Time to Go Against the Grain With Dendreon (DNDN)

There's no doubt about it - the "in" thing to do with Dendreon Corporation (NASDAQ:DNDN) lately has been to bash it. The company's one and only drug, Provenge, failed to meet its sales estimates last quarter. And worse, DNDN was forced to announce 2013's top line wouldn't be as strong as first expected. Between that lowered guidance and growing fears that Provenge may not be nearly as marketable as first assumed, the stock plunged 26% on Friday, and has since widened that loss to 30%.

Oh yeah... the media now hates the stock and the company too, judging from the skewering its handed over to Dendreon in the meantime. Time to buy.

Yes, you read that right - it's time to buy DNDN, even though it feels like you're trying to catch a falling knife by doing so. Undoubtedly you're looking for some sort of explanation. Here it is. Though sales of prostate cancer drug Provenge are already starting to wane after its 2010 launch, they're not in as much jeopardy as the recent action may suggest.

For perspective, the company generated $325.3 million in sales in 2012, almost all of which was driven by Provenge. Though Dendreon has only said it will not be able to post as big of a number for this year, some analysts foresee $314 million in revenue for this year. The loss could end up being bigger than the revenue total in 2013, and given how the company has burned about 1/3 of its cash over the past four quarters - leaving behind a mere $280 million - it's possible liquidity could become a problem around this time in 2014.

So what's the upside with DNDN in that? Because that worst-case scenario (and then some) may well already be baked into the stock's price.

Even with all of its problems, Dendreon's Provenge still has a couple of things going for it.

One of them is the fact that there's still no dedicated prostate cancer drug (built from the ground up to treat the condition) other than Provenge. Others are used to fight it, and new options are in the pipeline, but Provenge is the only one that is first and foremost a prostate cancer therapy. That may boost sales again in the future. [Sales could have surged through 2012 simply because it was new and patients were excited to request it. Though the euphoria phase has died, the functional phase is still getting started.]

The other idea in support of Provenge's positive future is that, despite what's near a six-figure price tag, Dendreon Corporation has managed to convince Medicare and most insurers to reimburse caregivers for the treatment. That's huge.

And, with a market cap of around $500 million, the projected Provenge sales are "about right." The marketwide average price/sales ratio is 2.4, while Dendreon's is around 2.0 (though it seems to change quite a bit).

Yes, there are pitfalls still lingering out there, and DNDN may well be one of the most hated names in the world right now. That's often when bottoms are made... when there's nobody left to bet against it. The worst-case scenario is fully factored into the stock's price. From here, things can only get better. Dendreon's ace in the hole is the fact that it's still got a small but compelling pipeline. 

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