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Loss at DNDN Wider than Expected

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Dendreon Corporation reported third quarter 2012 adjusted loss of 86 cents per share, wider than the Zacks Consensus Estimate of a loss of 83 cents but narrower than the year-ago loss of 89 cents per share.

Total revenue in the reported quarter climbed 21.2% year over year to $78 million. Revenues in the reported quarter were driven by a rise in Provenge sales. Revenues, however, were below the Zacks Consensus Estimate of $81 million.

Quarter in Details

Dendreon’s sole marketed product is Provenge (sipuleucel-T), a therapeutic vaccine for treating advanced prostate cancer, which was launched in the US in May 2010.

Dendreon reported net product revenues of $78.0 million, up 27% from the comparable quarter of 2011. Product revenues were down 2.5% sequentially.

Research & development (R&D) expenses were $18.6 million, down 8.8% year over year. The company expects R&D expenses to be around $20 million in the next quarter. Selling, general & administrative (SG&A) expenses for the third quarter decreased 19.8% to $68.1 million. Dendreon expects SG&A expenses to be around $75 million in the next quarter.

We note that in July this year, the company initiated a restructuring plan. The company expects to reap the results of these initiatives from the first half of 2013 and anticipates full benefits to be realized in the third quarter of 2013.

Provenge Update

Management noted an improvement in the reimbursement environment. The physicians are comfortable prescribing Provenge, as the average time to payment for physicians remains less than 30 days.

Academic medical centers’ performance decreased 25% from the last quarter. The company managed to add 54 net new accounts during the reported quarter taking the total of infusing accounts to 741 since its launch.

Based on Provenge’s disappointing track record, we do not see significant sales growth in the near future. Currently approved prostate cancer treatments include Johnson & Johnson’s (JNJ - Free Report) Zytiga, which has been putting up an impressive performance. Moreover, the prostate cancer market saw a new entrant this August in the form of Medivation’s Xtandi (enzalutamide).

Pipeline Update

We remind investors that Dendreon is currently conducting six phase III and phase II clinical trials in the advanced prostrate cancer area. Dendreon also completed treatment of the first patient in an open-label study of Provenge in the EU. The company expects a decision in mid-2013.

Our Recommendation

We currently have a Neutral recommendation on Dendreon. The stock carries a Zacks #2 Rank (Buy 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. We prefer to remain on the sidelines until we see meaningful improvement in Provenge sales.

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