Dendreon's Provenge Problems Reach Terminal Stage

Updated with new stock price.

SEATTLE ( TheStreet) -- Dendreon ( DNDN): Cue the fat lady.

Ouch! A painful second quarter. Yes, Dendreon announced the big expense cuts, including the shutdown of a Provenge manufacturing facility, for which Wall Street clamored. But (isn't there always a "but" with Dendreon?) Provenge sales in the quarter tanked, falling more than 2% sequentially to $80 million and instantly raising legitimate questions about slowing demand for the prostate cancer immunotherapy in the face of new competition.

Dendreon shares sank 19% to $4.99 in Tuesday mid-day trading amidst multiple analyst downgrades. The last time Dendreon traded this low was in 2009 before Provenge was approved.

Give Dendreon's new CEO John Johnson some credit for rightly calling his company's performance unacceptable. But what followed from there on Dendreon's conference call were a litany of lame excuses and sketchy turnaround plans that only served to underscore Dendreon's precarious perch in the biotech universe.

Amazingly, we are just four days shy of the one-year anniversary of Dendreon's last epic fail. Does anyone remember second quarter 2011 when former CEO Mitch Gold admitted that Provenge's sales growth was being hampered by "cost density" and insurance reimbursement problems?

David Miller of Biotech Stock Research -- a stalwart Dendreon bull -- remembers well but says Monday's issues are far worse:

"Well, that was ugly. To our ears, this conference call was much worse than the one we endured last August," wrote Miller in a research note to his investor clients. "The debacle last August was unexpected to most, but we saw a clear path towards fixing it… Now let's move forward a year. We have a new CEO and, apparently, a brand new commercial team from the top down. We've ping-ponged from a commitment to urology to a commitment to everything. Another 600 people have lost their jobs and were down one manufacturing plant. Worse, Dendreon is shooting for break even instead of a blockbuster. Well, they'll be lucky to hit breakeven after what we heard today."

So, how bad off is Dendreon? So bad that the company actually managed to drive away the one analyst -- Miller -- who knows more about the company than just about anyone and who's stuck with them through the worst of times. That's how bad.

A few more thoughts and questions:

1. Dendreon management blamed the weak $80 million Provenge quarter, in part, on a significant increase in the number of patients who cancelled appointments for their first infusions. Dendreon said the "schedule yield" issue became particularly problematic in late June as the quarter ended.

Late June? Hmmm… what could have happened earlier in June to persuade patients to ditch Provenge? Might it have been Johnson & Johnson ( JNJ) presenting strong Zytiga "pre-chemo" data at the big ASCO cancer conference just a few weeks earlier?

Dendreon insists that Zytiga is not having an impact on Provenge but common sense argues otherwise. It seems pretty clear that Provenge has a demand problem and it's not going to get any better with Zytiga on a path towards approval in the pre-chemo setting and Medivation's ( MDVN) MDV3100 moving fast behind it.

2. The deep cost-cutting announced by Dendreon Monday is the right strategic move but doesn't seem to be enough given Provenge's demand problems. Yes, Dendreon can now reach break-even at a $400 million annualized Provenge run rate (down from $500 million in annualized sales) but to get there, the company must grow sales by 25%. From where is that growth going to come? And when?

Johnson and his new team won't provide sales guidance for the rest of 2012 and admitted the company's "sales challenges" with Provenge wont resolve until early 2013. The Street has Dendreon doing $385 million in Provenge sales this year. Obviously, that consensus estimate is going to be chopped significantly by the time the stock opens for trading Tuesday.

3. Oncologists hate Provenge. They're not prescribing the drug to their prostate cancer patients so why does Dendreon insist on wasting money and resources trying to convince them otherwise? The company would be more effective if they focused solely on marketing Provenge to urologists.

4. Why are Dendreon sales reps leaving the company in droves? Are they applying for jobs with Johnson & Johnson and Medivation?

5. Dendreon is not going to be acquired. Not anytime soon, anyway, and certainly not for a premium price. Sure, Dendreon dead-enders will try to recycle the old rumors -- Celgene ( CELG)! AstraZeneca ( AZN)! Amgen ( AMGN)! -- but it's just a futile exercise. One day, the Dendreon bulls may get their wish but only if a large pharmaceutical company is able to buy the company at what amounts to a biotech yard sale.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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