Dendreon's Roller Coaster Still Rocking

Paul is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Volatility goes hand in hand with Biotech stocks, but prostate cancer treatment maker Dendreon Corp. (NASDAQ: DNDN) has had more than its fair share of gut-twisting centripetal price movement. Now that the stock is lying like a pig at four bucks and change, it bears looking at again, especially now that a new study is testing the company's principal medication in conjunction with other treatments.

In addition to the usual turbulence from FDA trial news, news that has whipped and driven Dendreon shares like a herd of terrified cattle in the past includes a fake research report posted on a chat board, riotous clamor from prostate cancer victims who sought approval of the company's Provenge treatment, and, well, no news at all. On one fine day in April of 2009, Dendreon shares rode the anvil from over $20 to under $12 in two minutes -- and no one ever really figured out why.

Down from an all time high of over $55, Dendreon briefly broke through $5 Tuesday, though it fell off afterwards on good news for a potentially competing treatment. 

So what is this one trick pony's trick? Dendreon's Provenge is a treatment for prostate cancer. It's not exactly what you'd call a cure from cancer -- it helps prostate cancer survivors stave off death longer. That's not as glamorous as curing the cancer, but who would not want to live another month or another day if they could?

In Dendreon's terms: "More men in the PROVENGE group were alive three years after the start of the study than men not treated with PROVENGE."

So what is this Provenge treatment? Details are available on the company's website, but the short story is based on  autologous cellular immunotherapy. Translated into English, that means the treatment is engineered to generate an immune response against the cancer.

The process is individualized -- candidates need to go through leukapheresis, which means getting hooked up to a gizmo that collects some red blood cells, immune cells and platelets. These materials are used to prepare immunotherapy tuned to each patient, and the medication is applied three times. It's not chemotherapy.

Now the Georgia Health Sciences University reports that one of its cancer center directors, Samir Khleif, is looking into combining Provenge with cyclophosphamide and Ct-011.

The university reports that studies on mice indicate that there is a synergy worth exploring in human trials.

For the biotech investor, news from a rodent trial is not worth much, although it seemed to push up the stock price a bit.

In the bigger picture, the real news may be Dendreon's closure of its New Jersey plant this summer. The company said in its most recent 10-Q filing that while it recorded -- or will record -- about $80 million impairment and restructuring charges, it expects to save $150 million per year from the closure.

For a company that lost $314 million in the last three quarters on $240 million in revenues, the cost cutting might actually push the company in the direction of profitability.

While I would  not advise anyone to put their life savings into this company (see disclosure below), Dendreon is worth a second look now that it has survived the FDA approval process and engaged in some significant restructuring.

All in, the Dendreon story may be developing a new chapter. When a company is in clinical trials for its main product, FDA approval seems like the end all and be all to many investors.

 But now that the trials are over, there's a new goal: profitability. While Dendreon is not close to profitable today, several factors could push it in that direct. One is the financial engineering to cut costs, another the work on Provenge in conjunction with other treatments. A remaining wildcard is the prospect of Provenge getting approved inEurope, which seems in no danger of happening immediately.

 And of course, there might be a strategic acquisition or merger arbitrage play. Now that the company has a commercialized drug, who might want to acquire the company and generate a premium for investors?

Any number of bigger biotechs could be takeover candidates. More specifically in the prostate cancer treatment field, other treatments include Zytiga from Johnson & Johnson (NYSE: JNJ) and Xtandi from Medivation (NASDAQ: MDVN).

Medivation is a story of its own. Although the company had good news from the FDA earlier this fall, Medivation's stock has been on a long run-up that's left it with a $4 billion-plus market cap.

Zytiga, which was approved last year for use with chemotherapy, just received approval from the FDA for earlier stage applications, the same treatment time frame as Provenge's. It's too soon to know how Zytiga will work out in this venue, but Johnson & Johnson might want to acquire Dendreon to eliminate it as a competitor -- or explore possible synergies with Provenge.


Springer23 has no positions in the stocks mentioned above. The Motley Fool owns shares of Dendreon and Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

Disclosure: the author does not have a position in Dendreon stock and does not plan to strap one on in the near future. Moreover, the author lost his shirt by selling covered calls against Dendreon shares in 2010 and then failing to sell the underlying stock before it plummeted about 40%.

Based on this experience, the author believes that an investor would be better off to leap buck naked into a cauldron of enraged electric eels than to put a major portion of his or her assets into this or any biotech issue.


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