Dendreon Gets a New CEO

Dendreon Corporation ( DNDN - Analyst Report ) recently announced the appointment of a new chief executive officer (CEO). Dendreon appointed John H. Johnson as president and CEO to replace Mitchell H. Gold, who served Dendreon for almost a decade. Mr. Gold will continue as the executive chairman of the company until June 2012, after which he will hand over the chairman position to Johnson and will continue as a director.

We believe the CEO switching could be a good move for Dendreon as Johnson brings with him nearly a decade’s experience of managing oncology companies. Prior to his job at Dendreon Johnson has served as president, CEO, and director of Savient Pharmaceuticals ( SVNT - Snapshot Report ) . He has also in the past served as a president of Eli Lilly's ( LLY - Analyst Report ) Oncology Business Unit, CEO of ImClone System which is now a wholly owned subsidiary of Eli Lilly, and company group chairman of Johnson & Johnson's ( JNJ - Analyst Report ) Worldwide Biopharmaceuticals.

Meanwhile following Johnson’s exit from Savient, the board of Savient appointed one of its members David Y. Norton as the interim CEO. Savient will now have to begin search for a permanent CEO.

Johnson will be taking over a company which faced tough times in 2011 as sales from Dendreon’s sole marketed product, prostate cancer vaccine Provenge, failed to live up to management’s as well as investors’ expectations. Though fourth quarter 2011 preliminary sales were encouraging, the overall uptake of the drug is much slower than original expectations.

Johnson’s main priorities are to expand Provenge use among doctors, both in US and the world over. New at the helm, the CEO also aims to reduce costs of manufacturing Provenge. The vaccine is already marketed in US and is expected to be approved in the European Union in mid-2013.

Our Recommendation

We currently have a Neutral recommendation on Dendreon. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

The successful commercialization of Provenge is crucial for the financial performance of Dendreon as it can drive the company to profitability. Though we are impressed by Provenge’s encouraging growth in the fourth quarter, we prefer to remain on the sidelines until we get better visibility on whether the improvement in Provenge’s sales is sustainable.

We are also concerned about competition to Provenge from Johnson & Johnson Zytiga which was launched in the second quarter of 2011 and is doing reasonably well. Moreover, Medivation’s ( MDVN - Analyst Report ) pipeline candidate, MDV3100, generated positive data this week which showed the AFFIRM study met all the primary and secondary endpoints with statistical significance. MDV3100, if approved, could pose stiff competition to Provenge.

In the long run, we remain concerned about the company’s dependence on Provenge and the lack of a decent pipeline. We believe Dendreon has little to fall back on if Provenge further belies expectations.