We are maintaining our Neutral recommendation on
) with a target price of $4.75. The stock carries a Zacks #3 Rank
(Hold rating) in the short run.
Dendreon suffered a loss (including stock-based compensation
expense but excluding other special items) of 63 cents per share in
the second quarter of 2012, narrower than the year-ago loss of 79
cents per share. However, loss was wider than the Zacks Consensus
Estimate by 4 cents.
Revenue in the second quarter climbed 66.1% to $80 million.
However, revenues were below the Zacks Consensus Estimate of $86
million. Revenues were down 2.4% sequentially. Lower-than-expected
revenues were due to the disappointing performance of Provenge
(sipuleucel-T), a therapeutic vaccine for treating advanced
prostate cancer. We are disappointed by the sequential
decline in Provenge sales in the second quarter of 2012.
We note that Provenge sales failed to live up to management as well
as our expectations. Provenge's 2011 sales of $213 million were
well below the company's original forecast of $350 million - $400
million, which was withdrawn due to the dismal performance of the
Based on Provenge's disappointing track record, we do not expect
sales to improve significantly in the near future. We are also
concerned about competition in the prostate cancer market given the
Johnson & Johnson's
) Zytiga and the new entrant in the form of
) and Astellas' Xtandi.
Dendreon plans to mitigate cost through layoffs and by closing a
manufacturing plant. The company plans to close down its Morris
Plains, New Jersey manufacturing unit by year end. The company
plans to operate through its Union City, GA and Seal Beach, CA
facilities, which have a manufacturing capacity of approximately $1
billion of Provenge and can be doubled with the implementation of
The company plans to reduce the number of employees by 600 (both
full-time and contractual) in the next 12 months. The restructuring
initiatives are expected to yield savings of approximately $150
million per year. On implementation of the plan, cost of goods sold
(COGS) is also expected to decline to 50% of net product revenue as
compared to 77% in the second quarter of 2012. The company expects
to see the results of these initiatives from the first half of
We remain on the sidelines until we see a meaningful improvement in
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