Dendreon’s Atlanta Facility Cleared

Dendreon Corporation (DNDN) to its credit has been steadily receiving clearances from the US Food and Drug Administration (FDA) to expand manufacturing facilities for its cancer vaccine Provenge, in the U.S. The company’s Atlanta facility can now be operational with 36 workstations. These facilities will be brought online in a staged manner.

Earlier, in June this year, Dendreon received clearance from the FDA for its Los Angeles (LA) facility, which includes 36 workstations. In March 2011, Dendreon’s New Jersey facility with 48 workstations received FDA clearance. The Atlanta, LA and NJ facilities, geared for manufacturing Provenge, now total 120. All the three facilities are thus expected to be manufacturing commercial material by year end. We believe the facility expansion will help in making Provenge more readily available, thus meeting pent-up demand for the vaccine. Dendreon also expects to build its own manufacturing facility in Frankfurt, Germany.

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 (ACI).

Prostate cancer is the most common non-skin cancer in men in the U.S. The disease affects more than 2 million men in the US.

Our recommendation

We currently have a Neutral recommendation on Dendreon. The stock carries a Zacks #3 Rank (short-term “Hold” rating).

Successful commercialization of Provenge is crucial for the financial performance of Dendreon as it can drive the company to profitability. Though we still hold hope on the long-term prospects of Provenge, the second quarter developments have somewhat clouded our visibility on the performance of Provenge for the next few quarters. Dendreon reported weaker-than-expected second quarter 2011 Provenge sales. Management surmised that though the physician interest in the vaccine remains solid, its uptake will be slow and gradual. Despite the much favorable reimbursement environment for Provenge following the final Centers for Medicare and Medicaid Services (CMS) decision and implementation of the Q-code, management believes most physicians are still unaware of these developments. Subsequently, the company withdrew its revenue guidance for the drug, sending its share price down sharply.

We believe the stock will remain range bound for some time and prefer to remain on the sidelines until visibility improves on the resolution of Provenge issues. Moreover, in the long run, we remain concerned about the company’s dependence on Provenge and the lack of a robust pipeline. We believe Dendreon has little to fall back on if Provenge fails to keep its promise. We also remain cautious of the continuous up tick in operating expenses, particularly in the light of weaker-than-expected sales.

DENDREON CORP (DNDN): Free Stock Analysis Report

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