The Deal: After String of Miscues, Dendreon Likely on Block

NEW YORK ( The Deal) -- What Dendreon ( DNDN) did right was bring the first clinically successful immunotherapy to market. What it did wrong was, well, just about everything else. And that's why company officials are likely to announce soon that Dendreon will be sold.

Rumors began flying Friday after the bell that Dendreon had hired JPMorgan Chase ( JPM) to help it find a buyer. The company is not commenting.

The best candidates for buying the biotech are competitors Johnson & Johnson ( JNJ) or Medivation ( MDVN), according to Maxim Group biotechnology analyst Jason Kolbert.

Seattle-based Dendreon was a Wall Street darling in 2010. The Food and Drug Administration approved its product Provenge, a therapeutic vaccine for metastatic prostate cancer, in April 2010. At the biotech's height, shares were selling at more than $54. But shares have been trading below $5 since March.

Both J&J and Medivation have been nipping at Dendreon's heels. J&J's Zytiga and Medivation's Xtandi, which it commercialized with Astellas Pharma, both treat the same illness. They represent competitive therapeutic options at a lower cost to Provenge, and both are oral therapies.

"In this environment," Kolbert said in an interview with The Deal, "Dendreon lacks adequate resources to compete." The company has major debt, about $650 million. And Provenge is only expected to bring in between $300 million and $400 million this year. That's about 10% of what analysts were forecasting three years ago.

While Dendreon has a few other drug candidates in development, it's pipeline is pretty thin.

"The bottom line is, can Dendreon survive on just Provenge? The answer to that is, No," Kolbert said.

He added that for a company like J&J, already marketing a drug in the prostate cancer market, buying Dendreon would be an incremental expense with a big upside. "The SG&A line associated with marketing Provenge is killing Dendreon," he noted. But manufacturing costs for a company like J&J could drop those costs by as much as 40% to 50%. "That's still high for a biotech product, but it does suggest that a company with the right infrastructure can generate free cash flow from this product," Kolbert noted.

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