Dendreon in Neutral Lane

We are maintaining our Neutral recommendation on Dendreon Corporation (DNDN) with a target price of $44.00.

Dendreon, founded in 1992 and headquartered in Seattle, Washington, is a biotechnology company focused on developing drugs for cancer. The company received a huge boost with the US Food and Drug Administration (FDA) approving Provenge (sipuleucel-T), a therapeutic vaccine for treating advanced prostate cancer in men.

Unlike traditional vaccines that prevent diseases, Provenge treats by stimulating the body’s own immune system to attack cancer cells. Provenge is the first product in the new therapeutic class known as active cellular immunotherapies. Prostate cancer is the most common non-skin cancer among men in the US and is one the leading causes of cancer-related deaths in men in the U.S. Provenge is the company’s first approved product.

In August 2010, Dendreon reported its second quarter 2010 results. The company’s loss per share of 49 cents was marginally lower than the Zacks Consensus Estimate of a loss of 50 cents but wider than the year-ago loss of 20 cents.

(Read our full coverage on this earnings report: DNDN’s Loss Up on Higher Costs)

We believe that the successful commercialization of Provenge, launched in the US on May 3, 2010, is critical for the financial performance of the company because the product has blockbuster potential and its success should drive a company of Dendreon’s size to profitability. Provenge boosted survival rates in men with advanced prostate cancer beyond any currently available treatments in clinical trials. Dendreon is working towards expanding its facilities for the effective marketing of Provenge.

The company raised approximately $630 million in 2009 to accelerate the construction of new facilities in Atlanta, Georgia and Orange County, California and build-out of the remaining capacity at its facility in Morris Plains, New Jersey.

Furthermore, the money is intended to be utilized to fund investment in information technology infrastructure and product support systems coupled with the hiring of manufacturing, sales and marketing and other related personnel in preparation for marketing Provenge. These measures should enable Povenge fully realize its sales potential of over $1 billion. We expect Provenge to drive both top-line and bottom-line growth for Dendreon in the coming years.

However, we remain concerned about the company’s dependence on Provenge and the lack of a robust pipeline. Dendreon has little to fall back on if Provenge belies its potential. Moreover, even if the other pipeline candidates that target a wide range of cancers manage to hit the market, they would face stiff competition from existing players in the oncology market.

We believe that the risk/reward profile is balanced at Dendreon and see limited upside at current levels. Consequently, we maintain our long-term Neutral stance on the stock supported by a Zacks #3 Rank (short-term Hold rating).

DENDREON CORP (DNDN): Free Stock Analysis Report

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