Since Dendreon Corporation (NASDAQ:DNDN) reported its second-quarter earnings, the stock has declined 40%. Following the quarter, analysts from Wedbush and Deutsche Bank issued price targets of $0 and $1, respectively — but which is right, and what went wrong for this company?
Cause and effect
Last year, Dendreon Corporation (NASDAQ:DNDN) announced that it was closing its largest manufacturing facility in Morris Plains, N.J., and was reducing its headcount by 600 people.
With these changes, the company disclosed that it could generate positive cash flow with $400 million in annual revenue. Prior to the closing of Morris Plains, $600 million in sales was needed before the company could generate positive cash flow.
The problem is that sales of its prostate cancer drug Provenge produced year-over-year declines the last two quarters. In addition, the company has essentially abandoned any notion that significant growth could occur in the second half of 2013, via its second quarter conference call.
Currently, with trailing 12 months sales of $311 million, Dendreon Corporation (NASDAQ:DNDN) is a long way from reaching positive cash flow, and at this point, there are few reasons to believe that they ever will.
The inevitable fall from grace
The situation surrounding Dendreon Corporation (NASDAQ:DNDN) is a tough pill to swallow, as Provenge must be one of the most hyped flops of the last 15 years. Just 30 months ago, Dendreon Corporation (NASDAQ:DNDN) was trading at more than $40 a share, and today we’re talking about $0 and $1 price targets!
So, what went wrong? Of course, some of Dendreon Corporation (NASDAQ:DNDN)’s failure comes from executive decisions, but a large part is due to Provenge itself.
Depending on whom you ask, Provenge’s overall survival benefit varies. Some Dendreon bears will find subgroups of data and claim that Provenge extends life by a year, but its median survival is in fact 4.1 months. For 4.1 months of additional life, patients pay $94,000 per month for three treatments. This combination of benefit versus high cost has undoubtedly affected the company’s success.
Then, there’s Dendreon’s non-existent pipeline and its commitment to place all of its eggs in the Provenge basket. Immediately, some Dendreon investors will say that an argument against a one-drug company is flawed, and they will point to Questcor Pharmaceuticals Inc (NASDAQ:QCOR) or an Ariad Pharmaceuticals as proof.
In regards to Ariad, the jury is still out, as its leukemia drug Iclusig was just launched earlier this year. Therefore, it is hard to say whether it will be a success or failure.