Dendreon Stays Neutral - Analyst Blog


We have maintained a Neutral rating on Dendreon Corporation ( DNDN ) with a target price of $14.00 following the announcement of impressive preliminary revenue for Dendreon's prostate cancer vaccine Provenge.

Dendreon pre-announced fourth quarter Provenge revenue of $82.0 million, up 25% sequentially and in utter contradiction to management's guidance of only modest revenue growth in the quarter. For the full year 2011, Dendreon reported Provenge revenue of $228 million.

Dendreon faced tough times in 2011 as Provenge sales failed to live up to management's as well as investors' expectations, despite the favorable reimbursement environment for the vaccine. Provenge's high cost density was alluding physician acceptance of the vaccine. Other problems which were affecting the sales of the vaccine included lack of easy access to Provenge and inability on the part of physicians to identify eligible patients for Provenge treatment.

Things seem to be changing now as awareness gradually improves on the favorable reimbursement environment. The physicians are more comfortable with prescribing Provenge as the average time to payment for physicians has come down to less than 30 days.

Moreover, management pointed out that out-of-pocket expenses were negligible for almost 75% of the patients on Provenge treatment. The marketing and physician education initiatives undertaken by Dendreon management are also helping sales.

Full year sales of Provenge were, however, well below the company's original forecast, in a band of $350 million and $400 million, which was withdrawn last year on dismal performance of the vaccine. The uptake of the drug is much slower than original expectations.

We believe that Provenge is capable of changing the paradigm of cancer care dramatically. Provenge is also critical for the financial performance of the company in the long term as the product has blockbuster potential and its successful commercialization should drive a company of Dendreon's size to profitability.

Though we are impressed by Provenge's encouraging growth in the fourth quarter, we prefer to wait and see whether the improvement in Provenge's sales is sustainable.

We are also concerned about competition to Provenge from Johnson & Johnson 's ( JNJ ) Zytiga which was launched in the second quarter of 2011 and is doing reasonably well. Moreover, Medivation 's ( MDVN ) pipeline candidate, MDV3100, recently generated impressive data from a pre-specified interim analysis of a late stage study, AFFIRM. MDV3100, if approved, could pose further competition to Provenge. We thus prefer to remain on the sidelines.

DENDREON CORP ( DNDN ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: DNDN , JNJ , MDVN

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