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Biotech Stock Mailbag: Peregrine, Arena, Dendreon, NPS Pharma

Arena at $10 plus change is over-valued. Let's look at the numbers:

Using a generous six-times multiple for Belviq, Arena's current $2.4 billion enterprise value implies $400 million in royalty revenue. Arena gets roughly one-third of Belviq's economics, which again, implies $1.3 billion in Belviq sales already baked into Arena's market value.

If Belviq costs $2,500 per year, Arena and Eisai need 520,000 patients on the weight loss drug for a full year in order to generate $1.3 billion in sales. More than half of Belviq patients in the clinical trials failed to lose a minimum 5% of their baseline weight after 12 weeks, so assuming patients will stay on the drug for a year in the real world is a pipe dream. If patients stay on the drug for six months, Arena and Eisai need 1 million patients just to generate the Belviq sales already baked into Arena's valuation.

That's not going to happen.

One more note: The European Medicines Agency did not take any action on Belviq during its January CHMP meeting, which just wrapped yesterday. This is bound to disappoint Arena retail investor supporters convinced European regulators were going to approve Belviq this month. I believe Europe will reject Belviq. The next CHMP meeting takes place in February 18-21.

@JkHopkins2084 tweets, "You been noticeably quiet on $DNDN. You practically declared them bankrupt. You still maintain your doomsday view?"

Dendreon (DNDN) shares are up 20% since the end of the year on investor optimism about management finally getting its act together and growing Provenge sales after a year of disappointing, flat sales.

To use your analogy, if I were a Dendreon doomsday clock, I'd probably tick back slightly from midnight. Instead of 11:57 pm, maybe I'm at 11:55 pm now. Dendreon's business seems to be improving but I question how much and whether Provenge sales can grow enough to move the stock significantly.

Dendreon pre-announced in-line fourth-quarter sales of $81.6 million (excluding the $3.8 million favorable accounting adjustment.) The company is doing a better job convincing community urologists to prescribe Provenge, which may or may not be helped further by direct-to-consumer advertising campaign that will start this year (costing $5 million per quarter.)

Break-even remains at $100 million in Provenge sales per quarter so Dendreon still has significant growing to do. But even if the company gets to break even, meaningful profitability remains a distant goal -- and with a $1 billion valuation already.

Historically, companies get one chance to launch a drug right. Dendreon blew that chance already, so a true and meaningful recovery in the Provenge franchise, if pulled off, would be an unusual feat.
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