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Dendreon Cuts Loss, Shares Fall on Weak Guidance

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Dendreon Corporation reported second-quarter 2013 loss (including stock-based compensation expenses and depreciation) of 41 cents per share, narrower than the Zacks Consensus Estimate of a loss of 43 cents and the year-ago loss of 59 cents per share. The narrower loss was attributable to lower operating costs incurred in quarter.

However, the company’s share price was down significantly following the second quarter results. The primary reason for the fall in share price was because of the management’s statement made at its second quarter conference call that its 2013 Provenge sales will not be able to beat the 2012 sales figure of $325.3 million.  

Dendreon’s sole marketed product Provenge, a therapeutic vaccine for treating advanced prostate cancer, was launched in the U.S. in May 2010.

Quarter in Details

Total revenues in the reported quarter declined 8.3% year over year to $73.3 million. The decrease was primarily due to lower product sales. Revenues were also short of the Zacks Consensus Estimate of $75 million.

Dendreon reported net product revenues of $73.3 million, down 8.4% from the comparable quarter of 2012. Provenge sales during the reported quarter were however up 8.4% on a sequential basis.

The year-over-year decline in Provenge sales was due to the entrance of Zytiga in the prostate cancer market. Moreover, Provenge sales were impacted by the compendium listing for Xtandi.

Meanwhile, Dendreon has completed enrolling patients for a phase II sequencing study on Provenge and Zytiga. The company expects monitoring data from the study in 2014. The company also intends to begin a phase II sequencing study on Provenge and Xtandi by the end of this year.

Dendreon’s research & development (R&D) expenses in the reported quarter were $18.2 million, down 7.8%. Selling, general & administrative (SG&A) expenses for the second quarter decreased 16.7% to $66.8 million.

Restructuring Initiative

We note that in July last year the company initiated a restructuring plan. The company anticipated full benefits to be realized in the third quarter of 2013. However, at the second quarter conference call, management stated that cost of goods sold in the third quarter of 2013 will not be below 50% of total revenues as was expected earlier. Instead it believes cost of goods sold in the third quarter to be at par with the second quarter 2013 level (59.7% of total revenues).

Other Developments

During the reported quarter, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) recommended the approval of Provenge in the EU for the treatment of asymptomatic or minimally symptomatic metastatic (non-visceral) castrate resistant prostate cancer in adults.

Dendreon also received a positive opinion from the EMA’s Committee for Advanced Therapy (CAT) for its marketing application for Provenge. A final decision from the EU regulatory authorities on the approval of Provenge is expected by the end of this year.

Our Take

We are disappointed with Provenge sales in the first half of the year. The company’s projection that 2013 sales of the drug will not surpass the 2012 figures is also concerning. We believe that the successful commercialization of Provenge is crucial for the financial performance of Dendreon. We remain concerned about Dendreon’s high dependence on Provenge for growth.

Dendreon carries a Zacks Rank #3 (Hold). Meanwhile companies such as Actelion Ltd. , Biogen Idec Inc. (BIIB - Free Report) and Gilead Sciences Inc. (GILD - Free Report) currently look better positioned with a Zacks Rank #1 (Strong Buy).

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