Dendreon Shocks Market

Today Dendreon (DNDN) shocked the market after reporting an extremely disappointing $67.6 M in PROVENGE (sipuleucel-T) sales for Q1 2013, representing a 17.56% decline relative to $82 M in revenue reported in Q1 2012. The net loss for the quarter did also decline to $72 million relative to a net loss of $103.9 M in Q1 2012, although shareholders were clearly looking for Provenge sales growth to offset the company’s operational losses.

''Small' Losses
The miss was attributed to loss of business in small accounts, which are favoring the likes of other post-chemo drugs approved for the same prostate cancer indication -- specifically Xtandi and Zytiga. While the company has seen growth in large accounts and “increased recognition”, the data is alarming.

Dendreon is continuing its efforts to bring COGS (cost of goods sold) to below 50% of revenues and expects this to happen in Q3 2012, although the bulk of their COGS is from fixed expenses. Because of this, the company is not expected to be earnings-positive until Provenge reaches $100 M in quarterly sales. Unfortunately, with the recent setback and “headwinds” mentioned by the company, this seems more difficult.

The Advert Effect
As mentioned in yesterday’s preview to DNDN earnings, the company has recently implemented a DTC (direct-to-consumer) advertising campaign via television slots to inform and interest the public in PROVENGE to potentially boost sales. Dendreon management mentioned that this has had a substantial effect on call-center volume (with ~82% of calls coming from prostate cancer patients). In addition, they mentioned that website traffic to the patient site for PROVENGE is up 55%.

Unfortunately, CEO John Johnson did not mention enough details on the effects that this has had on actual PROVENGE sales revenues and mentioned that advertisements have stronger effects on consumers after multiple viewings. This leads investors with very little empirical evidence that is relevant to Dendreon’s financial position.

Going Forward
Dendreon is looking forward to regulatory action from the European Medicines Agency (EMA) that will allow Provenge to be marketed in Europe, although there are virtually no public details on the company’s search for a manufacturing/distribution partner.

Dendreon’s balance sheet has also seen some substantial deterioration. As of December 31st 2012, the company had $429.8M of cash and cash equivalents but has seen a decline to $337.3M reflecting their GAAP net loss of $72M for the quarter. The company has also seen expansion of their enormous pool of convertible debt due in 2016 to a new figure of $539.1M. The company has also went from a positive net worth (or stockholder’s equity) of $34.6M to a negative figure of $35.9M. Psychologically, this could be significant going forward as the company’s financial situation sees more scrutiny by potential investors.

DNDN stock was initially halted Thursday morning (5/9/2013) although it opened about 12% lower some 22 minutes into the trading session. At the time of writing, (DNDN) was down 14.24%, to $4.07/share.