Dendreon Falls on Q1 Loss - Analyst Blog

Dendreon Corporation's DNDN shares were down ever since it announced its first-quarter 2014 results on May 8. The stock has lost around 19.5% so far. Dendreon reported first-quarter 2014 loss (including stock-based compensation expenses and depreciation) of 18 cents per share, much narrower than the Zacks Consensus Estimate of a loss of 30 cents and the year-ago loss of 37 cents per share. The narrower loss was attributable to lower operating costs incurred in the quarter.

Total revenues in the reported quarter were up 1.8% to $68.8 million. Revenues in the reported quarter benefited from higher Provenge sales. Revenues were however below the Zacks Consensus Estimate of $70 million.

Quarterly Highlights

Provenge was the sole contributor to Dendreon's first quarter revenues. Provenge sales during the reported quarter were down 8.1% on a sequential basis. Sales of the drug were affected over the last several quarters due to increased competition in the prostate cancer market, primarily from Zytiga and Xtandi. Dendreon expects second quarter Provenge sales to improve from the first quarter figure.

Provenge, a therapeutic vaccine, was launched in the U.S. in May 2010, for treating advanced prostate cancer. Earlier in the year, Dendreon had a meeting with the U.S. Food and Drug Administration (FDA) about automation of the manufacturing process of Provenge. The FDA expressed its support for this initiative. Automation will help the company in reducing its cost of goods sold and improve the global availability of the drug.

In Sep 2013, Provenge was approved in the EU for the treatment of asymptomatic or minimally symptomatic metastatic (non-visceral) castrate resistant prostate cancer in adults. Chemotherapy is not yet clinically indicated for these patients.

Provenge will be made available in Europe through a cost-effective approach. Firstly, Dendreon will make this drug available in Europe (beginning with Germany and the U.K.) through Centers of Excellence using Contract Manufacturing Organization (PharmaCell). The company expects Provenge to be available in Europe by year end.

The reach of Provenge in Europe will improve further with the approval of automation. Currently, Dendreon is preparing for discussions with the European regulatory authorities regarding the same.

Dendreon's research & development (R&D) expenses in the reported quarter came in at $14.0 million, down 24.1% year over year. The decrease in R&D expenses in the quarter was due to the company's restructuring initiatives taken in Nov 2013. Selling, general & administrative (SG&A) expenses for the first quarter decreased 36.9% to $39.4 million. The decrease in SG&A expenses was due to a headcount reduction because of the company's strategic restructuring plans.

Our Take

Provenge sales during the quarter were disappointing. Moreover, the company lacks a decent pipeline with none of its candidates likely to hit the market in the near future. This increases its dependence on Provenge. Below par sales of the drug will hamper the company's growth prospects significantly. At this point we expect investor focus to stay on Dendreon's progress with its automation plan and the EU launch of Provenge.

Dendreon carries a Zacks Rank #2 (Buy). Some other stocks worth considering include Gilead Sciences Inc. GILD, Spectrum Pharmaceuticals SPPI and Alexion Pharmaceuticals, Inc. ALXN.  While Gilead and Spectrum Pharma carry a Zacks Rank #1 (Strong Buy), Alexion carries a Zacks Rank #2.
 

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