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Biotech / Medical : DNDN - Dendreon Corp.

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From: tktrimbath6/30/2012 10:52:36 AM
   of 751
INTRO Here's my semi-annual exercise to see if I remember why I own the stocks I own, and so I can check back and see if their stories have changed. I post in case it helps others too.

DNDN (market cap $1.09B)
Dendreon is an innovative biotech that has developed a immunotherapy cancer treatment. Through their cassette technology they attempt to get a patient's immune system to recognize cancer antigens and therefore use the body's systems to treat the patient. The first such treatment, Provenge, was approved for prostate cancer. Clinical trials suggest the treatment can be used over a wider patient population, and across more cancers (e.g. lung, breast, ovarian, colo-rectal, renal, bladder). The side effects are minimal in comparison to chemo and radiation. The overall cost is less too, though the individual treatments are expensive. A phase two clinical trial for bladder cancer treatment is underway. Provenge is potentially a billion dollar revenue stream in the US. Currently the company generated $230,000,000 in 2011. Cash flow break even is at about $500,000,000. Process improvements are expected to lower that number.

The bad news is that adoption has been slower than expected. Original projections were more than twice 2011 actuals. Possible causes may be internal ramp up difficulties, educating oncologists and urologists, reimbursement issues for individual providers, or overly optimistic sale projections. Provenge is a disruptive technology so some hypothesize that the company's problems are tied to a backlash from the entrenched bureaucracies, health care providers, and chemo and radiation competitors. There have been enough trading irregularities around DNDN that conspiracy theories are numerous. DNDN lives within an uncertain investment realm.

The stock is trading at about price/book ~4 and price/sale ~3. I seem to recall disruptive companies typically carrying a higher premium on price/sales, more like 6. Considering the present value of the future revenues, that multiple could be much higher. A DNDN price of $30 is about half of what DNDN was worth after approval. Considering their potential, I think the stock is dramatically undervalued.

Unfortunately, I've had to sell off almost all of my shares to pay my bills. For a while there it looked like DNDN would get me to "enough". The company is actually proceeding within a reasonable range of expectations. The stock does not reflect that. At this rate, (and without a job or selling my house) I won't be a shareholder at next year's meeting. Considering the undercurrent conversations at this year's meeting, (check out my blog for an expanded discourse) I wouldn't be surprised to learn that the company had moved to New Jersey. Maybe I'm not destined to own this stock. Sad, because the company has done such good, ground-breaking work, patients have benefited, and many investors had the courage to see past the detractors; yet, the stock, in my opinion, does not reflect reality. If I had sufficient discretionary capital and believed that management was going to become more transparent and more enthusiastic about furthering cancer treatment, I'd consider buying. But like I said, that may be moot.

DISCLOSURE LTBH since 2002 and glad to be indirectly part of a dramatic improvement in the lives of cancer patients from the efforts of the Dendreon team. Unfortunately, I may have to sell if I can't find a job or sell my house.
(I've also collected links to the other discussion boards and my other stocks over on my blog . I've also recently blogged about my impressions of management from the recent annual stockholders meeting. )
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