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Chris Lau, Kapitall: Quarterly earnings caused a spike in two biotechnology firms, but in different directions last week:
Dendreon (DNDN) and
Idenix Pharmaceuticals (IDIX). Dendreon makes Provenge, an immunotherapy for prostate cancer. Idenix makes antiviral drugs. Both companies disappointed on earnings, so why did they move in different directions?
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What happened to Dendreon
Dendreon lost $0.45 per share on revenue of $73.3 million. Both figures badly missed consensus estimates. A big problem for Dendreon in Q2 2013 was operational execution. Dendreon noted the competitive environment it faced in its second quarter was similar to the previous one. The company did not expect its drug, Provenge, to meet its sales targets, due to stagnant growth. Overall growth is not anticipated to beat estimates in the second half of this year.
The company’s cash burn was also alarmingly high. Dendreon’s cash (and cash equivalents) dropped from around $430 million to $281 million. Investors should expect the pressure of weak sales and deteriorating cash to be negative for Dendreon.
On the contrary, the reaction to a light quarterly earnings report for Idenix Pharmaceuticals was positive:
Idenix earned $112,000, missing estimates by $58,000. The company lost $0.22 per share in its second quarter, though this beat consensus estimates by a penny. Shares may have risen because investors were comforted with plans for a regulatory submission. Idenix is planning to initiate clinical trials for a new hepatitis C drug, a uridine nucleotide prodrug inhibitor.
Gilead Sciences (GILD) is an example of a company that has developed an effective hepatitis C treatment. If Idenix succeeds in the same way, shareholders will be rewarded greatly.
Compared to Dendreon, Idenix has a healthy balance sheet. The firm
ended its second quarter on June 30, 2013 with $177.6 million in cash and cash equivalents.
Expect unchanged stock direction
The prospects for Dendreon are deteriorating, so investors should expect the downward trend in the biotech stock to continue. Conversely, Idenix still has a healthy balance sheet for developing its hepatitis C vaccine portfolio well into the next year. A release of positive clinical trial data could give its shares further upside.