|Revisiting Dendreon : A Story Unchanged|
|By Brian Wilson-Lead Contributor|
|Sunday, 08 December 2013 23:43|
Dendreon Wants a Buyout
It appears that the company is finally giving up, although it might be too late for this struggling company. As reported by Bloomberg/Fierce in October (link), the company apparently hired JPMorgan to find a potential buyer for the company. We don’t think any deals can happen at Dendreon’s current valuation. A company interested in Provenge may want to wait for the company’s bankruptcy before snatching up the asset.
Also keep in mind the ever-expanding $552 M ball of convertible debt due in 2016, which makes the enterprise value (essentially the “takeover price”) almost double the market value – at $857 M. This is very expensive for a product that only demonstrates marginal OS (overall survival) benefit in its target indication at a cost of $93,000 per patient. It is also a very expensive investment when you consider the valuation of similar companies with similar technology, like ImmunoCellular (NYSE: IMUC) and Northwest (NASDAQ: NWBO).
*Also note that the convertible debt has a conversion rate nowhere near the current market price, which means investors should be treating it like long-term debt.
Dendreon’s third quarter results did not reflect any actual improvements on the company performance, although CEO John Johnson did suggest (yet again) that sales should improve next quarter because of strong sales in October. We believe that this kind of positivity is comforting to shareholders and employees, although it will still not be enough to compensate for the ridiculously high OPEX ($122 M) and the debt that the company has accrued. We are also skeptical of the company’s promises to improve manufacturing efficiency.
Looking at some of the most important financial variables throughout the last three quarters, we can see that the company’s story hasn’t really changed since the end of Q1 2013, when we predicted a drop close to the $2/share range.
From this, we can infer that the company’s direct-to-consumer advertising model has done little-to-nothing for actual sales of Provenge. The company’s supposed expansion into “large accounts” haven’t made an impact on revenues (which may come in lower than they did last year). Perhaps worst of all is the continued growth of the value of the convertible debt, which is actually adding $6-7 M each quarter in future losses for the company.
* To see their Q3 results, visit EDGAR (link)
It appears that the only real things that have changed in the Dendreon universe is the share price (which is lower), the short interest (which is higher) and the public knowledge that the company wants a buyout. We still hold a negative view of the risk/reward profile of DNDN.