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Should you Buy Dendreon Corporation (DNDN) on Earnings? – Johnson & Johnson (JNJ)

Dendreon Corporation (NASDAQ:DNDN). investors have been on a perpetual roller coaster ride due to shifting expectations from Provenge. The company reported its quarterly results the other day and beat Street estimates. However, Provenge faces severe competition from Astellas’ (NASDAQOTH: ALPMY) Xtandi and Johnson & Johnson’s Zytinga. I believe that despite the recent positives it’s still too soon to be bullish on Dendreon Corporation (NASDAQ:DNDN), and I advise investors to wait for more good news before taking a long position.

Dendreon Corporation (NASDAQ:DNDN)Dendreon

Dendreon Corporation (NASDAQ:DNDN) is a biopharmaceutical company involved in the discovery and commercialization of novel therapeutics for oncology. Dendreon’s primary candidate is Provenge, an autologous cellular immunotherapy for cure of asymptomatic/minimally symptomatic, metastatic and castrate-resistant prostate cancer. Other products under development include DN24-02, carbonic anhydrase 9, carcinoembryonic antigen and TRPM8.

The company’s stock price has fluctuated between $3.69 and $13.89 during the last 52 weeks. This extreme fluctuation has been due to changing customer expectations from its star drug Provenge. Provenge was initially being hailed as a multibillion product, but underwhelming sales have been a problem. The company faces an increasingly competitive market, especially with the recent approval of Zytinga and Xtandi.

Dendreon Corporation (NASDAQ:DNDN) previously announced preliminary results for its fourth quarter. The Street was expecting Dendreon Corporation (NASDAQ:DNDN) to report an EPS of $-0.56 and it had already pre-announced quarterly revenues of $85.5 million. If we exclude the $3.8 million favorable adjustment to the company’s chargebacks reserve, revenues come down to $81.7, missing expectations by approx. 2%. As the table shows, the company has missed expectations in the last 3 quarters.

Earnings History 11-Dec 12-Mar 12-Jun 12-Sep
EPS Est -0.23 -0.63 -0.6 -0.86
EPS Actual 0.26 -0.7 -0.65 -1.04
Difference 0.49 -0.07 -0.05 -0.18
Surprise % 213.00% -11.10% -8.30% -20.90%

Source: Yahoo! Finance

Stock Mover

Dendreon’s stock is in a poor state, and recently went below its 200 day moving average of $5.74. This decline is due to investor expectations from these earnings. The company had to satisfy the following two concerns with these earnings:

i) The market was closely monitoring the cash position and margins on Provenge. The company has recent sold its Jersey factory and is also focusing on improving Provenge sales by reducing salesforce turnover. If it is able to beat EPS estimates and show an improved cash position, the stock market will react positively to earnings.

ii) Until the company churns out new FDA approvals, its valuations are tied to the fate of Provenge. Therefore the sales expectations for the next quarter will be crucial to the stock’s movement. The company has shown some improvement in preliminary results, especially in community sales of Provenge.

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