sales.

Based on discounted cash flow, Dendreon could be worth as little as $9 a share if Provenge peak sales are $1 billion and peak gross margins are 60%. On the more optimistic side of the equation, Dendreon could be worth $27 a share, assuming peak Provenge sales of $2 billion and peak gross margins of 74%, according to Karnauskas.

ISI Group biotech analyst Mark Schoenebaum cut his Provenge peak sales forecast by 50% to $1.2 billion, which translates to a Dendreon valuation of $17 a share.

The ill effects of the Dendreon debacle will unfortunately spread beyond the company's stock price and its shareholders to infect the entire biotech sector.

Investors already wary about new biotech drug launches, generally, will only grow more wary, more skeptical now that Dendreon has royally screwed the pooch. Dendreon's blow up could not come at a worse time, with the overall markets on shaky ground and concerns about new cuts to Medicare re-surfacing in the wake of the debt ceiling and budget battles in Washington.

Is lack of patient demand for Provenge the real reason behind the shortfall? The important question was asked on Dendreon's conference call. Dendreon denies any drop in the number of prostate cancer patients who want to be treated with Provenge, yet it is curious and troubling that the reimbursement issue that now plagues the drug was only discovered in July when manufacturing supply constraints began to ease.

Dendreon says the problem with reimbursement was only discovered in July as the company began signing up increasing numbers of community and private practice doctors who are more susceptible to reimbursement challenges than doctors who work at large academic medical centers.

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,787.43 +9.28 0.05%
S&P 500 2,063.73 +2.50 0.12%
NASDAQ 4,755.6260 +7.23 0.15%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs