Dendreon (DNDN): Like What We’re Hearing, Signs of Revenue Uptick Only Missing Element – Baird

Baird biotech team is out with some pretty interesting comments on Dendreon (NASDAQ:DNDN) after hosting a series of investor meetings with management.

– Firm remains Neutral-rated but suggests some exposure given the name’s negative sentiment and low valuation

Remain Neutral-rated, but incrementally positive on DNDN after hosting management meetings in New York. With shares down >60% since February; Provenge down Q-Q; significant management turnover; and a still-outsized cost structure, the firm understands current investor distaste for DNDN shares. However, they think management articulates a credible turnaround plan both on the revenue and expense lines. While they look for tangible signs of revenue uptick as an upgrade signal, some exposure to this name may be warranted here.

Bucking biotech’s bullish trend. After essentially a year of turmoil, shares are off 37% YTD (NBI up 28%), rendering the stock at just 2X 2012E revenue, as investors increasingly question DNDN’s future solvency, let alone growth potential.

Feeling a lot better about things after travel with management. This week, Baird hosted investor meetings in New York with CFO Greg Schiffman and come away incrementally positive on the stock. Specifically, three key points:

– Near-term Provenge under-performance seems fixable. While Baird surveys have indicated some Zytiga impact, they think Provenge’s June downtick was less related to ASCO’s Zytiga pre-chemo data than with DNDN’s own sales vacancies (~18% of territories end of Q212). Given the high-touch nature of this product they are not surprised vacant territories (-30% Q-Q) would see a drop-off. With the sales force back at full-strength, they do think a near-term rebound will do much to assuage concerns.

– MDVN’s enzalutamide may help, not hurt Provenge. Many have speculated two new therapies (Zytiga now, enzalutamide November 22) will relegate Provenge to niche-status in the chemo-naïve CRPC market. DNDN contends there is significant thought-leader excitement over running a large Provenge/enzalutamide combination trial, given enzalutamide’s better combinability with Provenge (no co-administered steroid) and potential immunotherapeutic synergy (enzalutamide increases T-cell counts).

– Cost efficiency programs. Beyond the already-announced restructuring (bringing COGS to 50%) significant opportunity exists around automation (at the hood and in release testing) which could bring COGS closer to 20-30% – a threshold Baird believes could make DNDN a more attractive take-out candidate.

Not a buy yet, but some exposure warranted. Baird recognizes without a Provenge resurgence, DNDN remains a show-me story. Until such time, they remain on the sidelines, but do nonetheless suggest some exposure given this name’s negative sentiment and low valuation.

Neutral, $8 price target.

Notablecalls: So it appears Baird got the wink from CFO Schiffman. Provenge is likely to surprise to the upside next time the co reports. This should take the stock higher in the meanwhile.

I would not be surprised to see a 10%+ move in DNDN in the n-t.

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